Wealth Distribution in the USA

The evidence I was citing in Message 385 wasn't from Wiki. It was from the latest meta-analysis of all the relevant studies since 2000. Did you read it at all? Center For Economic And Policy Research - Why Does the Minimum Wage Have No Discernible Effect on Employment? John Schmitt Feb 2013If you read the wiki page on minimum wage it is quite apparent that there is a shift in economic thinking underway. A shift in thinking away from the neo-classical model towards the evidenced conclusions in the meta-analysis I cited. Except that this is not what the actual evidence indicates. Read the link. It is worth looking at properly and is highly relevant to the topic here.

I know it wasn't from the Wiki - the counter-intuitive evidence (that increasing minimum wage doesn't necessarily lead to a rise in unemployment) is from the various studies it discussed there.It's worth showing Schmitt's discussions on his analysis from your link in full It important to note that Schmitt doesn't say that there is no effect when wages rise, just that it's too simplistic to say that it causes unemployment.I think that much is blindingly obvious. Firms and employees will react in many ways, including cutting hours, cutting jobs, reducing training, reducing benefits, increasing prices, reducing other costs (including to higher paid employees) and so on.Some of those are potentially good news - as far as we're concerned - but a lot are not.I also suspect that over a very long term - 20-50 years a steadily increasing minimum wage will make large changes to a countries economy - I'd expect a large reduction in 'menial' jobs but also an increase in work that requires more intellectual effort.I was listening to a programme about Japan the other day - remember them? It prompted me to write this: Voipfone Blog – The Importance of Software

You're still operating under the delusion that you can somehow know this economic benefit for any specific job. You can't. You not only can't even know it approximately, you can't even know whether it is positive or negative. I'm telling you that you can't even know whether it is positive or negative. You have nothing upon which to base your claims. You're just assuming executives contribute little and the rank and file contribute a lot. You have no numerical data upon which to base this assumption because, as has been explained many times now, it isn't possible to know the "economic benefit" of any specific job, not even approximately, not even within an order of magnitude, not even whether it is positive or negative.Even more importantly, the revenues, the profits, the losses - they all belong to the shareholders in their entirety. Employees have no claims upon them whatsoever.You make a lot more sense when you talk about the need for jobs that pay a living wage.--Percy

This is the economics 101position Krugman is talking about. But this is what the study in question says:

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Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low wage workers.

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The key difference between the standard competitive model and the monopsony model concerns the circumstances employers face when it comes to recruiting and retaining staff. In the competitive model, employers can hire all the labor they desire by paying the prevailing market wage; and, in the event that a worker quits, employers can instantly replace that worker with an identically productive worker at the same wage. By contrast, in the dynamic monopsony model, employers, even those operating in low-wage labor markets, face real costs associated with hiring new workers.

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In the traditional discussion of the minimum wage, economists have focused on how these costs affect employment outcomes, but employers have many other channels of adjustment. Employers can reduce hours, non wage benefits, or training. Employers can also shift the composition toward higher skilled workers, cut pay to more highly paid workers, take action to increase worker productivity (from reorganizing production to increasing training), increase prices to consumers, or simply accept a smaller profit margin. Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.

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So the conclusion of the paper is that the simple supply and demand model (AKA the economics 101 position) completely ignores one of the main channels of adjustment — Namely decreased costs due to reduced staff turnover.In your various appeals to supply and demand in this thread did you take this particular channel of adjustment into account? If not — You might want to incorporate it into your thinking on this issue in future.Edited by Straggler, : No reason given.

You are still operating under the delusion that businesses go round hiring and firing people without making some estimate (whether formal or informal) of the costs of employment Vs the economic benefit derived from the work in question being done. Economic benefit of the sort I detailed in the network engineer example in Message 195. But we do. If the result of the work not being done is a cost of millions and the salary paid for doing that work is in the thousands then you can quite confidently say that the economic benefit from that work being done is positive. I'm telling you that if this was true I wouldn't be able to write business cases for new network engineers. I'm telling you that you are wrong. I've cited the network engineer example and you yourself have cited the example of striking truckers causing million dollar per day losses as a result of witholding their labour. On what do you base your claim that the utility based value of work must remain some sort of absolute mystery? It is you making baseless assertions here. Not I. No. I'm sure that some execs do provide economic benefit that is commensurate with their rewards. But I'm also sure that many are being rewarded for failure and using the cry of "market forces" to justify rewards that are otherwise unjustifiable. Yes I do. I have written actual business cases for actual network engineers for an actual business based on estimating the actual economic impact of not doing the work in question. Imagine if I went to my IT director and said that we need a new network engineer to do some work the value to the business of which is entirely unable to be even remotely ascertained. It might exceed the cost of employing that new engineer. Or it might not. We have no idea. It's impossible to say. Because (to quote you) "It would be like trying to assign a value to each of your cell's contribution to your life."No matter how passionately you mistakenly believe it to be true the real world just doesn't work like that. As I have pointed out to you previously profits are calculated after costs and that labour, much like materials, qualifies as a cost that needs to be deducted before profit. So your point is moot at best and indicative of poor understanding on your part at worst. 1) At a shareholder meeting shareholders question the $10 million annual salary and benefit package of the CEO on the basis that he has failed to bring sufficient economic benefit to the role to justify that level of reward.2) A government minister makes a speech in which he states that those who provide considerable economic benefit to highly profitable multinational corporations can reasonably expect to earn enough to feed, clothe and house themselves.Why is 1) and more or less economically sensible than 2)....?

See Message 409One conclusion of the Schmitt paper seems to be that the simple supply and demand model (AKA the economics 101 position referred to by Krugman) completely ignores one of the main channels of adjustment — Namely decreased costs due to reduced staff turnover. I'm not sure that is an effect of minimum wage so much as a general effect of becoming a "developed" economy.

Then let me assist you.

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Note that economic value is not the same as market price. If a consumer is willing to buy a good, it implies that the customer places a higher value on the good than the market price. The difference between the value to the consumer and the market price is called "consumer surplus". It is easy to see situations where the actual value is considerably larger than the market price.

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Value in the most basic sense can be referred to as "Real Value" or "Actual Value." This is the measure of worth that is based purely on the utility derived from the consumption of a product or service. Utility derived value allows products or services to be measured on outcome instead of demand or supply theories that have the inherent ability to be manipulated. Illustration: The real value of a book sold to a student who pays $50.00 at the cash register for the text and who earns no additional income from reading the book is essentially zero. However; the real value of the same text purchased in a thrift shop at a price of $0.25 and provides the reader with an insight that allows him or her to earn $100,000.00 in additional income is $100,000.00.

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Wiki On Economic ValueCS — What is the ‘real value’ to the business of the labour being withheld by the striking workers?

Hi Straggler,Now you've gone back to confusing two different things again. You think that when you make your *business case* for a new network engineer that you've somehow approximated the "economic benefit" to the company of that job, but you haven't. A *business case* is one thing, and this "economic benefit" to the company thing you keep talking about (which is fictional) is something else.When you've made your business case for a new network engineer, all you've done is approximated the "economic benefit" to the company of adding that job so it can work in concert with all the other jobs in the company upon which that new job depends in order to make any contribution at all, just as the "economic benefit" of all the other jobs in the company also depends upon all the other jobs in the company. You cannot separate out the separate contributions to the "economic benefit" of the company of any individual job, or even group of jobs.If you could approximate such a thing then you could also approximate the relative "life benefit" contributions of your heart, lungs, kidneys, liver, etc., but you can't. They work in concert together to give you life. They're all necessary. Breaking it down into separate "life benefit" contributions just isn't possible.A job is worth what someone is willing to pay for it that someone else is willing to accept. It has nothing to do with any imaginary "economic benefit" to the company. It's not how key a job is to a company's business that determines the pay. It's the number of people who can do the job that determines its value. A network engineer might be absolutely essential to a company's business, but if there's a million network engineers out there who can do the same job then the pay won't be much.--Percy

How do employers decide if they are willing to pay a particular wage?

Not in utility terms. All essential steps are required to derive any value at all in terms of utility from the good or service.

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Note that economic value is not the same as market price. If a consumer is willing to buy a good, it implies that the customer places a higher value on the good than the market price. The difference between the value to the consumer and the market price is called "consumer surplus". It is easy to see situations where the actual value is considerably larger than the market price.

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Value in the most basic sense can be referred to as "Real Value" or "Actual Value." This is the measure of worth that is based purely on the utility derived from the consumption of a product or service. Utility derived value allows products or services to be measured on outcome instead of demand or supply theories that have the inherent ability to be manipulated. Illustration: The real value of a book sold to a student who pays $50.00 at the cash register for the text and who earns no additional income from reading the book is essentially zero. However; the real value of the same text purchased in a thrift shop at a price of $0.25 and provides the reader with an insight that allows him or her to earn $100,000.00 in additional income is $100,000.00.

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Wiki On Economic ValueWhat is the ‘real value’ to the business of the labour that is being withheld by the striking workers? The book in the example above can be said to have utility worth of $100,000.00 not because the author, the book binder, the printer, the bookshop owner etc. etc. etc. each added a calculable percentage that adds up to 100. That isn't how utility works.Now of course this book example is different to a business deriving profit from labour in that the book example involves a one-off sale event rather than a continuous supply of labour from which profit is continuously derived. This is where the anology breaks down. Because the author, book binder et al don't have to depend on that one book for their ongoing livelihoods.What I am saying is that those who provide economic benefit to a business, those who perform a role in making the business operational and profitable, can at the very least expect to earn enough to feed, clothe and house themselves.

All of the jobs are necessary for the business to function, so the 'real value' of every job would be the gross profit of the company.I don't see how that helps with anything.

I have estimated the economic impact of that work not being undertaken. This is what I told you I meant by economic benefit. Effectively value in terms of utility. If you are defining economic benefit differently to me perhaps you could tell us what you mean? I'm not separating out individual contributions. That is your straw man. Remember our striking truckers? Let's for one crazy moment imagine that you are responsible for negotiating the pay deal for those workers. Do you think the fact that the company in question is losing millions per day might be relevant to your position in those negotiations? If you were the negotiator would you say "The number of people who can do the job that determines its value"....?Or would that stance be a dereliction of your duties as negotiator on behalf of the striking workers?Try and see things from more than one perspective Percy. That is the key here......

You mean like in the real world? My employer's Human Resources department subscribes to salary surveys. They try to keep our salaries competitive with other companies in the same and similar industries. In other words, they pay market prices.We went through an interesting experience earlier this year when we tried to hire five new people. Our offer to the first person we tried to hire was turned down. Our offer to the second person was turned down, too. Evidently things were turning around in our industry while we were between salary cycles. We adjusted our salary scale upward accordingly (not just because of my group - other groups in our company were experiencing the same problem), and we countered to the second person. They accepted. We were able to hire four more people over about four months.The adjusted salary scale will be reflected in the salary adjustments to current employees that take place later this year. If my employer doesn't keep salaries in line with what's available out there then we would start experiencing a talent outflow.In other words, employers pay wages at prevailing market levels. That's how they "decide if they are willing to pay a particular wage." They pay a little more for more talent and experience, and a little less for less talent and experience. Employers will also pay a little more if they prefer to minimize turnover.--Percy

It helps by confirming that the workers in question are absolutely vital to the operational success and profitability of the business in question and that paying them a subsistence wage whilst making huge profits is thus unjustified.

In the real world it is perfectly legitimate to take positions such as the following based on the expectation that reward and the economic benefit provided should be coommensurate to some degree.1) At a shareholder meeting shareholders question the $10 million annual salary and benefit package of the CEO on the basis that he has failed to bring sufficient economic benefit to the role to justify that level of reward.2) A government minister makes a speech in which he states that those who provide considerable economic benefit to highly profitable multinational corporations can reasonably expect to earn enough to feed, clothe and house themselves.In such cases saying "market forces market foces" isn't the answer so much as the problem......