Jul 27, 2010

Minimum Wage

In his latest posting on the SET Political Review, Philip R. Klein distorts the minimum wage issue. Specifically, he quoted a fringe study, without proper citation, from a suspect group. This so-called institute is attached to a Washington lobbying firm with a long history of active campaigns against minimum wage increases:
The democrats hang their hats on it. Unions support it. And the American people - well they suffer again.

The numbers are out on the affect (s) of the increase in the minimum wage increase this past year in the first two quarters of 2010. And it is...well....not good. So here are some numbers :

Teenagers : Before the increase unemployment was 9.2%, now post wage increase 30%.

20-25 years of age : Before the increase unemployment was 8.22%, now 19%.

But it is the recession - right? Wrong.

Get these numbers :

Persons who are in the earning bracket 30k to 100k - in the same time period :

Unemployment was 5.3% now at 9%.

Persons who are in the earning bracket 101k to 500 k - in the same time period :

Unemployment was 5.4% now at 11%.
Klein meant "effects," not "affects of the increase." Here are the documents that Klein failed to properly cite.
I enjoyed this news story on the study from the NBC affiliate in Dallas-Fort Worth. I'm always suspicious when a purported academic study has a biased title referencing some "crisis."

A group called the Employment Policies Institute conducted this study. According to Source Watch:
The Employment Policies Institute (EPI) is one of several front groups created by Berman & Co., a Washington, DC public affairs firm owned by Rick Berman, who lobbies for the restaurant, hotel, alcoholic beverage and tobacco industries. While most commonly referred to as EPI, it is registered as a 501(c)(3) tax-exempt organization under the name of "Employment Policies Institute Foundation." In its annual Internal Revenue Service return, EPI states that it "shares office space with Berman & Company on a cost pass through basis".
In other words, this group is the information arm for a Washington lobbyist. Rick Berman has his own fact-checking site, just like Operation Kleinwatch. His firm has been quite active on the minimum wage issue:
EPI has has been widely quoted in news stories regarding minimum wage issues, and although a few of those stories have correctly described it as a "think tank financed by business," most stories fail to provide any identification that would enable readers to identify the vested interests behind its pronouncements.

Instead, it is usually described exactly the way it describes itself, as a "non-profit research organization dedicated to studying public policy issues surrounding employment growth" that "focuses on issues that affect entry-level employment." In reality, EPI's mission is to keep the minimum wage low so Berman's clients can continue to pay their workers as little as possible.
While the source is clearly not credible, Philip Klein further obfuscated the issue by misrepresenting the findings of this suspect source. As one example, while the study clearly references teen unemployment in only 19 states, Klein's statement implies that the "numbers are out" and the study applies to all Americans in all 50 states.

As another example, Klein stated:
Teenagers : Before the increase unemployment was 9.2%, now post wage increase 30%.
According to the study, this 30 percent unemployment figure is for those teens between the ages 16 and 17 only.

After these distortions, PRK reaches his bottom line with this shrewd example of Idionomics, which has nothing whatsoever to do with minimum wage:
The market will make the decisions on how much a person is worth. Their work ethics - and if they even show up to work. As with government employees - they are paid in increases based upon how many years of service they have had - not on performance. In the public sector their jobs are based upon what you do and how productive you are. That is why the unions have failed. They do not base anything on how productive you are - they base things on years of service. It is a mind set that is changing in the United States. The union leaders have bucked it to the point that Unions are dying. And it is what it is. You cannot press socialistic ideas such as years of service v. productivity in a capitalistic business environment. It is that simple.
Philip's simplistic analysis underscores his inability to comprehend complex subjects such as economics. For example, unions and collective bargaining are as much a part of competitive free market capitalism as are corporate profits.  In reality, Klein is arguing for laissez-faire capitalism.

Here's the real bottom line in an open economy:

Y = C + Id + G + X - M

Where equilibrium (Y) is equal to a number of determinants.* Here's a graphic display of what this means:

It's that simple.

*These determinants are:

  • Y = the equilibrium level of national income
  • C = domestic household consumption of goods and services
  • I = domestic real investment in buildings, equipments, software, and inventories
  • G = government spending on goods and services
  • X = foreign purchase of the country's exports of goods and services
  • M = the country's purchase of import of goods and services from other countries


Anonymous said...

Busted again. ;-)

Adam Smith said...

The DQ Dude got spanked by the invisible hand.

John Nash said...

Expect a market correction restoring equilibrium in the private security sector soon.

Anonymous said...

Gus, I don't have time to write now, I'm off in search of a "bore hog", fil says' a "bore hog" has tits and I want to see it for myself!

Anonymous said...

Only on his self-glorifying blogspot and in his vain dreams does anyone address Phil as "Mr. Klein." Such public respect is as unlikely as those "tits on a bore hog."

Dr. Werner R. Lovenstein said...

In a recent study, the Lovenstein Institute has learned that Philip R. Klein has the lowest IQ of any blogger on the internet.