[p2p-research] Is the "lump of labor fallacy" itself a fallacy?
Paul D. Fernhout
pdfernhout at kurtz-fernhout.com
Sat Nov 28 17:02:11 CET 2009
Michel Bauwens wrote:
>> Michel mentioned US$40 an hour as the inflation and productivity and equity
> adjusted figure for a minimum wage -- I'd love a reference? I'm starting to
> think raising the minimum wage back to US$40 an hour may be what it takes?
> :-) But I'd rather see a basic income and no minimum wage. It may be too
> late for a raise in minimum wage to fix things at all, given how fast
> companies can automate and redesign.
> Hi Paul,
> it was a recent study by a union in California, on the county level, I saw
> it about 6 weeks ago, trouble is, I spent half an hour in my tags and on
> google, and can't get a hold of it again ... I think it had "Sonoma county"
> in the heading ...
I found this, but it is not exactly the same:
"The Living Wage Coalition believes a living or self-sufficiency wage for
Sonoma County in 2008 is $14.90 an hour (including benefits) and an annual
family income of $62,940 based upon calculations for a two- parent,
two-child family with both parents working full-time."
"A federal minimum wage was first set in 1938. The graph shows nominal (blue
diamonds) and real (red squares) minimum wage values. Nominal values range
from $0.25/hr in 1938 to $6.55/hr as of July 2008. The graph adjusts these
wages to 2007 dollars (red squares) to show the real value of the minimum
wage. Calculated in real 2007 dollars, the 1968 minimum wage was the highest
at $9.47. The real dollar minimum wage (red squares) falls during periods
Congress does not raise the minimum wage to keep up with inflation. The
period 1997-2007, is the longest period during which the minimum wage has
not been adjusted. The minimum wage increases in three $0.70 increments--to
$5.85 in 2007, $6.55 in mid 2008, and to $7.25 in mid 2009. The real values
after 2007 are projected for future decline in purchasing power. "
When it was introduced in the USA in 1938, it was was about US$0.25. For
someone working 40 hours a week 50 weeks a year, that would be about US$42 a
month or US$500 a year.
I put US$0.25 in the inflation calculator here:
that is about US$3.64.
How Much things cost in 1938
Average Cost of new house $3,900.00
Average wages per year $1,730.00
Cost of a gallon of Gas 10 cents
Average Cost for house rent $27.00 per month
A loaf of Bread 9 cents
A LB of Hamburger Meat 13 cents
Average Price for new car $763.00
Liptons Noodle Soup 10 Cents
But, the difference is presumably the claim that industrial productivity has
increased. I don't know that figure. Here it says 2.1% increanes in output
per person hour from 1937 to 1952:
Taking that from 1938 to now (just assuming it as a constant for 70 years,
compounded) that is about a factor of four. So, that would suggest that in
today's dollars, a minimum wage should be 4 * US$3.64 or US$14.56.
But, that assumes 2.1% annual compounded productivity growth.
"U.S. productivity growth has accelerated in recent years, despite a series
of negative economic shocks. An analysis of the sources of this growth over
the 1995-2003 period suggests that the production and use of information
technology account for a large share of the gains. The authors project that
during the next decade, private sector productivity growth will continue at
a rate of 2.6 percent per year, a significant increase from their 2002
projection of 2.2 percent growth."
And more recently, for example:
"Productivity rises 6.4%, fastest rate in six years: Unit labor costs fall
5.8% in second quarter, the most in nine years"
So, I could imagine that if the rate was higher, one would get a higher
result that approached US$40. I'd easily believe US$20 as and adjusted
minimum wage from the above calculation if the last two decades were 2.6%
By the way from that last link, to see how broken the current system is:
WASHINGTON (MarketWatch) -- U.S. companies slashed their workers' hours in
the second quarter, boosting the productivity of the workplace to an
annualized rate of 6.4%, the Labor Department reported Tuesday. ... Hourly
compensation rose just 0.2% in the second quarter. After inflation, real
hourly compensation sank 1.1%. ...
So, productivity goes up the annual equivalent of 6.4%, but real wages go
down 1.1%, instead of also up 6.4% (to match productivity growth). So, who
gets all the increased profits? Obviously not the workers. The workers would
probably spend them all to make new demand. But if they go to rich people,
then they just might be pushed into various bubble investments that have
essentially no connection to the real physical economy (things like driving
up the price of commodities (gold), land, housing, stock prices, or
otherwise increasing financial reserves or paying back previous debt or
stuff like that). Alternatively, the same amount of stuff is produced but
workers are laid off. So, efficiency goes up, but there are less workers
needed to produce the same stuff, workers are laid off, and then there is
lower demand, as a negative spiral. Keynes said this would not happen
because of lags in the system (things being "sticky") or, alternatively, if
it did, then the government would need to step in and spend money or lower
interest rates. Of course, there is a huge disconnect between government set
interest rates (about zero) and consumer interest rates (rising beyond 20%
per year again from fears of default or just rent-seeking).
Of course, there is no accountability for economists, because they might be
right eventually. There are endless things they can throw out to be
explanations (like the old epicycle explanations of the movements of the
planets). But they mostly come down to supporting the status quo.
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