Monday, August 24, 2009

finally some good news in American manufacturing

I found a story about a manufacturing company which moved its plants from China to Houston. The main rationale had to do with the number of knockoff products produced in China, with the company spending half a million dollars a month fighting counterfeit goods. His factory is also using automation to reduce the need for workers, which I foresee as the big trend in manufacturing. Automation advances coupled with decreasing relative cost per worker in the US as the dollar drops will lead to more manufacturing returning to the US since the cost per worker here will be a good deal when other variables such as quality and worker loyalty are factored in.

Well, here's a toast to one company doing the right thing. May many more follow

Sunday, August 23, 2009

The Invisible Boot has kicked Facebook

Everyone on Facebook, if you enjoy this site please become a fan and spread the word. Just search for "The Invisible Boot" if you have nay issue with the link. Thanks

Does the minimum wage cause unemployment to rise?

I have frequently heard the argument made that increases in the minimum wage should always cause unemployment to rise since it increases the minimum cost of employing a worker. How true it is this statement and what variables affect the validity of the question?

The first two points to be examines are 1) is the state or city raising minimum wage in a situation in which there is a shortage(above equilibrium wage) or surplus(below equilibrium wage) of workers and 2) how many people are affected by the minimum wage increase compared to the total labor market. On the first point, places with a shortage of workers will not see a strain on hiring enforced by minimum wage increases as the market price of labor is already in excess of the minimum wage. This would be the case in a city like New York City where the cost of living makes lower-wage workers scarce because there is nobody willing to work at minimum wage when it is not enough to cover basic goods. On the converse, in a place with a flood of workers compares to employers such as a small town, the wages are below equilibrium so increases in minimum wage will cause unemployment as workers are costing more than the market will bear. The former case is illustrated by the above chart where the equilibrium price for a worker (P*) is above that of the minimum wage (P1). As a result, the quantity of workers desired by businesses(q1) is higher than those who will realistically work at said wages(q2). As a result, and increase in the minimum wage up the equilibrium point will have the effect of actually raising employment levels because some marginal workers will be desiring to work at the higher wages than at the previous minimum wage. Comparisons of employment rates in both low and high minimum wage states shows that there is little difference in employment levels between states which pay the minimum, such as Texas, and states which pay more, such as California and Oregon. The reason has to do with the low number of workers who make the minimum wage in the United States. which is 3% of all hourly workers in the United States. AS a result, the change in minimum wage ends up making 97% of all workers relatively less expensive since they are making less in real terms since the lowest level of compensation rises.

Comparing states with high than Federal minimum wage and those with lower than federal minimum wage on employment levels reveals the following (data taken from the Bureau of Labor Statistics) shows that the thirteen states plus DC which have higher than federal minimum wages average 10.25% unemployment. The nine with lower minimum wages than federal average 8.8% unemployment. While this is a bit higher, it also reflects a difference in the characteristics of the two types of states which deflates the unemployment figures. The higher wage states tended to be more adversely affected by the housing collapse and outsourcing of manufacturing becuase they were more urbanized and industrial states such as MI, CA, RI, OH while the low wage states are Southern states and other states with larger farm populations which are not in the unemployment numbers such as AR, KS, WY, AL, LA, MS. Of the high wage state 43% were below the national unemployment rate and 55.6% of low wage states were below the national unemployment rate. In short, there is a slight increase in unemployment caused by minimum wage on the aggregate level, but it is mostly a function of low wages in a lot of the nation and it is not universally true that unemployment causes increased unemployment in all situations

Tuesday, August 4, 2009

simple economics-supply and demand

Here is the world's simplest supply and demand explanation

My apologies for the delayed postings

I am transitioning to a new stage in my life so I will be a bit busy for about two months and will post as I can until I get done. I am glad for all of my readers and hope you enjoy the blog.