On Labor Day, Think of Labor

On Labor Day consider what's happening in the "labor market."


An 8/28/06 NY Times headline: "Wages and salaries now make up the lowest share of the nation's economy since the U.S. began recording the data in 1947." In the article it continues "... while corporate profits have climbed to their highest share since the 1960's." ... The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation [even though] ... productivity ­ the amount that an average worker produces in an hour and the basic wellspring of a nation's living standards ­ has risen steadily over the same period." That's "regress," not progress. 


And then there's the minimum wage, last raised in 1997: Adjusted for inflation it's at its lowest level in 50 years. Conservatives argue against raising it and even want to eliminate it. Their argument: such an artificial increase in wages violates market forces. And a higher price of labor decreases demand and would put many out of work. They say, "That's just simple Economics 101."

But Alan Blinder, a former Federal Reserve vice chairman who teaches economics at Princeton University, in a recent Bloomberg News article, noted that this a "simple-minded theory." Exactly.


The reason for declining wages is a vast excess supply of labor compared to demand. Official unemployment (U-3) in July sounds low at 4.8 percent. But "official" unemployment doesn't count everyone. If you use another Bureau of Labor Statistics series (U-6) that includes discouraged workers, other marginally attached and people working part-time because they can't find a full-time job, unemployment is 8.5 percent. And, considering significantly lower "labor force participation" - many are classified as just having dropped out, even though they want a job - excess labor supply is well over 10% and this doesn't include the underemployed.


Anyone who believes even marginally in the economics of supply and demand knows that such an excess drives down wages. This is especially true at the bottom; so it can be no surprise that the minimum wage now falls somewhere between zero and subsistence level.


The U.S. economy is regulated such that "official" unemployment is never allowed to fall below approximately 4 percent for fear of setting off an inflationary wage-price spiral. The stock market "knows" this because it drops whenever unemployment gets "too low" from a fear of higher interest rates that slow the economy. Those who say that a minimum wage interferes in the "free market" ignore this higher level manipulation that makes Econ 101 supply-demand theory irrelevant.


So how could a minimum wage improve business and the economy? Higher wages are good for business because they increase employee loyalty, decrease employee turnover and increase productivity. And increasing the minimum wage boosts the economy, defying simplistic Economics 101 considerations and mystifying conservatives, because the higher wages are spent within the community, increasing local demand and increasing business. Higher wages and better benefits can lead many to take a job they couldn't otherwise afford to take because of high transportation and child care costs. And jobs that pay a decent wage can also reduce crime.


Fundamentally we've got to realize that a choice between being pro-labor or pro-business is a false choice. We can be pro-labor and pro-business. In fact, we must be for a strong America. It's a win-win.


Keely Marrs is the Democratic nominee for State Senator to represent the 9th District, in northern Colorado Springs. For more information, to contribute, or to help out the campaign, visit my website. You can reach me here.

Tags: Colorado State Senate, Democrats, Labor, Labor Day, Unions, workers (all tags)

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