Alan Blinder's Priorities for Raising Wages in the USA

Alan Blinder, Professor of economics and public affairs at Princeton University, wrote a piece in the WSJ last Tuesday, Only One Candidate Can Make Wages Grow Again. As you might guess, this liberal economist is not writing in favor of Donald Trump or Alfred E. Neumann. Blinder apparently wishes he was as famous as Paul Krugman (or perhaps Karl Marx) and therefore has shed any pretense of objectivity or neutrality. He is a full bore Hillary supporter.

But don’t get distracted by my name calling. His piece is nonsense and I wanted to dissect it piece by piece.  The main problem is that Blinder ignores cause and effect. He starts with a liberal passion that says if a person’s wage is not high enough then we should simply raise it. It’s like if there is blood rushing out of a bullet wound then just push it back in. Pushing blood back into the hole totally ignores WHY it is gushing out.

I will get to some of Blinder’s points below. But first let’s discuss the data he quotes with respect to real wages. He prefers to use the buying power of what the workers earn as wages and salary – but he leaves out a very important part of earnings – the benefits. Benefits matter. The more benefits a worker gets, the richer he or she is. As our politicians are fond of reminding us – the more of our wage and salary that we don’t have to spend on healthcare – the more we can spend on other things. The Bureau of Labor Statistics has data on wage & salary, benefits, and the sum of the two, total compensation. They have nice tables showing quarterly data from 2004 to 2015. Here is what I found from the end of 2004 to the end of 2015:

            W&S rose by 28%

            Benefits rose by 43%

            Compensation rose by 33%

            Inflation rose by 24%.

In terms of buying power, real W&S rose by only 4% (28%-24%) over those 12 years. That’s yucky. But notice that benefits rose strikingly so that the buying power of compensation increased 9%. When Blinder uses real W&S he greatly understates the growth of the buying power of what a worker earns. He never even mentions compensation or benefits. I wonder why. No I don't. We know why. It spoils his progressive story. 

The other issue is history. Wages are characterized as a lagging indicator. That means labor is like your Grandpa. You have to call him three or four times before he finally comes to the dinner table. It often takes a few years after a recession before labor market tighten enough for wages to rise faster. Wages have repeated that pattern after our last recession albeit very slowly and so far wages continue to rise at a slow pace. Note that if labor supply begins to improve, this alone won’t help wage change. It will take a stronger bounce in labor demand. Firms, therefore will need to be more optimistic about the future and be convinced they need more capital and labor. But Blinder is silent about any policies that might make business feel more optimistic about the future. He prefers the following Clinton/Marx options.

            Increasing the minimum wage

            Profit-sharing (firms would receive a tax incentive if they profit-share with labor)

            Increased vocational training for non-college bound

            Provide pre-K education for all American children

            More generous Earned Income Tax Credit and expanding it to people without children

That’s his whole list. Thoughts…

While increasing the minimum wage increases the wage for some people, it will probably reduce the wage to zero for others. My friend Chuck T. says this is a full employment act for robots. But worse, what does this do to improve the optimism of the businesses that hire these workers?

What does forced profit-sharing do to improve the outlook of businesses?

We have a healthy industry of folks who provide alternatives to college education. What Blinder really means is FREE vocational training. But you get what you pay for. Right? I wrote about free education a couple of weeks ago.

Blinder implies that we don't work hard enough to move students away from college and into vocational training. I agree. The Germans seem to be very good at it. But why don't we do that? He should ask his liberal friends how we should target people who they might think are potential Einsteins into being plumbers. Who gets targeted? How is this done? Don't counselors already do that? 

Pre-K education might take 30 years. That’s a real winner. Please note sarcasm. What happens if we give more kids a great Pre-K experience without moving them out of a culture of poverty, drugs, and violence?

Giving the EITC to everyone seems like a big increase in spending. This is widely regarded as a good poverty program. So does Blinder advocate ending dead-end poverty programs and shifting the money to EITC? He doesn’t say. Piling more and more money onto already failing poverty programs does not make sense to me. I like EITC. But let's have it replace those programs that don't work. 

In fact he is totally silent about the implications of his suggestions for the national debt. Is there no end to how big our national debt can become without negative ramifications for business firms?

Business firms are the ones we want to hire people and then give them increases in wages and benefits. I would think that any balanced program to improve incomes in the USA might offer a few constructive ways to make firms optimistic about the future. Or is this just a backdoor way to increase the extent of government and reduce the scope of private enterprise in our economy? Mr Blinder, what is the truth here?