16452: Vilaire: Re: 16449: Danier: Re: Minimum wage and its unintended consequences. (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: Vilaire@aol.com

Mr. Yves Danier writes:

<< As the cost of labor goes up so does the price of goods that are using
labor to produce them. As a result of this policy, inflation goes up and
national currency devaluates.... In the case of Haiti where GNP cannot cover
half of National consumption, most of consumed goods are imported. With
the implementation of a minimum wage that automatically increases labor
cost and Gross National Product remaining stagnant, you end up with too
much money chasing too few goods.>

Mr. Danier, there are some holes in your argument. If we accept the premise,
and you are right, that most consumed goods in Haiti are imported, then it
does not follow that an increase in the minimum wage would drive up labor costs
of those IMPORTED goods since those goods are NOT produced with the increased
minimum wage in question. It is quite possible that if minimum wage is
increased, as a result of more disposable income and increased demand, the price of
goods could increase. But here, the price increase is derivative -- as a result
of increased demand; not BECAUSE of increased labor costs. By the way, the
increase demand would be good news to many moribund sectors of the economy which
have been limping along.

Secondly, you make light of the very positive impact an increase in the
minimum wage can have in bringing added energy to local economic activity (whether
goods or services). Remember, when you talk about GNP (not to be confused with
GDP), you can't omit the value of services and transfers. Whether from the
Diaspora (almost $1B/annually) or international aid (what with the IDB
relaunching its program), transfers are an important part of the Haitian economy.

The fact is, your analysis is way too static to capture economic realities in
Haiti -- or anywhere else for that matter.  Your formula: Increase Minimum
Wage = Inflation = Devaluation of currency is not gospel. Nothing is in
economics, as you probably know.

Finally, you write:
"...This is a text book example of a policy that does more harm than good."

Textbook examples usually mean jack in the real world. So, let's hope Haitian
authorities throw away these economic bibles and look to daily realities in
order to adopt a minimum wage in step with what's real in Haiti, for Haitians.
After all, if consumers are to play a key role in spurring economic growth,
who will buy those goods and services -- furniture, construction, manicure,
pedicure, bayakou in the latrine, shoe shine, dental work, kite making, bread,
pate, fritay -- if Haitian workers spend all their wages getting to and from work?

Marx-Vilaire