Looked at this series for a paper on the Bush '08 health plan, and also looked at data from BLS. Seemingly related to the income instability phenomenon is how the structure of the job market has changed over the past 30 years towards shorter job terms; more part-time, non-salaried and seasonal work. It seems plausible that the job-market trends are in some measure reflecting an increase in dual-income households, more women supplementing family income, etc..

But is there any colinearity between the job-market changes the increase in income instability mentioned above, or are the dual incomes masking what could be an even greater problem without them? Does anyone know if this analysis has been done or where I could find it? Would be greatly appreciated.

All the above quoted problems are the symptom of the one great shortage in the American free market: adequate bargaining power on the labor side of the table (read missing unions).

Looked at from a completely free market perspective, mandating collective bargaining for all (something similar to the German model) would RESTORE full function to the free labor market by insuring equal bargaining power for both sides -- just as the minimum wage can be seen as substituting for (restoring) missing bargaining power.

Even if the minimum wage is more intrusive on the free market than merely guaranteeing workers the ability to bargain on an equal power basis -- the minimum wage more than makes up for that intrusion by increasing fairness. In that light, mandating collective bargaining for all workers should be a -- non-ideological -- free market sure shot.

Please, would anyone point out a short reference list of all the theories in economics--from production to ownership to trade to philosophy--that deal explicitly with the various reasons, real or presumed, for the ongoing lopsided distribution of income?

Okay, after ten hours my eyelids are drooping onto the keyboard, there's shooting pains in my elbows, and this room smells like stale beer farts. So let me rephrase the question. Does anybody have an opinion as to whether the ongoing lopsided distribution of income is caused by a few big things, or lots of little things; or a mix of lots of little things and a few big things; or maybe one humongously big unmentionable thing and two or three shamefully twisted little things; or a bunch of really silly little things wrapped up into one big thoughtful thing with a pretty bow for your birthday, or what?

I realized decades ago that increasing trade with Asian countries would lead to increases in living standards there, and decreasing real wages and /or leisure time in the U.S., and in other importing countries. So what else is new?

Brad, do you agree with the quoted implication that "the minimum wage is down" is an indication that life has gotten "riskier"?

I would have thought just the opposite, that a lower minimum wage means a wider variety of entry-level jobs are available, so it's easier to start over from scratch and accumulate job experience in a new field if one needs to.

GLEN,
If the minimum wage drops from almost $9 (1968) to barely more than $5 (while productivity almost doubles, yet) that means that you have a lot less bargaining power in the entry-level labor market if you are not otherwise able to bargain effectively (other folks near that level have lost a lot too).

Whatever fields are available to enter will be available according to the technology of the times and location -- if you can do them you can do them; somebody will. But halving the pay makes for a most unfair labor market -- which for some reason is intolerable in the equities market but so far at least acceptable in the labor market.

Denis:
I don't see the connection between a lower minimum wage and "less bargaining power". Again, my intuition runs the other way. If the minimum wage is $5 and an employer is worried that my productivity would only be worth $4.90, I can't offer to work for lower in order to get the job experience and get my foot in the door. The minimum wage thus /reduces/ my bargaining power by reducing my legal ability to bargain with one term of the contract. I also can't trade off less pay in exchange for more training or more of some other thing I value (safety, fun, flexibility, free food...) when the minimum pay rate is fixed. Lowering the minimum wage makes it easier for me to convince an employer to hire me, because it reduces their risk. It ought to reduce transitional employment, leaving fewer people stuck in the "no job=>no experience; no experience=>no job" catch-22.

THE PRESIDENT: ...Okay, Mary, tell us about yourself.

MS. MORNIN: Okay, I'm a divorced, single mother with three grown, adult children. I have one child, Robbie, who is mentally challenged, and I have two daughters.

THE PRESIDENT: Fantastic. First of all, you've got the hardest job in America, being a single mom.

MS. MORNIN: Thank you. (Applause.)

* * *

THE PRESIDENT: I'm not going to tell your age, but you're one year younger than me [56], and I'm just getting started. (Laughter.)

* * *

MS. MORNIN: That's good, because I work three jobs and I feel like I contribute.

THE PRESIDENT: You work three jobs?

MS. MORNIN: Three jobs, yes.

THE PRESIDENT: Uniquely American, isn't it? I mean, that is fantastic that you're doing that. (Applause.) Get any sleep? (Laughter.)

MS. MORNIN: Not much. Not much.

--from "President Discusses Strengthening Social Security in Nebraska," released by White House Office of the Press Secretary, February 4, 2005

GLEN,

But what if you could get $10/hour -- if there were some mechanism (union/minimum wage) to make that demand? And suppose that would cause no loss to ownership’s profits – or even raise them (impossible?: more like probable; if and only if every owner has to pay the same wage -- – the minimum wage).

I once calculated [am too lazy to do it over for $10/hour, so I’ll stick to the same numbers] that raising the minimum wage to $12/hour would add all of 4% to cost of GDP output – and presumably do something like the same to inflation (back of the envelope stuff). I further figured on another quarter to third other wages being pushed up $100-$150 dollars a week resulting in another 3-4% inflation for one year (wild guesswork).

A McDonalds formerly paying $5.15/hour would need to raise the price of a $5.15 happy meal to $7.50 to cover costs (fast food labor highest of all: one-third of costs). But ownership might be just as happy – or happier – since by then nobody would be earning less than about $500/week (formerly the 40 percentile wage) and another quarter to third of customers might have enjoyed a $100+/week raise – plausible -- possibly leading to more business.

If ownership were not happy, labor still need not worry overly much: most McDonalds franchisees own 4 or 5 stores and would survive losing 1 or 2. Workers should be happy in any case since they now can make a lot more money as a group even if they lose a few jobs -- or even many; not likely. This is business – labor is supposed to worry about its side.

The trouble in this country with its self-reliant individual ethic is that labor doesn’t go into the market to squeeze hard just to work hard.

There is nothing wrong with WalMart is doing. WalMart is taking care of its business. Americans workers have to wake up and do the same and get unionized to take care of their own. I’d love to see the German model come over here: mandatory sector-wide labor agreements (not the business tangling regulations or the automatic dole – just the institutionalized balance of power between business and labor).

Denis,

I doubt I'll convince you of anything, but I'll try one last time: if McDonald's could make more money by raising the price of a happy meal to $7.50, they would have done it already. Prices are what they are for a reason. If labor costs go up McDonald's /can't/ just raise their prices. Instead what they can do is invest in automation, cut back hours, and close businesses in marginal locations so they don't have to hire as many people. Everybody whose marginal labor value was less than $10 will simply be out of a job.

The idea that a minimum wage increase would increase McD's business is similarly unlikely. McDonald's is probably - technical term -an /inferior good/, meaning that if incomes were to go up people would eat /fewer/ McD hamburgers, not more. (The French restaurant down the street might see a benefit.) But the fundamental problem is that raising the minimum wage doesn't increase the average wage, when you take into account people working shorter hours at the new wage or losing their job because they couldn't produce that much.

I find it curious how little press space is devoted to the so-called "bankruptcy reform:" judgiung from what you've written here, this is one of the greatest dangers to the very Americans that you've described. While I have a personal investment in this issue, certainly, this is another addition to the precarious state of middle income Americans who will no longer be able to ease the financial burden they've acquired when conditions turn against them. I remain surprised by the lack of energetic opposition to this law. Have we put too much of our attention into opposition to social security reform?

Glen,

If 40% (!) of the workforce can get a raise all the way to $12/hour by raising the cost of GDP only 4% (!) – almost half the workforce averaging almost half-again pay raise for a teeny-tiny fraction of everyone else’s income -- that might suggest that they are being worked for much less than they could get right now.

In 1968 the federal minimum wage approached $9/hour (adjusted for inflation) – so $10/hour after almost labor productivity has rougly doubled seems perfectly practicable; have to test the market to see, of course. To me the free market view is that setting a minimum wage is bargaining in place of (in loco). If minimum wage workers want to chance the market will pay $10/hour via the mechanism of law, why not let them?

We more productive now than 100 years ago because of autos and electric light and things invented by people long 6 feet under the earth – inventors who have no claim on today’s production of wealth, right? Ditto for the mostly nameless, faceless managers, techies, scientists and programmers who doubled per capita output since 1968 – and indeed they don’t split very much of the extra 6 trillion a year among themselves.

The folks who split America's extra 6 trillion a year are the ones who happen to possess the greatest bargaining power for reasons not usually related to said advances in productivity (baseball players?, TV anchors?) – while the powerless (unionless) burger flippers take home much less than long ago 1968! MacDonalds owners got their share of the doubling income because they are in the middle and get to squeeze even as they are heavily squeezed in turn.

Burger flippers should get much more – more importantly CAN get much more -- if America gets sufficiently unionized for them to aquire the POWER to hold out for a better deal or the rest of us have mercy on them until then – if enough POWER is applied in their behalf, either privately or publicly.

Just think of it: poverty in America could be virtually eliminated for 4% of the cost of GDP – by depriving the rest of us of a couple of years of economic growth.

Glen,

Eureka! Overnight flash (if not exactly rocket science): McDonalds used to pay $8.70/hour in constant dollars in 1968 – which means Mac needed to charge at least $6.15 for today’s $5.00 meal (fast food labor cost being one-third) – certainly more because Mac was less efficient then (always improving for 37 years): $6.25?; probably more like $6.50 for today’s $5.00 feast.

But since the lowest paid workers back then earned almost $9.00/hour they could easily afford the price -- much more so than they can afford it today – so Mac did alright back then. Yuppies still afforded it – if lowest paid workers could.

PS. The $12/hour equivalent should be a $7.20.

Denis,

It's not a question of whether people "can afford it" at whatever price. There's a demand curve for McDonalds hamburgers. There is some optimum price for them to charge. If they charge less or more than that price, the company loses money compared to charging the proper price given the demand. You can't just assume they have the ability to raise the price and still make as much money as they do now. If they /could/ raise the price, why wouldn't they already have done so?

Incidentally, McD pays more than the minimum now in most cities. If the minimum wage has any effect at all, it's to destroy opportunities to work, not to raise wages that were lower before. The federal minimum wage was originally explicitly passed in order to stop poor black workers from underbidding and thereby taking jobs from northern textile manufacturers. Minimum wage laws /hurt/ people at the bottom of the economic ladder, by sawing off the bottom few rungs. People who are already climbing the ladder don't notice those rungs are missing.

If your logic worked, we could make everybody rich by passing a minimum wage of $500/hour. Whatever negative consequence that would have, a lower wage has the exact same negative consequence, it just impacts fewer workers.

Glen,

In pure free market terms all the arguments that the minimum wage destroys jobs come from the opposing side of the bargaining table – and may be discounted as such.

In free market terms: the minimum wage may be seen as bargaining in place of (in loco) – it sets a demand to be met; it does not order one firm to hire one worker.

In free market terms: if the minimum wage workers wish to chance losing jobs by setting a higher price for their labor, we should be guided by their wishes: they should be allowed to take the chance via the only bargaining mechanism open to them: raising the minimum wage.

Let’s not be “liberal, social-engineers” deciding what is good for other people in the free market.

McDonalds did not drop its price from $6.50 (or whatever) in 1968 to $5.00 in 2005 because it figured that was the best profit number on a curve untouched by outside, systemic conseqences – but because it had to do so in response to competition whose labor costs were receding at the same rate that its were.

If labor costs – and all its competitions labor costs -- are jacked up again to 1968 levels simultaneously -- and prices are hiked to keep the same percentage profit -- it is reasonable to believe that life will go on if not at McDonalds at least at some pricier eateries once most workers can afford to spend more (always bearing in mind that per capita income doubled!!! since 1968).

It is certainly reasonable for minimum wage workers to want to chance a big raise (they always do want to – and given the complete drop-out of labor bargaining power in America over the last 3 decades, they are almost always right! -- they are coming from way far behind where they might have been). Last year, the minimum wage was raised to $8.50/hour in the city of San Francisco and I don’t see any MacDonald’s workers there complaining – their thoughts should rule.