Really bad writer, Tim Worstall
One could easily dedicate a blog just to fisking Tim Worstall, what with the obsessively anti-minimum wage Forbes blogger proving to be as prolific as he is preposterous:
We’re repeatedly told that raising the minimum wage doesn’t lead to job losses (or, in the jargon, unemployment effects).
Nobody is arguing that raising the minimum wage doesn’t lead to job losses. We’re arguing that raising the minimum wage doesn’t lead to net job losses (and in the jargon, it’s more commonly referred to as “employment effects,” Worstall’s negative spin on the term notwithstanding).
There’s a variety of reasons put forward, from the nonsensical (employers make so much profit they can just take the cash from there)…
Labor’s share of GDP has declined from an average of 64 percent from 1950 through the mid-1980s, to less than 56 percent today, while profits’ average share of GDP has risen accordingly—that’s a $1 trillion-a-year transfer of wealth from wages to profits. So yeah, on average, corporate America could afford to pay higher wages.
… to the simply wrong (if the poor have more money then they’ll spend it and this boosts the total economy. True, but given the marginal propensity to spend of perhaps 15% this isn’t large enough to have the claimed effect)…
First, in the jargon, it’s “marginal propensity to consume” (MPC), and second, 15 percent? Really? Worstall is implying that minimum wage workers will spend only 15 percent of their extra pay? I don’t know any other way to read that sentence, but it’s totally crazy.
The personal savings rate in the US the past couple years has been around 5 percent—that means, on average, Americans spend about 95 percent of everything they earn. And for minimum wage workers, the MPC is closer to 100 percent. Nearly every penny of minimum wage goes right back into the economy in the form of consumer spending. Period. Worstall rarely cites sources for the ridiculous numbers he spews, but if he did, his footnotes would all likely read: “Ibid., my ass.”
… to the truly delusional (raising waiters’ pay will mean that waiters spend more in restaurants meaning larger profits for restaurants).
It may not amount to a substantial economic stimulus on its own, but if we raise the wages of waiters, they will spend more money—at least some of it at restaurants! It would be truly delusional to suggest otherwise.
All just trying to deny that labor is a normal good and when the price of it rises people are going to want to purchase less of it.
It’s always struck me as odd how free market libertarians like Worstall see so little room for human agency in responding to things like minimum wage hikes. But for all his efforts to intimidate readers with jargon like “normal good,” Worstall’s immutable laws turn out to be eminently mutable: regardless of what employers want, the empirical data show little or no employment effect from modest increases in the minimum wage, due to all kinds of various reasons.
Whooh! That’s a lot of fisking! And I’ve only managed to get through Worstall’s first paragraph.
Worstall then goes on to cite a National Review article on a San Francisco comic book store owner’s struggles to cope with his city’s $15 minimum wage, and for the sake of brevity of I’ll skip his blockquotes. But the gist of it is that the proprietor figures he’ll need to generate an additional $80,000 a year in sales between his two stores to cover the additional cost of his six employees.
Back to Worstall:
One of the sounder arguments against democracy is that the average voter isn’t all that well informed. The basic argument in favour of democracy is that every other system is even worse: but let’s not forget that ill informed part.
Worstall’s creepy anti-democratic sentiments aside, how can the average voter help but be ill informed, what with bloggers like Worstall authoritatively pulling numbers out of their ass? Just sayin’.
Note that that’s not the rise in wages. That’s the rise in sales he’s got to achieve, at the normal margins, in order to have the extra gross profit to pay those higher wages. And he’s also got another problem. The comic books and graphic novels that he sells are printed for the national market. With their prices listed on the cover. Meaning that he can’t in fact raise his prices. Not unless he tries to institute an SF minimum wage surcharge on all his sales.
He’s got a possible solution, which is to launch a book of the month club, run webcasts of events and so on. Great, the very best of luck too. He’s trying to solve this minimum wage problem by getting better labor productivity. But as I’ve pointed out before getting better labor productivity is the same as stating that less labor is going to be employed for the same output.
But that’s not what this shop owner is doing. He’s trying to get more output—an extra $80,000 a year—from the same labor. That’s how he plans to cover his higher labor costs.
Because that’s what it means: he’s trying to get more revenue (ie, output) out of each hour of that now more expensive labor.
Way to contradict yourself, Tim.
Whereas with the older, cheaper, rate for labor greater output would have translated into a job for someone else, or perhaps more hours for those currently employed.
The tragically missing comma aside, “the older, cheaper rate for labor” simply did not translate into additional jobs at these comic book stores. But the newer, higher rate for labor is incentivizing a higher rate of productivity.
New jobs not being created is just as much the employment of less labor because it is now more expensive as firing someone because you can’t afford them anymore is.
Is this even English? First Worstall tries to dazzle us with incorrect jargon, and now he tries to confuse us with incomprehensible sentences. Seriously. Does he get paid for this? This is some truly awful writing. I know comment trolls with greater pride in their craft. (Also, since when did Worstall drop the “u” in “labour,” or is he really just a composite avatar for Adam Smith Institute interns?)
What I think Worstall is trying to say is that not creating new jobs in the future is functionally equivalent to eliminating jobs in the present.
That is, if people react to a higher minimum wage by increasing labor productivity this is the very thing that we state a higher minimum wage produces: fewer jobs. This does not invalidate the standard case against the minimum wage and job losses, it proves it.
So let me get this straight, Tim: higher wages, more innovation, and increased productivity are bad things?
To be clear, here’s what’s happening at these comic book shops: In response to the need to cover the cost of a higher minimum wage, the owner is seeking to boost productivity—and thus revenue—by engaging his existing workforce in creating new and better products and services for their customers. Nobody is losing their job. Everybody is getting a raise. And customers are getting a better experience.
That sounds to me like a win/win/win.
But had the minimum wage not gone up, the owner would have felt no need to innovate, and no jobs would have been created or eliminated.
So, yeah, Worstall hasn’t proven anything. Except that he’s an idiot.
