Economic unreality.A POX ON LOCALLY MANDATED MINIMUM WAGESThe splendid thing about economics is the universality of its laws, regardless of race, ethnicity, religion, age or geography. The more we try to manipulate economic laws in our favor, the more distortions will come back to haunt us. Detroit is experiencing this phenomenon in 2001. It is not a happy experience. One example is the "minimum wage" law. Wages are the price of labor. If labor is paid less than its productivity (or contribution to the market basket market basket n. 1. A grocery cart. 2. A group of products or services in a specific market, especially when considered in terms of its fluctuating cost in determining a consumer price index: of goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. ), then it is just a matter of time until a more enterprising firm pirates the underpaid un·der·paid v. Past tense and past participle of underpay. underpaid Adjective not paid as much as the job deserves underpaid adj → worker away. Similarly, if labor is paid more than its productivity; it is just a matter of time until the firm is no longer making enough to pay the worker. Either wages get cut or frozen, or layoffs occur. Sometimes benefits are the first to get chopped. One way or another, a worker's job tenure is dependent on the long-term equilibrium of pay and productivity, both level and growth rate. A couple years ago, Detroit voters enacted a "Living Wage" ordinance tantamount tan·ta·mount adj. Equivalent in effect or value: a request tantamount to a demand. [From obsolete tantamount, an equivalent, from Anglo-Norman to minimum wage." Many large municipalities across the nation passed such legislation, making compliance with the mandate a condition for private firms (and some not-for-profit firms) contracting with the city. We now know that most of these ordinances were implemented at a time when U.S. labor markets labor market A place where labor is exchanged for wages; an LM is defined by geography, education and technical expertise, occupation, licensure or certification requirements, and job experience were tightening or were already tighter than a drum. Businesses everywhere, by 1998, were scrambling to find or hold their workers. By last year, U.S. unemployment rates dropped below 4 percent; Michigan's jobless rate fell below 3.5 percent (it had lingered below the national rate for nearly five consecutive years). The "minimum wage" in most urban areas was something of a joke, because even most fast-food establishments already were paying a couple dollars above minimum wage and still not getting positions filled. Ditto the upper ends of the pay scales for high-tech workers with skills and experience. Conclusion? When times are good and the economy is booming, minimum wage-type laws are innocuous in·noc·u·ous adj. Having no adverse effect; harmless. innocuous (i·näˈ·kyōō· . Although such laws may limit employment opportunities and upward mobility upward mobility n. The state of being upwardly mobile. upward mobility Noun movement from a lower to a higher economic and social status for those with the lowest skills, they do not directly result in layoffs or higher unemployment rates. Now, however, the job market has cracked. Falling demand for goods and services makes it harder for firms to achieve the productivity gains required to pay workers whose contributions fall short of mandated minimum wages. This is when minimum-wage legislation hurts badly. For many firms, in Detroit and elsewhere, if the management (private and public sector alike) had the flexibility to adjust wages to the new economic reality, many marginal workers would retain their jobs. Sadly, more often than not, it is the disadvantaged minority youth who is compromised by the legal inflexibility of minimum-wage mandates. David Littmann David Littmann, M.D., (1906-1981) was a cardiologist and Harvard Medical School professor and researcher[1]. His name is well-known in the medical field for the patented Littmann Stethoscope reputed for its acoustic performances for auscultation. is senior vice president and chief economist The Chief Economist is a single position job class having primary responsibility for the development, coordination, and production of economic and financial analysis. It is distinguished from the other economist positions by the broader scope of responsibility encompassing the at Comerica Incorporated. [Graph omitted] [Graph omitted] [Graph omitted] [Graph omitted] [Graph omitted] [Graph omitted] |
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