Dealing with stagnant wages the Jason Statham way

There is not one but two specters haunting our economy. The first is the output gap, actual GDP is approx. $1 trillion smaller than potential GDP. The second is distribution of income (particularly, between wage share and capital share). As Henry Blodget explains it, “Again, right now in this country, we have the painful juxtaposition of the highest corporate profit margins in history, combined with one of the highest unemployment rates in history. We also have the lowest wages in history as a percent of the economy.”

Our output gap and our income maldistribution reinforce each other. High unemployment means the job market is a buyer’s market while low wages mean there is less consumer demand. The optimistic way of looking at this is tackling one of them would alleviate the other. The pessimistic way is that when Congress and the White House work hard night and day to come up with ways to worsen one of problems, they can’t help but also worsen the other.

Since the path to reducing the output gap is so obvious, I feel like I’m trolling you just spelling it out. The government needs to loosen its fiscal stance. Whether Congress does this by increasing spending or cutting taxes or rebasing each of the 140 billion pennies in circulation to $5, its all the same to me. But you know this already.

The interesting problem is income maldistribution. This can be approached as a fiscal policy issue but its also amenable to non-fiscal economic policy reform. For example, Blodget goes Norma Rae on us and suggests the economy needs more unions. Then there is the politician’s go-to solution to stagnant wages, more education means higher pay. That may be true at the individual level but in aggregate, this is bunk. It gets you a more literate unemployment line, an increased focus on credentials (instead of competence) and a whole lot of jumbo student loans. We’ll let that one bide. A better idea, as many have suggested, is to raise the minimum wage, which since has fallen by a third in real times since its 1968 peak, even as labor productivity as increased by 200%.

The most intriguing minimum wage proposal I’ve seen is, like the plot of a Jason Statham movie, diabolical and cruel in a way that warms my heart. Its called the Universal Living Wage (or “ULW”) and what it would do is pit landlord against employer in a series of city by city political death races. In turn, cities would compete against each other for new employers in a benevolent race to the bottom. The end result would be higher wages and lower housing costs without adding a penny to the federal budget. Let’s go to the tape

The concept is simple. It is based on the premise that if a person works 40 hours a week, then he/she should be able to afford basic housing. We use two existing Federal guidelines to determine what the Universal Living Wage should be. The first guideline (a HUD standard also used by banking institutions across America) dictates that no more than 30% of a person’s gross monthly income should be spent on housing. The second guideline, the Fair Market Rents (FMRs) are established by HUD throughout the country for each municipality and all other areas. Therefore, the Universal Living Wage will vary per area in accordance with the FMR. FMRs are based on gross rent estimates which include shelter, rent and the cost of utilities except telephone service.

This is so damn clever. Every city (or to be precise, metro area) would have its own unique minimum wage based on its cost of housing. As the ULW is phased in over a number of years, it puts the political leaders in every city on the horns of a dilemma, it either reforms their zoning regulations and other housing policies to make housing affordable for the working poor (such they can afford rent without government subsidy) or they will watch their minimum wage grow like a weed. And that’s the death race part, the minimum wage in any metro area would reflect the relative strength of landlords who want expensive housing versus employers who want cheap workers.

No man is an island and all that, every city will always know what the ULW is in every other city. Cities with a low ULWw will aggressively poach employers from those with a high ULW. Like water seeking its level, this can’t help but raise wages in low cost areas and cut housing costs in high wage areas. To give an example based on 2013 housing costs, lets compare the hourly ULW of metro DC to that of the part of Virginia that’s almost in North Carolina (remember, current minimum wage is $7.25/hr).
Washington-Arlington-Alexandria, DC-VA-MD HUD Metro FMR Area $21.73
Danville, VA MSA $7.71

Anyway, check out the Universal Living Wage website, study it. Embrace it.

ADDENDUM: It occurs to me that noting Blodget’s Norma Rae-like qualities may be a bit obscure to some readers.
“Norma Rae is a 1979 American drama film that tells the story of a factory worker from a small town in North Carolina, who becomes involved in the labor union activities at the textile factory where she works. The film stars Sally Field in the title role…”

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Guest
3 years 21 days ago
Guest
3 years 22 days ago

You say that employers would move to areas where wages were low. I’m not so sure. If you were say selling groceries in a high wage and high rent area then much of your costs would be just the same as in the next city that was a low wage, low rent, zone. You would pay just as much for fuel, the goods you were selling on, vehicles etc etc. Wages would only be one aspect of a much larger cost structure. BUT you would have customers who were able to pay a big chunk more because they were receiving higher wages and (if they were landlords) higher rents. You say that 30% of wages get spent on housing but that still leaves 70%. I suspect that that would mean that many service sector employers (and that is an ever bigger majority of the economy) would move to the HIGH wage and high rent zones. In principle, manufacturers might like a low wage zone but those few manufacturing jobs that have not been automated or sent off shore are relatively well paid anyway are they not? The minimum wage jobs are service sector or agricultural laboring jobs aren’t they?
I think this is similar to how even between countries, net capital flows are typically from the poor countries to the richer countries.

Guest
Clonal Antibody
3 years 22 days ago

Beo,

I tend to agree with @tatere. The only way your suggestion can work is if the Government offers subsidized/free housing – similar to the FDR’s Housing Authority Projects. Three generations of families lived in the “projects” until they were finally torn down.

Without that you could have a situation seen in the third world where you have inexpensive overt rents, but under the table payments to landlords/previous tenants – this is very similar to what occurs with “rent control”

Guest
beowulf
3 years 22 days ago

“the obvious move for a worker is to find below-market housing in a high-ULW area”.

FMR formulas are based on rentals housing that comply with building and rental codes (which are taken seriously by most city governments), so off-book arrangements wouldn’t be included. I don’t know what you mean by favelas, if you mean some different socioeconomic groups live in different neighborhoods, yes, but that’s always bee true. If you mean like in Brazil with lawless areas where paramedics responding to calls carry assault rifles and the police patrol by helicopter gunship, I would say not so much.

Remember, the idea is to increase lower income wages (which would surely reduce income inequality). One good thing about Brazil, its GINI inequality index score (55) makes the US’s look not so bad (46).
http://data.worldbank.org/indicator/SI.POV.GINI

Guest
tatere
3 years 23 days ago

I like this idea in many ways, but might it not end up being a formula for favelas? In that the obvious move for a worker is to find below-market housing in a high-ULW area, and I’d assume the FMR formulas are only based on formal rents, not off-book arrangements, squats, etc.

Guest
Oliver
3 years 22 days ago
‘reforming zoning regulations’ is unintended shorthand for creating urban sprawl, I’d say. I’m not aquainted with US zoning regulations in detail but, assuming scarce land resources, anything that encourages more use of land for residential purposes is counter to any lesson learnt in urban planning since the days of motorization. Any solution imo should not aim at freeing new land resources outside of existing urban areas, but at distributing the equity effect of rising land prices more, well, equitably. Here in Switzerland, which is a small country, there are a number of arrangements and institutions in place for dealing with high rents. For one, tenancy law is very protective of existing contracts. Basically, as an owner you can’t raise rents on existing tenants unless you prove that you’ve added value to the property. Nor are contracts easily terminated. Most contracts have a clause that binds movements looseley to shifts in interest rates, which can aboviously go both ways. Overall, everything is geared towards long term owner-tenant relationships. And in Zurich, for example, about 30% of residentail property is owned by either the state or housing cooperatives, plus lots by pension funds. These arrangements, plus a fairly equitable wages distribution, are somewhat effective against abusive rents., which is important in a country with one of the lowest home ownership rates in Europe. On the other hand, urban sprawl is a big problem. One of the reasons is probably the large autonomy that municipalites have in laying out the federal urban planning guidelines and also in setting their own tax rates. So we get exactly what the initiative wants, namely municipalities and regions within the country that are pitted against each other in one great race to the bottom of the urban sprawl barrel. No noticably positive effect on land prices, as… Read more »
Guest
beowulf
3 years 21 days ago

“I’m not acquainted with US zoning regulations in detail but, assuming scarce land resources, anything that encourages more use of land for residential purposes is counter to any lesson learnt in urban planning since the days of motorization.”

Welcome to America, this is exactly what our local zoning and federal tax regimes encourage. I don’t think that’s necessarily a good thing but we’re not really land scarce. As anyone flying cross-country will notice, we’re pretty empty geographically. Our growth constraints are energy (particularly, the price of oil) and fresh water.

Guest
Oliver
3 years 21 days ago

Yes, but the whole problem with urban sprawl is that the greater use of land brings higher energy use with it. Low density housing and segregation of residential an commercial areas generates maximum commutes = more energy. And cheap land generally means larger dwellings = more energy. If you aren’t blessed with natural scarcity, it’s best to create your own :-).

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