South By North Strategies, Ltd.

Happy Birthday, Minimum Wage

The Economic Policy Institute recently commemorated the July 24th birthday of the minimum wage.

On the wage floor’s history:

The federal minimum wage was first established in the Fair Labor Standards Act of 1938. Since then, Congress has periodically increased the minimum wage as prices in the overall economy increased. In 2006, before the most recent three-part increase, the federal minimum wage was $5.15, the same level it had been for the previous 10 years. Because Congress had ignored the minimum wage for such a long time, inflation eroded much of its purchasing power. Adjusting for inflation, the minimum wage in 2006  was worth less than at any other time in the previous 50 years. Congress finally acted in 2007 to help low-wage workers, and passed a three-step increase to the federal minimum wage. The first increase to $5.85 took place on July 24, 2007, the second increase to $6.55 on July 24, 2008, and the final increase to $7.25 on July 24, 2009. Although this final step restored some of the purchasing power of the minimum wage, it is still well below the peak of close to $9.00 reached in 1968.

On current objections to the minimum wage:

Lately, opponents of the minimum wage have suggested that decreasing it would help to boost employment. This is a terrible idea for a variety of reasons. First, the minimum wage is not high by historical standards – today, the real value of the minimum wage is less than what it was from 1961 to 1981. Second, research on the disemployment effects of the minimum wage give mixed results – many indicate that a small change to the minimum wage would have no impact on employment. Furthermore, even if there is a disemployment effect, it is small and far outweighed by the fact that low-wage workers on average will see a net benefit from most minimum wage increases (Shierholz 2009). Finally, one of the biggest problems during a recession is the decrease in consumer demand – when consumers cut back on spending, employers respond by cutting back on jobs. Reducing the wages of already low-wage workers will only make this problem worse, and will hurt those who are least well off.

Around The Dial – July 27

The State of The NC Job Market

John Quinterno of South by by North Strategies recently was a guest on the syndicated radio program News & Views. Quinterno discussed the current condition of the North Carolina labor market, the prospects for a recovery, and the consequences of long-term unemployment.

The Future of Fiscal Policy

Martin Wolf of The Financial Times is not optimistic about the United States’ ability to address long-term fiscal issues. Writes Wolf:

Finally, with one party indifferent to deficits, provided they are brought about by tax cuts, and the other party relatively fiscally responsible (well, everything is relative, after all), but opposed to spending cuts on core programmes, US fiscal policy is paralysed. I may think the policies of the UK government dangerously austere, but at least it can act.
…
This is extraordinarily dangerous. The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.
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In sum, a great deal of trouble lies ahead, for the US and the world.
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Where am I wrong, if at all?

Around The Dial – July 26

Economic policy reports, blog postings, and media stories of interest:

• The News & Record reports on rising community college enrollments.
• Economist’s View wonders about “trickle-down meanness.”
• The Charlotte Observer looks at restarting emergency unemployment benefits.
• Economix looks at the consequences of long-term unemployment.

In The News: June Local Employment

South by North Strategies’ analysis of the June local employment report for North Carolina was featured in several media stories.

• The Durham Herald-Sun: “Triangle jobless rate creeps up”
• The Winston-Salem Journal: “Jobless rate rose in June, ESC says”
• The High Point Enterprise: “Jobless picture mixed”

Where Is The Capacity?

Fed Watch is concerned about the decline in the United States’ productive capacity.

In short, I continue to worry that policymakers are ignoring the possibility that increasing reliance on external production to satisfy US demand has contributed significantly to the jobless recoveries we have seen this decade.  Something is very different this decade.  I think it is a mistake to write off this decade’s shift in manufacturing as simply a repeat of the agricultural experience.  At least agricultural output continued to rise as its relative  employment importance fell.  The capacity numbers are telling us the same can not be said of manufacturing any longer. And in the past, the relative decline in manfacturing jobs was matched by a more than corresponding increase in service sector jobs.  No longer the case; job growth is flat for a decade.  If we intend to ignore this issue, the supposed reality of tradable services had better get a lot more traction very quickly. Otherwise, we are further solidifying a permanent underclass of citizens who require the constant support of fiscal authorities.

Around The Dial – July 23

Economic policy reports, blog postings, and media stories of interest:

• The Workforce Strategy Center calls for “new models of training.”
• Robert Reich describes “a one-and-half dip recession.”
• Robert Shiller wonders “who should safeguard financial stability.”
• Economix asks “who ultimately pays the corporate income tax.”