David R. Henderson  

60 Minutes "Gets" Minimum Wage, Kind Of

I Loved Free-Range Kids... "Big Corporations Almost Never...
The island [Samoa] may lose its tuna industry. One cannery, Chicken of the Sea, has left. And because the U.S. Congress wanted to help Samoa by imposing American minimum wage, Governor Tulafono is worried that the last cannery, Starkist, could look to other shores.

This is from last week's "60 Minutes" segment on Samoa, reported by Scott Pelley. That's Pelley talking above. It's hard to tell whether Pelley gets the irony of the U.S. Congress "helping" Samoa by destroying its tuna industry. He seems to but he doesn't linger on it. Check the 9:30 to 10:30 segment.

HT to Mike Williams.

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CATEGORIES: Labor Market

COMMENTS (17 to date)
SydB writes:

I couldn't watch the whole thing. Ten minutes is valuable time and watching a video is pointless. Slow as heck.

Does he every demonstrate cause and effect? Does anyone know how many layoffs and closing took place before the wage increase. And why did they open a plant in the US?:

"The governor of the U.S. state of Georgia has confirmed that Chicken of the Sea International is setting up a plant in the city of Lyons.
Last week Friday, the San Diego-based Chicken of the Sea announced it was closing its canning operations in American Samoa and opening a U.S. plant.

The Georgia Governor, Sonny Perdue, says the company will create 200 jobs and invest about 20 million US dollars.

Mr Perdue says Georgia’s strong workforce and extensive transportation network make it a natural choice for food processing plants striving to keep costs down.

The president of Chicken of the Sea, Shue Wing Chan, says Georgia provides a business development package that makes for a smooth transition."

ed writes:

But we know from Card and Krueger that this can't happen! Econ 101 is so unsophisticated.

david writes:

Econ 101 is unsophisticated; there's a good chance that what's happening here is just the lack of concessions from the American Samoan government. It makes no sense to blame US federal minimum wages if the "other shores" that the canneries are moving to are... US jurisdictions also regulated by those same minimum wages.

I suspect that the dynamic here is a larger business that can exercise market and therefore political power (by threatening, credibly, to move and causing a politically unacceptable surge in local unemployment) demanding concessions from a smaller city-sized government, which can fund these concessions by taxing smaller or less mobile local businesses.

Transfers in this manner are common in the US; Fairfax, Virginia (home of GMU) offers multimillion dollar packages for large companies to set up shop there. Where do you think it gets that money from?

David C writes:

Even if he hadn't heard of it before, I'd be surprised if nobody Scott Pelley interviewed had mentioned the trade-off between wages and employment when explaining why they thought industries were leaving Samoa. He almost certainly does get it, but is probably keeping his mouth shut to try and maintain journalistic objectivity... opinions of shape of Earth differ and all that.

"But we know from Card and Krueger that this can't happen! Econ 101 is so unsophisticated." - ed

Please at least make some attempt to understand the criticisms of the minimum wage model before you disparage them.


david writes:

... in fact, if you read the situation carefully, you'll see that the earlier cannery Chicken of the Sea ditched a territory with lower minimum wage for a state with a higher minimum wage. Hah!

Don Lloyd writes:

This is the price that Samoa pays for having a common currency with the US, i.e. the US dollar.

The only way that a common dollar-priced minimum wage for say, Samoa and Cleveland, would not be destructive, would be for the two locales to have a comparable per capita supply of money, ignoring the question of the relative supplies of goods and services in the two locales.

The same problem would occur if time dislocations were possible. What would happen if the 2010 minimum wage were applied to 1923 Scranton? Given that 1923 Scranton has not yet seen any major part of the destructive power of nearly a century of the FED's monetary expansion, hardly any 1923 Scranton business could afford to pay a 2010 minimum dollar wage.

Prices are not constant vs changes in the effective local per capita supply of money.

Regards, Don

RL writes:

david, who I gather is NOT an economist, says, incorrectly: "It makes no sense to blame US federal minimum wages if the "other shores" that the canneries are moving to are... US jurisdictions also regulated by those same minimum wages."

This completely fails to understand comparative advantage and how political forces use the minimum wage to defeat it. Why do unions favor increasing the minimum wage when union workers make far more? Because if minimum wage workers are both less productive AND cheaper, they may be competitive. Imagine one union worker is as productive as 2 minimum wage workers. Hiring 2 workers at $7/hr is cheaper than hiring 1 union member at $15/hr, but if the minimum wage is raised to $8/hr, it is now cheaper to go union.

Similarly, if the lower productivity of Samoans is more than compensated by the lower wages they accept, Chicken of the Sea works in Samoa. If political forces then compel Samoans to accept higher wages, they are suddenly no longer competitive with more productive Georgian workers.

david writes:

RL, unions can screen by productivity (and hence can be dramatically more productive than non-union workers in the same industry). Has the US been doing the same vis à vis American Samoa recently?

Jody writes:

david - watch the Peter Schiff video above where he notes that the Georgia cannery is much more mechanized than the American Samoa cannery.

Basically capital was substituted for labor in the move so the jobs changed.

RL writes:

David, for whom careful reading seems a chore, notes: "RL, unions can screen by productivity (and hence can be dramatically more productive than non-union workers in the same industry)"

The puzzle is that he offers this tidbit as if it were a refutation of my point when it in fact is a repetition of my point. To reiterate my point again: Unions are more productive, but productivity alone does not guarantee getting the contract. There is also price to consider. Hiring someone less productive can be the best move if the price is low enough. Unions lobby for minimum wage so the price cannot get low enough. This productivity/price trade-off likely explains why Samoa is losing jobs to Georgia as well, once Samoa was forced to accept the same minimum wage that Georgians accept.

Chris Koresko writes:

Please correct me if I'm wrong, but my vague memory is that the first minimum wage law in the U.S. was enacted explicitly to improve the lot of white workers by reducing competition from black workers in a particular industry. Is this true?

David R. Henderson writes:

Chris Koresko,
Your comment is worth a whole post in response. Unfortunately, my copy of Myrdal's classic is in my office. Will give some juicy quotes affirming your point later today.

Floccina writes:

Related and interesting take on min wage and employment:


Can increased employment follow an increase in the minimum wage?

Sure it can.

All that is necessary is that you start with a shortage of labor.

Of course, if firms respond to shortages of labor by raising wages and hiring more workers, then employment is less than it would have been if the minimum wage hadn't been increased.

And a decrease in the minimum wage could still result in increased employment as well.

Kevin Hodgkins writes:

It is the marginal change that matters. The cannery has production plans available for 2 different canneries, one in Samoa the other in Georgia. Its MC for the Samoa operation is lower than the MC for hte potential GA operation. Then one day, the production plan inputs change for the Samoa cannery and all of the sudden the Georgia cannery has a lower MC.

In this case it was imposition of the minimum wage causing an incresae in wages. It could have been imposition by Samoa of a higher property tax. It could have been Georgia providing specific training to residents on cannery operations and management that incresaed their productivity. It could have been a forecast that shipping costs from Samoa to the consumer would increase. There are hundreds of potential variables that could have changed the MC of the Samoa plant. In this case though it was imposition of the minimum wage.

Imagine what would happen if the minimum wage were imposed in Haiti! I wonder how many articles would extol its ability to increase the well-being of Haitians?

Behind any law which imposes fines on violators lies the assumption that fines shape behavior by raising costs. If employers respond to the structure of financial incentives so as to reduce costs, they will reduce employment. If employers do not respond to the structure of financial incentives, a fine of $0.01 for every million of hours purchased at less than the minimum will have the same effect as any other fine. Advocates for minimum wage laws who assert that minimum wage laws do not reduce employment a) ignore abundant empirical research and b) contradict themselves.

Douglass Holmes writes:

Despite his wonderful education (PhD from GMU), Bill Woolsey is not very clear in the article you referenced.
My older son got his first job as a 14 year old. His starting wage was above legal minimum wage because of the shortage of labor in our area. As far as I know, he never worked at legal minimum wage until the recent increases in legal minimum wage caught up with the wage he was getting. Shortly after that, he lost his job.
My younger son has also never worked for minimum wage. When he got his first job as a teenager, the legal minimum wage was $5.15/hour and almost all jobs in our area started people at $6.00/hour (or higher).
Raising the legal minimum wage will have no impact on employment when the market minimum wage is higher than the legal minimum wage.
Of course, the real purpose of the minimum wage is to help politicians keep their jobs by APPEARING to help working people.

DDG writes:

Requiring Somoa to match mainland America's minimum wage failed because the Somaon economy is not the same. It would be like requiring Mexico to set a minimum wage based in America. It doesn't mean that minimum wage is a bad idea, just don't set it to a functional equivelant of $20 an hour like they did in Somoa.

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