What good is a paper that only proposes a relationship?

Question

I've identified a relationship where action on an independent variable DEFINITELY causes a directional response in an independent variable. Great! I can also show these are not 1:1, and therefor demonstrate that productivity growth slows down on current public policy and can be made roughly linear by corrected public policy. Can't actually give a method of quantitatively modeling this, though, so who cares?  The impact is "Big" but I can't tell you exactly how big.  Is that worth publishing?

Answer 1

Hello.

I think that any way directed to increase productivity growth is worth. That's the engine that makes our lives better. So, go ahead.

Concerning two independent variables which are related to each other. Isn't there some kind of hidden dependence? If not they would be uncorrelated.

Comments

The relationship is minimum wage and mean wage.  I noticed there's a continuous ratio curve based on minimum wage level as %GNI/C, and it responds reliably to statutory minimum wage increases.

I have a theory about how this affects wage setting (it's almost identical to marginal productivity theory of wages) and a basic mathematical approach to computing the expected productivity gain from increasing minimum wage.  I think the model is incomplete (and it's stupidly simple—direct division of two numbers and an area under the curve calculation).  The productivity gain is just an observation of when low-productivity labor is only cost-effective below minimum wage.

I keep thinking someone has to have done this already but I can never find existing research.

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I think it isn't so simple. I think that you mean that there is a curve, as for example the Laffer curve, that sets the maximum level of productivity related to wages. I'm not really sure if that's a subjective behavior or a higher consumption set by a higher minimum wage increases the mean wage, what increases productivity. I think it's an interesting subject, you should work on it.

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It's more that to use a machine etc. consumes 1 hour of aggregate labor at $20/hr, while doing by hand uses 3 hours of labor at $5/hr.

It costs $15 to make it by hand or $20 to make it with fewer resources.  Equilibrium will be at $15 price point, and we won't step up productivity.

If the minimum wage were $10, ceterus paribus, it would cost $30 to do it by hand and $20 by machine, and we would switch to the higher productivity method.

In practice, a higher minimum wage means a higher mean wage, BUT mean wage moves symmetrically by a lower magnitude.  If mean/minimum = 4 for wage W1 and mean/minimum = 2 for wage W2, then W2 > W1.

This is known as "wage compression" on the rise, and I call it "sag" on the fall.

Productivity driven by division of labor would tend to approach an aggregate wage approaching mean wage.  Mean wage is the aggregate wage of the ultimate division of all labor, of course.

From all that I simplify that the aggregate expected impact should be based on the productive method replacing some labor hours at a relatively-low wage with fewer hours at mean wage.

I think the theory is incomplete.  Not sure if I should publish the whole data and reasoning and empirical evidence and say it's broken but seems to be the right direction, or just sit on this until I figure out an actual complete model.

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Yes I think I understand you now. From the industrial revolution it's a fact that higher minimum wages lead into labor exchange for machinery. That increases productivity. The horizon of sales is reduced because the machine make things faster and that improves profits. So the mean wage would tend to rise. You can look for info on historical reports, because that's the main force that led to a faster industrialization in countries like the UK.

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Yep.  I'm looking at minimum and mean wage as a portion of GNI/C and the ratio between.

For example, in 1950 the minimum wage was 0.668 x GNI/C. In 2016 it was about 0.265 x GNI/C.  The lower this figure, the lower the same for mean wage.

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I was going to conclude this conversation, which was good. But I'm thinking right now on the main cause of that decrease of the mean and minimum wage in 70 years. I think profits are excessive nowadays because of the ideology of maximize profits and because  investors nowadays don't invest in long term companies. They want to receive the return of their investment as soon as possible. I mean that they don't think of a company as a way of living they just see it as an investment. Do you think that's right? Increasing minimum wage and mean wage increases production because of higher consume as same as lowering prices does it (on succeed companies) . If firms considered the benefits of having a balanced economy all would earn a higher standart of living and profits would stay the same as now. I'm just trying to find a relationship between your variables and the idea that a higher GNI/C percentage related to GDP leads  into a higher growth and living standard.

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That thinking requires the minimum wage to be a result of the natural free market.  Minimum wage is a result of government policy.

A rise in wage requires a rise in price.  Raise the wages across Walmart by $1.60 and Walmart is taking an annual loss, thus price must increase.  The rational consumer buys the lower-priced product fitting the need—it's not easy to find out if price at every stage of the supply chain is a result of high social responsibility or high profits—and the labor employed at voluntarily-high wages shrinks as consumer demand shifts to firms paying the lowest wage they can command.

Thus the company seeking to raise its wages will do so only where labor costs are low and the marginal price impact is immaterial to the consumer.  Why pay $8 at Burger King when you can pay $5 at McDonalds?  But maybe it's $5.15 at Burger King and $5 at McDonalds—then, if you like Burger King and the McDonalds is a mile down the road, why drive the extra mile?

I'm not relating GNI/C to GDP; I'm viewing GNI/C as the income retained and likely spendable going forward in the economic jurisdiction when the demand for money increases, and so relating wages (minimum, mean) to GNI/C.  Productivity gaps come from the sag in wages when they fall relative to GNI/C:  if minimum wage falls by 10% of GNI/C, mean wage only falls by e.g. 7% of GNI/C, and so the same number of average-wage working hours (labor divided among high- and low-skill and -wage labor through the supply chain) carries the same cost of MORE minimum-wage working hours.  This divergence thus makes it less cost-effective to employ the division of labor as a means to increase productivity, so greater productivity gains are necessary before it makes economic sense.

I can crudely estimate the expected productivity gain from moving minimum wage from e.g. 0.265 GNI/C to 0.667 GNI/C, but I think my model is incomplete and the figure I get out of it is…in the right direction, but probably imprecise.  Likewise, I can model wage compression such that mean÷minimum moves from 4 to 2 and compute the productivity gain, but the model is probably imprecise.  If it's imprecise, it's incomplete, thus wrong.

As such, I don't think you're increasing production; I think you're increasing productivity per labor-hour. It's not about inflating wages or deflating prices, but about making high-efficiency processes more cost-effective than employing cheap labor, causing structural change (a reorganization of the factors of production).  Profits would technically be higher (more purchasing, same margins).

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Yes I see. But what I tried to say is that the profit margin is high overall for "customs" motive. So there is a magin for increasing wages and for reducing profit margin. If profits are the only expenditure including wages in an economy, if GDP increases there is no other cause for lower wages than the increase on profits. GDP increase due to productivity increases. Other cause could be more people working for less money what causes an overproduction because you produce more goods and the consumption is the same. I'm just trying to find a dependence between both variables. I think a mix of both cause could be the reason of the phenomena you discovered.

Kind regards Mr. Moser.

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Kind of. The profit margins stay low by lowering wages and prices together, and the profits increase by having more volume.  Price competition isn't about increasing volume, but REDUCING the volume of a competitor—in a microeconomic sense (note:  I have not studied microeconomics and may be abusing the term here), it's about drawing more buyers and more profit; but in a macroeconomic sense, for the given quantity demanded, drawing more buyers typically means people recognize Brand X costs more than Brand Y and defect from Brand X to Brand Y if their brand loyalty has less marginal utility than the difference in price.

This is sort of an arms race:  Brand X then reduces price—paying labor less is a good way to reduce cost, allowing such reduction.  The backstop is the minimum wage.

Another thing that happens is people want $20/hr, but at $20/hr it's cheaper to switch to a lower-labor method involving higher average wages—say, $18/hr.  So those laborers can be jobless or they can take $18/hr; if retraining to find a new career has a perceived cost of more than $2/hr, they'll just take lower wages.  Eventually the job becomes a minimum wage job, and laborers can't lower their wage prices, so they are replaced by the new, more-productive method; raising the minimum wage hurries this along, and the relationship I'm looking at is the ratio between that cut-off wage and the minimum wage, and how that ratio changes with the relationship between minimum wage and per-capita income.

I don't care about GDP here.  You can vastly increase GDP by  expanding the labor force and not increasing productivity.  GDP/C increases when your labor force participation rate increases OR productivity increases.  I'm interested in productivity, i.e. GDP/hr for each hour of labor.

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I think I see it crearly now. If GNI/C related to minimum wage increases,  consumption decreases and profits gets lower. So overall wages tend to decrease as same. If the minimum wage increases because of the high propensity of consume of those kinds of wages, profits tend to increase and the gap between GNI/C and minimum wage is reduced.

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Sorry I didn't read your last comment. Yes if you are talking just about productivity it's sure that minimum wage increases make the economy more productive because there is an incentive for buying more machinery.

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I hope not to be tiresome. Xiaomi profit margin is 9% and it is one of the cheapest trademarks in electronics. So other trademarks can have a margin of 20-25%. 80000 apple workers with a mean wage of 4000 dollars count for 40 dollars for product. Their phones cost 600 dollars. I think there is a margin for better wages, what increases productivity as you are pointing, decresing people needed for every production and increasing the number of firms capable of running with the same population. It increases profits and it is translated into better mean wages, which are necessary to consume a higher production. Sounds good.

Kind regards Mr. Moser.
  
PD : You can answer me if you want and I'll conclude our fun conversation. I hope your new work runs properly and you are able to publish it.