Jim Devine writes:
> As Tavis notes, labor productivity isn't constant, so this
> inflationary scenario doesn't wash. In fact, as others have
> noted, higher wages may stimulate technological change and more
> capital-intensive production, so that labor productivity growth
> would accelerate. This, as Tavis notes, also helps with the
> demand-side scenario (case 2).
>
> Going beyond this quibble, I think that a rise in the minimum
> wage is one small part of the prevention of the looming
> _deflationary_ tendencies in the US and world economies.
While labor productivity is not constant, I continue to think it is
avoidance to claim that technological change will COMPLETELY eliminate the
INITIAL inflationary impact. This is the kind of neoclassical slight of hand
that we rightly condemn mainstream economists for when they use it.
Moreover, these technological changes are not rapid so that over the next two
years we should definitely assume that labor productive changes will be
unaffected by the minimum wage rise.
In addition, Jim claims that the minimum wage increase is an antidote to
deflationary tendencies so that he, too, is assuming that the minimum wage
rise will keep price higher than they would have been otherwise. Finally,
when the minimum wage was being discussed a fast food's owner
who was in favor of the rise indicated that he expected to increase his
prices by an average of 1.20 percent; 6 cents on a $5 bill.
Again, instead of giving some longrun neoclassical explanation which will
only PARTIALLY offset the increase, we should be honest and defend the modest
inflationary increase which will definitely occur in the shortrun. If we are
unwilling to confront the inflationary argument head-on when it is low wage
workers gaining increases, how will we respond when it is unionized middle
income workers gaining wage increases as the labor market tightens?
