16494: Danier: Re: 16452: Vilaire: Re: 16449: Danier: Re: Minimum wage and its unintended consequences. (fwd)

[Bob Corbett <corbetre@webster.edu>]

From: Yves  Danier <yd5@columbia.edu>


> Mr. Vilaire writes:
>
> 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....

Mr. Vilaire, there are cost associated with imported goods. For example,
the cost of the dollar. If the Gourde devalueates with respect to dollar
then it will cost more to buy the same merchandise from overseas. The
normal tendency is to pass the cost to the consumers making it harder for
those who do not work. Minimum wage does help the unemployed.

Mr Vilaire also wrote:


>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...

Mr Vilaire no matter how you look at it, price will increase. It could be
as a result of the increase in labor cost or the increase in demand or
both.
>By the way, the increase demand would be good news to many moribund
>sectors of the economy which have been limping along.

Here is the biggest fallacy in your argument. The Haitian economy does not
respond to market changes. The "laissez-faire" approach or market
correction approach would not work for many reasons. Haiti lacks the basic
structural and social services to respond to market demand. Lack of
electricity, road, and security twarf all incentive for investment that
could help respond to market demands, notwithstanding poltical corruption.

If you take the price of nationally produce rice which far more expensive
than the imported rice. Assuming that consumer taste and quality are
irrelevant, you should have seen by now an increase in the production
of rice in Haiti, creating a surplus large enough to level the
locally produced rice with the imported rice. But that did not happen.

> 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.

GDP and GNP are now used interchangeably. You are correct that GDP takes
into consideration the value of services and transfers which are a major
factor in Haitian economy. I did not mean to exclude these factors in my
analysis.

> 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.

In the case of Haiti it is gospel. If you increase minimum wage, you will
increase inflation. However, I must admit that since 80% of the population
is unemployed, the increase in labor cost may not directly affect price.
The increase in demand will inturn increase price for the market is unable
to react to the demand. Thus too much money chasing too few goods.

> 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

What is missing in that last piece of your argument, is the 80% of
unemployed who have to pay more for an increase in minimum wage. if you
argue that the unemployment rates is less than 50%, i may tend to see the
benefits of whole at the expense of the individuals.

thanks