The minimum wage and “the end of work”

posted at 2:31 pm on February 22, 2014 by Jazz Shaw

Dr. James Joyner has an interesting analysis of two stories of economic recovery this weekend titled, “The End of Work?” In it, he looks at a recent study which compares how well the United States fared in the period since the crash as compared to Great Britain. The difference is startling.

Two rich economies, relatively similar in structure, reacted very differently to the global financial shock of late 2008. In America output sank sharply but then rebounded to new highs. Employment, by contrast, fell dramatically and has recovered much more slowly; it has yet to regain the pre-crisis peak. In Britain the trends were reversed; employment is setting new highs while output suffered an L-shaped recovery.

The key difference appears to be rates of inflation. Higher inflation in Britain reduced real wages. That, in turn, allowed firms to meet a given level of demand by using more workers less intensively—at lower productivities. In America, by contrast, lower inflation meant that real wages rose over the course of the recession and recovery. Some research results suggests that firms respond to sticky real wages by wringing more output out of existing workers—raising productivity. Firms meet a given level of demand using fewer workers more intensively, resulting in a jobless recovery.

Joyner notes that differing approaches to industrial expansion also play a role.

Presumably, the process has been more pronounced in the United States than in Europe because of different public policy choices. Most notably, our tax system incentivizes capital investment, making replacing workers with technology less expensive, and also concentrates wealth since we tax it at much lower rates…

If this is right—and it certainly seems plausible—then we’re left with a choice between an economy that’s operating at maximum productivity and one that employs a maximum number of people. If so, then the solution is an unsettling one that has come up from time to time in the comments section here, offered by Michael Reynolds and others: an economy where the most talented work and subsidize an increasingly large pool of less talented people who don’t.

Most of this analysis makes a lot of sense, but I would take it one step further and ask if the minimum wage debate doesn’t play directly into the effect being observed. With public policy, regulation and an uncertain environment for employers exerting downward pressure on hiring, the temptation is already there to invest in advanced technology to achieve the same productivity. Unlike the case of Great Britain, if the government drives up the cost of employing workers further, wouldn’t that incentive to automate become greater? Businesses have a target level of productivity they must achieve in a profitable manner. When labor costs are low, expensive technology isn’t as attractive and they would naturally hire more workers as described above. But when you artificially drive up the cost of labor in an already challenging environment, the opposite effect would seem natural.

Food for thought. (If not for wage earners.)


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jazz, this post is too intellectual for a saturday morning…or the usual cadre of hotarians for that matter

I predict low comments for this post

stick to red meat posts bashing obamacare…

nonpartisan on February 22, 2014 at 2:41 PM

Very interesting.

One thing that has always bothered me is how little US policymakers, and even policy experts from all parts of the political spectrum, bother to look at macroeconomic analyses like this. It would be great if our political leaders had the guts to admit the outcomes of their policy choices and discuss alternatives that might lead to more desirable outcomes.

I think a lot of average people know in their gut that US policy choices have influenced employment, but they don’t know exactly how. This is an important conversation to have. And indeed, the minimum wage issue is an integral part of that discussion. It cannot be considered in a vacuum, as simplistically “giving Americans a raise.”

Some liberal wonks like Ezra Klein have also written in the past few years that the U.S. should be deliberately pursuing a policy of inflation, precisely for the reasons this seems to have “worked” in the UK to increase employment. Before dismissing such talk, we should be rationally looking at all sorts of alternatives as this point.

rockmom on February 22, 2014 at 2:43 PM

Firms meet a given level of demand using fewer workers more intensively

I work for a small firm (9 people) and put in just shy of 80 hours last week. My boss says he can’t hire more people because the amount of work our firm gets in is just to unpredictable from week to week. He tells me in this economy I should feel privileged just to have a job. In a sense he’d right, and I know what I’m going to do with that extra money. Under ObamaCare my health insurance policy just got canceled (I’m privately insured and pay for it myself), but because I have a pre-existing condition they can’t outright cancel me. They where able to issue me a new policy at only twice the price. Which makes me wonder, were the insurance companies colluding with Obama behind our backs to artificially drive up the price of premiums?

MrsGsBoyTommy on February 22, 2014 at 2:43 PM

See, dreams can come true……

BobMbx on February 22, 2014 at 2:45 PM

if the government drives up the cost of employing workers further, wouldn’t that incentive to automate become greater?

Absolutely. It makes no sense to order your fast food from a surly 17-year-old who mumbles when a kiosk can take the order more efficiently, accurately, and without the attitude.

Happy Nomad on February 22, 2014 at 2:47 PM

Yesterday was the anniversary of the communist manifesto.

Non-workers, unite” is the new one.

Schadenfreude on February 22, 2014 at 2:55 PM

May Maduro go the way of his mentor.

Bmore on February 22, 2014 at 8:39 AM

May all the socialists’ brains go this way too, preferably when they are alive.

Schadenfreude on February 22, 2014 at 3:08 PM

I predict low comments for this post

stick to red meat posts bashing obamacare…

nonpartisan on February 22, 2014 at 2:41 PM

Einstein of HA, math is not for you. All weekend threads have low counts.

Schadenfreude on February 22, 2014 at 3:09 PM

jazz, this post is too intellectual for a saturday morning…or the

usual cadre of hotarians for that matter

I predict low comments for this post

stick to red meat posts bashing obamacare…

nonpartisan on February 22, 2014 at 2:41 PM

Funny, I don’t remember anyone here asking your opinion on the matter of what they post.

I come back every now and then and I’m surprised to see you still here, considering the beating you take on pretty much.. every subject you try to participate in.

ShadowsPawn on February 22, 2014 at 3:10 PM

Which makes me wonder, were the insurance companies colluding with Obama behind our backs to artificially drive up the price of premiums?

MrsGsBoyTommy on February 22, 2014 at 2:43 PM

In a word YES! And now they can keep their prices high even if Oblow-me-care is repealed, a win/win for them.

Rio Linda Refugee on February 22, 2014 at 3:11 PM

Employment, by contrast, fell dramatically and has recovered much more slowly; it has yet to regain the pre-crisis peak.

There has been no real recovery in employment. We have gone 53 consecutive months below 59% on the Employment-Population Ratio.

Let’s take a look at employment over the last 19 years and compare the results when the two different political parties held majority control.

For 12 straight years, 144 consecutive months, from January 3, 1995 to January 2, 2007, Republicans held majority control (controlling 2+ out of 3 of the House, Senate, and Presidency), the Employment-Population Ratio averaged 63.3%, never fell below 62.0%, and ended (December 2006) slightly above average at 63.4%.

THAT is what Democrats “inherited” when the balance of power shifted from Republicans to Democrats on 1/3/2007.

Democrats brought the Bush Tax Cut Recovery to an abrupt end (employment and tax revenues had been increasing every year since the 2003 Bush Tax Cuts). Democrats passed a bill to increase the minimum wage 3 times in 3 years, and it is a FACT that employment decreased after each of those three minimum wage hikes. While Republicans had warned of problems at Fannie & Freddie and tried to reform them, Democrats accused Republicans of racism… a “political lynching of Franklin Raines”, and insisted that there were not any “safety and soundness issues” at Fannie & Freddie.

While 63.3% employment was the norm for 12 straight years of Republican majority control, we’ve now gone nearly 4 and a half years (53 months) below 59% employment under Obama and the overall Democrat majority.

And of course, the Democrats have not learned anything from the FACT that each of the last three times they raised the minimum wage, employment dropped. After driving the economy in the ditch and leaving it there for four and a half years, now the Democrats want to raise the minimum wage AGAIN and hurt employment even more!

ITguy on February 22, 2014 at 3:18 PM

In Utopia everyone will have a job and all needs will be taken care of by sensitive lefties who know better than you.

Ok yeah it didn’t work every other time its been tried and always resulted in millions of people being slaughtered in the process, but OUR leftists are smarter and better than their predecessors.

You just wait, the national brain trust such as Dick Durbin and Maxine Waters will create a paradise for us.

Bishop on February 22, 2014 at 3:20 PM

There’s even a little more meat in a comment I made a few days ago…

http://hotair.com/archives/2014/02/18/gallup-joblessness-now-top-priority-for-americans/comment-page-1/#comment-7748484

ITguy on February 22, 2014 at 3:23 PM

This IS a post about Obamacare! It injected a great deal of uncertainty into hiring decisions and continues to do so, with the endless delays and postponements on top of unrealistic mandates which were reasonably well-understood from the beginning. The whole notion of *reading the bill after it was passed* was a recipe for uncertainty, if not outright disaster. If nonpartisan ever ran a business, he or she might have some appreciation for this.

Uncertainty likely depressed hiring for the first few years following its passage. Now, as the costs are better understood, we see firms switching to part-time workers to avoid costs associated with the mandate. We also see workers leaving the labor force, realizing that they are either only going to get part-time work or no work at all. This is likely the tip of the iceberg, as they say, and I think Democrats know this and will run away from Obamacare as fast as they can this Fall.

Entrephil on February 22, 2014 at 3:27 PM

“In America, by contrast, lower inflation meant that real wages rose over the course of the recession and recovery.”

Did the authors of this study talk to anyone who worked for a living?

Have they ever been to a supermarket to shop? Bought electricity, fuel, or a new vehicle?

Low inflation my foot.

The Economist is democratic socialist publication that, among other things, believes in global warming.

Viator on February 22, 2014 at 3:34 PM

jazz, this post is too intellectual for a saturday morning…or the usual cadre of hotarians for that matter

nonpartisan on February 22, 2014 at 2:41 PM

Has anybody at HA ever commented on the way you can argue your points with profound intelligence and respect for those who have a different point of view? Yeah, I didn’t think so.

And BTW, unless you are E.E. Cummings, normal orthography is always appreciated.

Happy Nomad on February 22, 2014 at 3:35 PM

jazz, this post is too intellectual for a saturday morning…or the usual cadre of hotarians for that matter I predict low comments for this post stick to red meat posts bashing obamacare…

nonpartisan on February 22, 2014 at 2:41 PM

The irony. You’ve still yet to prove your IQ higher than 77.

if the government drives up the cost of employing workers further, wouldn’t that incentive to automate become greater?

Artificially driving wages up for sure shortens the distance between the cost to hire a whiney worker with no schools and a bot.

CWchangedhisNicagain on February 22, 2014 at 3:42 PM

nonpartisan

You’ve been away for a while. Must’ve been nursing your injuries.
But you weren’t missed.

22044 on February 22, 2014 at 3:45 PM

schools=skills

CWchangedhisNicagain on February 22, 2014 at 3:46 PM

I predict low comments for this post

stick to red meat posts bashing obamacare…

nonpartisan on February 22, 2014 at 2:41 PM

Einstein of HA, math is not for you. All weekend threads have low counts.

Schadenfreude on February 22, 2014 at 3:09 PM

Schadenfreude, you left out part of his comment: “jazz, this post is too intellectual for a saturday morning…or the usual cadre of hotarians for that matter”

He said “at 2:41 PM.’

Intellectual.

davidk on February 22, 2014 at 3:56 PM

jazz, this post is too intellectual for a saturday morning…or the usual cadre of hotarians for that matter

I predict low comments for this post

stick to red meat posts bashing obamacare…

nonpartisan on February 22, 2014 at 2:41 PM

.
Does living in your mom’s basement cause you to be unaware of the time of day? The post made it to the blog at 2:31 PM. That’s afternoon, skippy.

ExpressoBold on February 22, 2014 at 3:56 PM

Drillers may soon cross the U.S. border and begin hydraulic fracturing on Mexican soil. The main issues standing in their way at this point are some of the most dangerous, violent criminals in the world.

It will be up to the Mexican government, perhaps with the help of U.S. and Canadian oil companies, to neutralize the Zetas and Gulf Cartels. Both are savage gangs notorious for drug and gun running. Their turf is partly on Mexico’s shale patch, a place where U.S. drillers have traditionally been reluctant to travel due to abundant violence, murder, and oil theft by the gangs.

Montserrat Ramiro of the Mexican Institute for Competitiveness said that the cartels are “very violent… You have to be vigilant of your employees so they don’t get kidnapped. If you don’t have a beefed-up security strategy, you can be extorted.”

http://www.breitbart.com/Breitbart-Texas/2014/02/22/Mexican-Cartels-Blocking-US-Drilling-on-Mexican-Border

davidk on February 22, 2014 at 4:00 PM

Artificially driving wages up for sure shortens the distance between the cost to hire a whiney worker with no skills and a bot.

CWchangedhisNicagain on February 22, 2014 at 3:42 PM

First off, minimum wage was never designed to be a living wage (defined by me as one where you are able to support a family, plan for retirement, or otherwise build a career and life).

But no sane employer is going to hire no-skill employees at $10.10 an hour when there is automation that can do the same thing 24/7/365 without the attitude.

Happy Nomad on February 22, 2014 at 4:01 PM

The law of intended consequences.

Think that’s bad? President pen just signed an executive order for cafe standards on trucks.
As someone who is in the shipping business we do everything we can to cut our fuel costs/consumption. Higher operating cost get passed onto the consumer.
With refrigerated trucks we wait until the last minute to load the trucks.
However, the well meaning confederacy of dunces (like Mr. President) found it necessary to screw with driver hours and mandatory driver breaks.
If you ask me, Obama is probably throwing a Skooby snack to his friend Warren and his train collection.
Will he also impose cafe standards on trains?
The law of unintended consequences has now increased fuel consumption on our refrigerated loads.
Well done nanny statesman!
Acting alone will make it worse, not better Mr President.
Of course “better” is not his true intention is it mister Hammer (phone) & Sickle (pen)?

kregg on February 22, 2014 at 4:02 PM

jazz, this post is too intellectual for a saturday morning…or the usual cadre of hotarians for that matter

I predict low comments for this post

stick to red meat posts bashing obamacare…

nonpartisan on February 22, 2014 at 2:41 PM

.

Does living in your mom’s basement cause you to be unaware of the time of day? The post made it to the blog at 2:31 PM. That’s afternoon, skippy.

ExpressoBold on February 22, 2014 at 3:56 PM

Graduates of the Harvard School of Animal Husbandry operate in their own time zone.

slickwillie2001 on February 22, 2014 at 4:14 PM

Once again, a non-troll drumming up comments on a slow day.

And once again, you people fell for it.

Notice it hasn’t been around since the influx of new trolls?

Lanceman on February 22, 2014 at 4:22 PM

And once again, you people fell for it.

Notice it hasn’t been around since the influx of new trolls?

Lanceman on February 22, 2014 at 4:22 PM

.
What does your comment have to do with the article published by Jazz Shaw on the effect of minimum wage increases vs. increases in automastion?
.
..

….
Hey, what do you mean “you people?”

ExpressoBold on February 22, 2014 at 4:31 PM

automastion = automation… submitted too quickly.

ExpressoBold on February 22, 2014 at 4:33 PM

I was in the convenience store a few days ago, and the price of coffee had risen by a dime, so I mentioned it to the cashier, and said everything is going up. She said, that’s why we need a higher minimum wage, and I replied, You’re just going to get yourself replaced with an automated checkout machine, and she just looked at me as if that thought had never crossed her mind. Oh well, the sheep will get sheered it’s their nature.

DFCtomm on February 22, 2014 at 4:39 PM

nonpartisan on February 22, 2014 at 2:41 PM

For you :

I’ll seek you out
Flay you alive
One more word and you won’t survive
And I’m not scared
Of your stolen power
I see right through you any hour

I won’t soothe your pain
I won’t ease your strain
You’ve been waiting in vain
I’ve got nothing for you to gain

I’m taking it slow
Feeding my flame
Shuffling the cards of your game
And just in time
In the right place
Suddenly I will play my ace

I won’t soothe your pain
I won’t ease your strain
You’ve been waiting in vain
I’ve got nothing for you to gain

Eyes on fire
Your spine is ablaze
Felling any foe with my gaze
And just in time
In the right place
Steadily emerging with grace

Felling any foe with my gaze
Steadily emerging with grace

“Eyes On Fire” by Blue Foundation

MichaelGabriel on February 22, 2014 at 4:43 PM

More Obamavilles coming: Baltimore’s people of the woods: Inside the hidden homeless camps made of milk crates, wooden doors and tarps on the outskirts of town

From a Brit paper of course. Too sensitive to be covered by the US old media.

slickwillie2001 on February 22, 2014 at 4:43 PM

Hey, what do you mean “you people?”

ExpressoBold on February 22, 2014 at 4:31 PM

Why, blacks and other minorities, I’m sure. ;)

Lanceman on February 22, 2014 at 4:45 PM

For the partisan hack of HA

Schadenfreude on February 22, 2014 at 4:50 PM

And of course, the Democrats have not learned anything from the FACT that each of the last three times they raised the minimum wage, employment dropped. After driving the economy in the ditch and leaving it there for four and a half years, now the Democrats want to raise the minimum wage AGAIN and hurt employment even more!

ITguy on February 22, 2014 at 3:18 PM

Beggars are easier to please…

Random Numbers (Brian Epps) on February 22, 2014 at 4:52 PM

jazz, this post is too intellectual for a saturday morning…or the usual cadre of hotarians for that matter

I predict low comments for this post

stick to red meat posts bashing obamacare…

nonpartisan on February 22, 2014 at 2:41 PM

You insult, but add no value to the thread. I assume you are holding out, but just in case you need a jump start on your Wiki search….maybe use such words as wage elasticity/labour demand. I know, small words for such a big Harvard man, and please don’t be insulted by my lowly status as a blue collar Liberal.

I have to admit you do bring a chuckle. Again, feel free to share with me the secret Harvard hand shake as there is one you know.

HonestLib on February 22, 2014 at 5:01 PM

She said, that’s why we need a higher minimum wage, and I replied, You’re just going to get yourself replaced with an automated checkout machine, and she just looked at me as if that thought had never crossed her mind. Oh well, the sheep will get sheered it’s their nature.

DFCtomm on February 22, 2014 at 4:39 PM

I wonder if her boss knows that she’s injecting her political views into the check-out process. Seriously, if I caught an employee lecturing a paying customer on minimum wage he/she/it would be fired on the spot. The customer is there to get a coffee and maybe a questionably fresh breakfast burrito. Not a lecture on wages for those in no-skill jobs.

Happy Nomad on February 22, 2014 at 5:02 PM

“He was even wearing my Harvard tie like, oh, sure. HE went to Harvard.”

Lanceman on February 22, 2014 at 5:24 PM

nonpartisan

You’ve been away for a while. Must’ve been nursing your injuries.
But you weren’t missed.

22044 on February 22, 2014 at 3:45 PM

…it’s been on the QOTD lately…sharing music.

KOOLAID2 on February 22, 2014 at 5:28 PM

The crowning irony is that the Ultimate Socialism of Obama as represented, in particular, by Obamacare, has spawned the Ultimate Capitalism of big business–most of which voted for Obama in the first place! It is NOT really the paradox it seems. Big business is either too powerful, too clever (tax free incentives for years and years if you do business in our state), or too friendly with the liberals in power to be affected by high taxes and social legislation which appears leveled at them but that is merely a MIRAGE. What happens is 1 There is middle class erosion as the middle class, failing to get jobs and having middle management jobs taken away, join the ranks of the poor. 2 The already poor, have no chance to advance to the middle class,and keep running in place like rodents on a tread-mill–occasionally getting a bone or two (taken from the middle class) thrown their way.

Obamacare, of course, has hastened this progress and illegal aliens will secure the end of the two party system virtually guaranteeing the mutual perpetuity of the Ultimate Socialist hand washing the back of the Ultimate Capitalist hand and vice versa.

MaiDee on February 22, 2014 at 5:39 PM

…it’s been on the QOTD lately…sharing music.

KOOLAID2 on February 22, 2014 at 5:28 PM

We have GOT to get you some glasses. That’s NON-nonpartisan!

Lanceman on February 22, 2014 at 5:43 PM

Which makes me wonder, were the insurance companies colluding with Obama behind our backs to artificially drive up the price of premiums?

MrsGsBoyTommy on February 22, 2014 at 2:43 PM

Noot really, it’s all the mandatory features, cover all children til 26, no lifetime limits (they used to dump people after 1-5 million dollars and they would go on public insurance, now they have to keep huge reserves), minimal age rating, sex change on demand, substance abuse treatment, etc. etc. etc.

talkingpoints on February 22, 2014 at 7:59 PM

jazz, this post is too intellectual for a saturday morning…or the usual cadre of hotarians for that matter

I predict low comments for this post

stick to red meat posts bashing obamacare…

nonpartisan on February 22, 2014 at 2:41 PM

.

Does living in your mom’s basement cause you to be unaware of the time of day? The post made it to the blog at 2:31 PM. That’s afternoon, skippy.

ExpressoBold on February 22, 2014 at 3:56 PM

Guess Rocky and Bullwinkle was over…..remember, don’t hold it too long, Leather Lungs.

itsspideyman on February 22, 2014 at 10:19 PM

You wouldn’t believe how often an hourly employee leaves my company with the promise of higher pay, only to learn that they end up earning less, because they are held at or under 40 hours and cannot work overtime hours.
This happened so often we made it a rule not to rehire.

kregg on February 23, 2014 at 9:56 AM