[PEN-L:6837] Re: Min Wage editorial

[Martin Watts <ecmjw@xxxxxxxxxxxxxxxxxxx>]

Eric, Your dynamic efficiency type argument has been around in the Oz
literature. It has been applied to the argument as to whether a
centralized wage fixing system is more efficient than a decentralised
one.
Higher (minimum) wages may also promote higher physical capital
investment and higher labour productivity. Such government intervention
breaks the vicious cycle of low wages and  low productivity, and hence
static allocative inefficiency (to use some n/c jargon!).
Martin

Eric Nilsson wrote:
>
> Below is an op-ed piece about the minimum wage (actually
> a California Proposition we get to vote on a few weeks) that
> I sent off today to local newspapers.
>
> It contains an argument (or mere claim) that I've not read before
> related to the minimum wage.
>
> Comments?
> -------------------------------------------
>  Tough Love for Inefficient Businesses
>
> Up to one million California workers will see a wage
> increase if Proposition 210 passes. This Proposition
> provides for an increase in the minimum wage greater
> than that mandated by recent federal law.
>
> A further increase in the minimum wage would enable
> many of these workers_and their families_to move
> out of poverty. Clearly this would benefit these individuals.
>
> Further, the passage of Proposition 210 would also be
> good for the California economy as a whole. Both
> consumers and most businesses will benefit from
> an increased minimum wage.
>
> The reason is simple. California has--for far too long--coddled
> inefficient business that can only earn a profit by paying
> sub-poverty wages. Such inefficient businesses provide
> little to the economy as a whole.
>
> Indeed, these business hurt the California economy. First,
> businesses that depend on low wage workers fail to provide
> the dynamism that leads to economic growth. Only rarely do
> the new ideas and new technologies that lead to economic
> growth develop within firms paying sub-poverty wages.
>
> Second, and worse, businesses dependent on low wage
> workers almost always fail to provide any meaningful
> worker training. Why train a worker who will soon be
> leaving because the pay and working conditions are so poor?
>
> But such training is critical for workers if they are to find
> better jobs after leaving their present low-skilled job. Such
> improved training is also critical for the increased business
> productivity which benefits everyone.
>
> Some economists believe that the "welfare problem" is caused,
> in part, by businesses that pay sub-poverty wages. These
> businesses are unable or unwilling to train their workers and
> this guarantees that their workers will never be able to find better
> jobs.
>
> Bad jobs lead to poorly trained workers. Poorly trained workers
> expand the welfare rolls. Tax payers pay the price.
>
> Proposition 210 provides "tough love" for the many California
> businesses that have relied on sub-poverty wage. This Proposition
> takes away the crutch--society's permission to pay sub-poverty wages--
> that has permitted these firms to avoid discovering whether they can
> make it as employers paying reasonable wages.
>
> The vast majority of these businesses will find they are able to meet
> this challenge. Most will find that they have the creativity to
> discover a way to earn adequate profits while providing good jobs that
> pay decent wages.
>
> Such a result will benefit California consumers and other California
> businesses. All will benefit from a more highly trained labor force
> and a more rapidly growing economy.
>
> Yes, some business owners will be incapable of surviving in
> this new environment. These business owners will lack the
> motivation or the creativity needed to run a business that provides
> good jobs. The economy will be better off without them.
>
> Eric
>
> .
> Eric Nilsson
> Department of Economics
> California State University
> San Bernardino, CA 92407
> enilsson@xxxxxxxxxxxxxxx

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Martin Watts			Email: ecmjw@xxxxxxxxxxxxxxxxxxx
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