True or False? Inflation devalues wages.

Empirical data on the minimum wage and teen unemployment rates.

The following data shows year, real GDP percentage change for the FY in that years, and the teen unemployment rate. Periods of subpar economic activity (1% growth or less) are bolded.

The figures after the "<-" show the MW in the year it changed, the percentage change from the prior MW rate, and where change occurred in successive years the % change from earlier periods where indicated.

1948 4.4% 9.2 <- $.40
1949 -0.5% 13.4
1950 8.7% 12.2 <- $.75 (87.5%)
1951 7.7% 8.2
1952 3.8% 8.5
1953 4.6% 7.6
1954 -0.7% 12.6
1955 7.1% 11.0
1956 1.9% 11.1 <- $1.00 (33%)
1957 2.0% 11.6
1958 -1.0% 15.9
1959 7.1% 14.6
1960 2.5% 14.7
1961 2.3% 16.8 <- $1.15 (15%)
1962 6.1% 14.7
1963 4.4% 17.2 <- $1.25 (8.6%)
1964 5.8% 16.2
1965 6.4% 14.8
1966 6.5% 12.8
1967 2.5% 12.9 <- $1.40 (12%)
1968 4.8% 12.7 <- $1.60 (14%) (28% from '66)
1969 3.1% 12.2
1970 0.2% 15.3
1971 3.4% 16.9
1972 5.3% 16.2
1973 5.8% 14.5
1974 -0.5% 16.0 <- $2.00 (25%)
1975 -0.2% 19.9 <- $2.10 (5%)
1976 5.3% 19.0 <- $ 2.30 (9.5%) (44% from '73)
1977 4.6% 17.8
1978 5.6% 16.4 <- $2.65 (15%)
1979 3.2% 16.1 <- $2.90 (9%)(26% from '77)
1980 -0.2% 17.8 <- $3.10 (7%) (35% from '77)
1981 2.5% 19.6 <-3.35 (8%)
1982 -1.9% 23.2
1983 4.5% 22.4
1984 7.2% 18.9
1985 4.1% 18.6
1986 3.5% 18.3
1987 3.4% 16.9
1988 4.1% 15.3
1989 3.5% 15.0
1990 1.9% 15.5 <- $3.80 (13%)
1991 -0.2% 18.7 <- $4.25 (12%) (27% from '89)
1992 3.3% 20.1
1993 2.7% 19.0
1994 4.0% 17.6
1995 2.5% 17.3
1996 3.7% 16.7 <- $4.75 (12%)
1997 4.5% 16.0 <- $5.15 (8%) (21%from '95)
1998 4.2% 14.6
1999 4.4% 13.9
2000 3.7% 13.1
2001 0.8% 14.7
2002 1.6% 16.5
2003 2.5% 17.5
2004 3.6% 17.0
2005 3.1% 16.6
2006 2.9% 15.4

Folks can make their own comments and conclusions on the data. My observations are that the economy appears to have a much more significant impact on unemployment than minimum wage. In every period of subpar economic performance, unemployment worsened. That was not the case with minimum wage increases.

The correlation between MW and unemployment is more ambiguous. There are several periods where a MW increase was followed by an increase in teen unemployment, though few would be in the devastating category, IMO. However, many of these time periods also correspond to time periods of subpar economic activity, which clouds the conclusion of how much of an effect the MW increase had. Also, there are several periods where the MW was increased but resulted in no increase in teen unemployment. Such periods included 1950 (an 87% increase in the MW and teen unemployment sharply fell); '61/'63 - general decline in unemployment with a MW increase, and '96-97, increase of 21% yet teen unemployment decreased several points.

Finally, there are several periods where teen unemployment increases despite no change in MW; the change from the late '90s to the '00s being an example, the early '70s being another, but again, these periods tend to correlate with periods of subpar economic activity.

Min wage rates: http://www.dol.gov/esa/minwage/chart.htm
GDP info: BEA.gov
Unemployment rates from here: http://www.bls.gov/webapps/legacy/cpsatab1.htm[/QUOTE]

 

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It had nothing to do with the FMW. Proof of that is in what caused it:

Housing collapse, due to banks going ape thinking they had no risk vis a vis credit default swaps. Thus they sold mortgage-backed-"securities" with more than 70% of them not meeting major bank standards for credit-worthy mortgage holders. It was a house of cards creating consumption (run up credit cards, and then loan consolidate when the home jumps up in "value."). When that collapsed, so too did a huge percentage of consumer-buying. Then companies panicked, and cut jobs at double the rate of sales losses. To suggest a small increase in the FMW was anywhere on the radar in Great Recession job-losses is patently absurd.

Higher MW-worker pay = MORE CONSUMPTION = MORE WORKERS TO MEET THE DEMAND RESULTING FROM IT. So yeah; the increases in 2006 and 2007, like every increase before them, created jobs, just not nearly enough to offset the HUGE job losses due to rapidly reduced consumption across the bulk of the income spectrum, which then had a doubling-affect due to businesses panicking and planning for an even worse future, which in part came true because of the excessive job-cuts they made, which created the worse future they feared.

 

You are just hypothesizing and have no way to falsify your statements.

According to your braindead logic, then, we could just make the MW a million dollars an hour.

 

That doesn't prove anything.

Prove that employment would not have dropped so much without the MW increase.

Doesn't higher MW pay also = MORE COSTS = LESS MONEY TO HIRE MORE WORKERS?

Sorry, but your unsupported say-so isn't proof.

 

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What was the effect on employment rate of people who were/are 34 years old? How about 26 years old? 47?

Ridiculous cherry-picking that ignores other factors affecting employment.

Now then. Spending by MW-workers is paycheck-to-paycheck. They're the epitome of high-monetary-velocity-point. You simply cannot reduce demand by paying them more. It's impossible, since spending creates the demand that businesses must hire workers to meet.

Proof of it is in large increases in the FMW (of 40% or more) which parallel, EXCLUSIVELY, decreases in national unemployment.

 

Probably minimal, because I believe most folks who earn the MW are younger workers.

I haven't seen you present any data whatsoever to support your assertions.

Sorry, but your say-so is not proof.

 

Why would you see a 30% increase in nominal wages if they only got a 20% nominal wage increase due entirely to productivity/technology?

When in this example they increased 20% due entirely to productivity/technology, their wages haven't appreciated as much as they should have.

No, a wage measures the value of labor. If you're underestimating the worth of their labor, which happens because of inflation, you are devaluing their wages from what they should be.

 

Because inflation increases prices 10%.

Sure they have. They increase exactly as much as they should have.

But they certainly didn't devalue.

I didn't estimate anything. What are you talking about?

 

No. Never. Not in aggregate. Some, labor-intensive enterpises that depend on low-wage workers might be affected, but the aggregate effect is more consumption, which maintains and even lowers labor as a percentage of sales.

Only in the flathead, flat earth, flat cost world of pseudo-economics advanced by business lobbies whose water is dutifully carried by the GOP, Fox News, et al, does increasing the minimum wage add to the cost of the stuff we buy. In fact, when looking at large increases in the FMW (most telling of causal effects, if any) inflation decreases as often as it increases. So +FMW =/> 40% a) has no effect on inflation, or b) the effect is so minimal that it's easily eclipsed by the real drivers of inflation: monetary policy and certain commodities.

- - - Updated - - -

What you believe is wrong. Check bls.gov / census.gov or myriad other sources if knowing is better than believing, which in my opinion it is.

 

How so?

 

Because it is just your say-so. Anyone can say anything.

 

Archie, you make many assertions, but how do you plan on testing those assertions in order to ascertain their validity? Don't you realize that macroeconomics is not a real science? Don't you realize that you're just pushing a BELIEF system and not an empirical model?

 

Here's the cure: open your eyes and read up-thread. Employment is affected by demand for goods and services, which increases with consumer spending, here mostly, and to a lesser extent, abroad. Inflation is affected by monetary policy (Fed's #1 priority: control/nuture inflation) and certain commodities, namely oil and gas.

I've said it repeatedly and in a variety of different ways.

 

The info is out there, some of which needs to be compared. I use Excel, and then post in HTML-form to a URL I own: http://koios.us/ph/ue_fmw_compare_1950_to_2012.html

 

Hmm, apparently what I believe is not wrong.


Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly-paid workers, they made up about half of those paid the Federal minimum wage or less. Among employed teenagers paid by the hour, about 23 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over.

And a good example of how your say-so isn't proof.

 

But their wages didn't rise 10% to compensate for the price increases. They rose 20% due entirely to productivity/technology.

Not with 10% inflation they didn't.

If their value of their labor is being underestimated, then their wages have been devalued.

Inflation underestimates the worth of their labor if their wages aren't adjusted for it, as in this example where their nominal wages increased entirely due to productivity/technology.

 

I'm a marketing exec (was; now just self-employed). We use real science, and do not cling to economic theories, per se. Here's how it works, in modern economies:

Real (actual consumption, aka demand for goods and services, aka how big is the pie we try to steal a slice of.)

Perceived (what's the confidence level? Banks lending? VCs being less risk averse? Consumers confident that buying a new car will not lead to starvation a year hence?)

Then it's simple math, to whom we can thank the Arabs of years long ago. (market size, competition, first-/second-/third-to-market calculations, and so on an so forth aka, can I make a million spending less than a million to get it?)

Economic theory is too elegant, and often has intellectual lock-down on too narrow a scope, or rules that are merely rule of thumb, and quickly eclipsed by factors that models ignore for sake of convenience. Merely my opinion of economics, the theory, compared to actual reality: we did this and that happened, as a direct result.

 

Then the real increase would be 20% and the total increase would be 30% if there was 10% inflation.

If the real increase was 20% and the total increase was 20% there is no inflation.

Sure they do. Supply and demand.

Dude, what are you talking about estimated. I didn't say anything about estimating anything. It's like you find some definition on line and you cling to it regardless of how nonsensical it is.

How does inflation estimate anything? That is just silly.

 

You wrote: "Probably minimal, because I believe most folks who earn the MW are younger workers." And not soon after giving stats on "teen" employment. But okay; younger = under 25, IYO (I was in management by that age; but no matter.)

25 and older = 53.3% of minimum wage earners. (ref: http://www.bls.gov/cps/minwage2011tbls.htm#7)

Ergo, most are not under 25 years of age. Most (+50%) are 25 and older. And teens are less than 1/5th of MW-earners.

 

I'm sorry, how does that show my statement "Probably minimal, because I believe most folks who earn the MW are younger workers" is wrong as you claimed?

 

There was 10% inflation.

They haven't appreciated as much as they should have because the wage increase didn't take into account the 10% inflation.

devalue

[with object] reduce or underestimate the worth or importance of

In this example, inflation causes the worth of labor in terms of dollars (wages) to be underestimated. Inflation devalues wages, regardless if they are appreciating or not, in this example.

 

Less than half is not equal to most. No kidding.

But fact-check me on that. Maybe you have a friend doing post-doc studies in math who can confirm.

Good luck.

 

I literally can not go through all this stupidity. This is basic elementary math. An increase in P puts downward pressure on O ONLY if M and V remain the same. That's all that needs to be said. It's not complicated, there is no reason to bring up dynamic systems, mechanical engineering, or whatever else you want to throw out there to make your silly point less silly.

When you say M+V=3 and you change P, you are defining a constant. In case you don't know what a constant is...

not changing or varying; uniform; regular; invariable: All conditions during the three experiments were constant.


This is very simple stuff man.

 

I take that as an admission of your defeat.

This equation proves you wrong:

dO/dt = dM/dt +dV/dt - dP/dt

Show me where in any of my equations I said M+V=3. Otherwise admit you are lying about what I said or shut the (*)(*)(*)(*) up.

 

Absolutely hilarious... here is what you said..

It is absolutely not only the case when M and V are constant. Take the instance in my previous equation.
dO/dt = dM/dt + dV/dt - dP/dt
dO/dt = 3 - dP/dt

When prices increase, dP/dt > 0. So set it to a positive number like 1: dO/dt=1.
When prices are constant, dP/dt = 0. dO/dt = 3.
When prices decrease, dP/dt < 0. So set it to a negative number like -1: dO/dt = 4.

Proving that an increase in prices puts downward pressure on output, constant prices don't affect output, and a decrease in prices puts upward pressure on output.



You are defining dM/dt + dV/dt = 3 and changing dP/dt. When you define dM/dt + dV/dt = 3 and you change P... dM/dt + dV/dt = 3 is a constant. That is why increasing P puts downward pressure on O because you are making dM/dt + dV/dt = 3. The fact you can't get this is absolutely hilarious!!