The chart below is from http://www.shadowstats.com SGS looks at the way government reports things ..a little differently now.

H/T to Stephanie over at FEDUP USA for her noteworthy compilation demonstrating why this chart is important.

An improvement is an improvement. Understood, but one should always be questioning methodology. Further, as we have seen in the recent past, Upticks in positive figures are great for headlines, but a week, or month later, those headline markers have been ‘revised’, yet not getting the fanfare in the same manner as the positive news.

No surprise at all.

Wednesday, February 16, 2011

Introduced

Passed by Chamber

Enjoy.

-Jason Jr.

I’m currently taking ECO 222 – Behavioral Economics. The class shows how different factors affect the market. For each of the experiments, we students act out a market scenario. Each experiment usually has 2 or 3 “Sessions” whereby different factors come into play. After we do this, we record the data and subsequently answer questions – our homework. It’s actually quite an interesting way to learn the different aspects. One of our recent ones was concerning minimum wage.

Let me give a quick rundown of the setup. In the class, there were 13 “job seekers” with a reservation wage (the wage at which they are indifferent to work) of $5, and 13 who had a reservation wage of $12. There were 9 of us who were the “employers” in the scenario. For the first session, if we hired one employee, we could produce goods that earned us $20; hire two employees and we would get $30. The employees that didn’t work “earned” their reservation wage. Keep in mind, all values are represented by dollars as it’s an objective, quantitative way to show these theories in action. For the second session, it was the same thing as the first, except there was a $15 minimum wage in place. In the third session, the minimum wage is still in place, however now we are able to hire four workers; 1 worker earns us $30, 2 earns $55, 3 earns $75, and 4 workers earn the firm $95.

I’ll go into the results of each of these sessions. I’ll also analyze them using competitive theory.

Session 1

In session one, all of our $5 workers were employed, and 3 of the $12 workers were employed. At the end, all 9 firms found workers, and 7 of those 9 had 2 workers. The average wage turned out to be $10. This means all the unemployed workers, the $12 ones, were voluntarily unemployed – their reservation wage was above the average wage paid by employers. Total profits for the firms were $97

Session 2

As mentioned above, session two is just like session one, except there is the $15 minimum wage. After this simulation went down, we ended up with only 9 employees, an almost even mix of the unemployed having $5 and $12 reservation wages. Average wage was, surprise surprise, $15. Total profits for firms in this session? $45 – more than 50% less than in session one.

Analysis of Sessions 1 and 2

Session one is pretty straight forward with how it turned out. The people that were able to achieve a higher profit by getting that second employee hired them, if they were going to get less profit by hiring that employee, they wouldn’t. This is trying to demonstrate a completely free economy.

Session two is different though. As mentioned this is where the $15 minimum wage kicks in. Is this the explanation for only nine employees being hired? Absolutely! Think about it, the minimum wage is higher than both reservation wages, so the employees are willing to work. Looking back at the “rules” if you will, we see that one employee brings in $20 of earnings for the firm, and two brings in $30. Using marginal product theory, we can see that it would be insane to hire 2 employees, as there would be zero profits, as compared to $5 in profits with one employee.

Did I mention that all the unemployed were involuntarily unemployed since the average wage ($15 in this session) was higher than both reservation wages.

Even competitive theory, the way a completely efficient market would look like, predicted this outcome. Let’s take a look at a graph I created for my homework that shows this competitive theory prediction for sessions one and two.

Supply and Demand of labor with and without minimum wage

You should see now that in cases like this, minimum wage hurts both the labor market and the employer. Yes, the average wage is higher, however there are less workers employed and less profits for firms. In the real world, where labor isn’t the only cost involved with doing business, this equates to all sorts of not so nice things.

Session 3

In session three, everyone was hired, and the average wage was $20 – higher than minimum wage! This was due to the upswing in our simulated economy and our capacity to hire more people and make more money. Even our competitive theory graph predicted this:

Minimum wage isn’t applicable

Hey, what do you know? In this case, we don’t even need a minimum wage!

Final thoughts

As you can see, minimum wage is, depending on the status of the economy, either not needed, or in the case of a slower economy, a very bad thing. If my 200 level economics class can demonstrate this, why do we have tools pushing for even higher minimum wages?

If you have any questions about the execution of the simulations or the data I used, feel free to comment and ask!

Even in light of Michigan’s troubling unemployment numbers, extending unemployment benefits at a cost to taxpayers merely provides more fuel for encouraging a further recession.  The state becomes a crutch while workers wait for some miracle to turn the economy around.  While workers wait, they become more dependent on government process, and less self sufficient.

I am not merely complaining however.

Occasionally, those of us who speak out against government “benevolence” as a solution to economic woes and events are chastised for apparent lack of solutions to issues such as these.  Aside from the obvious solution as being non participatory in the misguided social manipulations often referred to as safety nets, there are other simple solutions for problems such as these that might well be immediately regarded as cruel or heartless, but could have immediate and lasting positive effects for the economy.

Read my column  Michigan Business Done Right – “Solution” on Wednesday at RightMichigan.Com for a little different look on what tough decisions can be made that would provide FULL employment inside of one year if implented.

Brewer has suggested the minimum wage be increased to $10 an hour..  and more as The Detroit News reports:

Besides the 35 percent hike in the minimum wage, party officials want to mandate employer health coverage for all workers, boost unemployment benefits, slash utility rates and freeze home foreclosures. “It’s pretty obvious from this whose side we’re on. We’re on the side of people who are suffering, ” Mark Brewer, the party chairman, said during a news conference at Democratic headquarters in Lansing.

Its obvious whose side your on?  Examine the picture below and see what you are pulling for MR. Brewer.. (click to enlarge if your eyesight is as poor as your foresight)

Certainly, this might be a matter of opinion..  IF we didn’t ALREADY have anecdotal precedent which demonstrates that a minimum wage increase merely increases the chance business will not hire.  Teen Jobs already being killed off (and not just in Michigan) as Minimum wage hikes cause employers to lessen the number of part time seasonal jobs available.   There are plenty of examples..  Just Google “Minimum Wage Kills Teen Jobs” without the quotes..

But stopping at Jobs (as noted above) is not the whole part of running the State off the cliff for Brewer et al..  Lets just jump right out there and boost those unemployment bennies.. make em last longer OK? Well, considering part of the state’s DEBT is to the Federal Government for a loan to pay for unemployment already, maybe not so good an idea..

Unless you are Mark Brewer, or the Democrat leadership in Michigan and are convinced Michigan people are as stupid as a lump of Donkey dropping.

How bout those mortgages? Well certainly we can stop those greedy bankers who just want to take away..  but wait.. If the lenders who put their stockholders capital on the line for a loan cannot have some form of protection for their collateral, why in the heck would they want to loan in the first place? In fact.. Why be in business?  Go a step further MR. Brewer..  Lets propose Squatting! We’ll start at your house. Sorry about the first antique your new communal brothers break while sneaking a peanut butter n toast in the dark of night.

Oh yeah THAT’S right.. it will be midday, and the lights.. well the lights won’t be on.  They won’t be on because the Democrat party has made COAL PROHIBITIVELY EXPENSIVE NECESSARILY says Obama:

Barack Obama: “Under my plan of a cap and trade system, electricity rates would necessarily skyrocket.” (January 2008)

Not only that but then under a BREWER plan, the rates would then be frozen.  But don’t anyone worry about that!  The janitor at the power plant is a union position, and he has a lot of desks to take to storage. A few more months before he goes to the unemployment office too. But you know with that unemployment lasting longer, .. no worries.

As to any other jobs left over.. not going to be many for long.  Consider this video as a an appropriate analogy..

Of course the flag at the end of this video is simply the white flag we will all be flying.. if we still have the strength.

So get the stomach pump.. Brewer needs help..  And if ANYONE takes up his suggestions seriously, we all will.

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