If the title of this post is opaque, I’m mocking the title of E. J. Dionne’s Washington Post column in which he predictably praises President Obama’s proposal for increasing the minimum wage.

I honestly don’t know what effect increasing the minimum wage would have but here’s my guess:

• In minimum wage jobs in sectors with low demand elasticity it will raise the wages of the workers and that will be passed along to consumers. That’s probably the case at Seattle’s airport where the minimum wage was recently raise to $15 per hour.
• In sectors with high demand elasticity or very low margins it will probably result in fewer minimum wage jobs.
• It will give an automatic wage increase to anyone with a minimum wage multiple union contract with unknown economic results.
• It will put wage pressure on wages that are above the old minimum but at or near the new minimum with complex economic results.
• It will further incentivize a black market in labor.

I doubt that raising the minimum wage will increase the total number of jobs on offer which seems to me to be the most urgent task at hand. I guess if you don’t want to take the steps that will increase hiring increasing the minimum wage will have to do.

And it makes such a nice cudgel to beat your political opponents with.

Update

The Wall Street Journal chimes in, much in the vein that you’d expect:

Our readers are familiar with the mountains of evidence that minimum wages lead to fewer workers hired. Small minimum-wage hikes have small negative employment effects, but raising a worker’s cost by 50% or more risks pricing many low-skilled workers out of the job market.

Economist David Neumark, an expert on minimum-wage economic studies, says that an economic rule-of-thumb is that every 10% increase in the minimum wage reduces teen employment by about 1% to 3%. In October the U.S. teen jobless rate was 22.2% and for black teens it was 36%. The Obama minimum wage combined with the health mandate could mean up to a 10% reduction in jobs for the poor and young. Liberals must care deeply about inequality because their policies do so much to increase it.

Not that this matters to desperate Democrats, who are looking for any alternative to debating ObamaCare and see that a higher minimum wage polls well. Steve Israel, who runs the Democratic Congressional Campaign Committee, is telling donors that the minimum-wage issue will lift liberal voter turnout in 2014, help Americans forget about losing their health insurance, and save the jobs of imperiled Democrats. If that means fewer jobs for the young and least skilled, so be it.

You know I think there’s room for a new meme: the War Against the Young. Or maybe it’s an old one that I’ve just noticed.

Continuing on the subject broached by Brad DeLong, Ken Rogoff has a post at Project Syndicate. After touching on thoughts floated by Lawrence Summers, Jeffrey Sachs, and Robert Gordon, sadly, he doesn’t offer much in the way of solutions. He does provide a somewhat enervated plaint about public debt and a plea for infrastructure spending and public-private partnerships alone the lines of President Obama’s “infrastructure bank” but that’s about it.

I think we need to open a new can of policy makers.

Update

Writing at Bloomberg, Caroline Baum contributes to the discussion with one important question: why are economists proposing cyclical solutions to secular problems? It’s the policies, stupid.

Let me express the point I’ve been making about income inequality a little more forthrightly. There are two basically different strategies for addressing the problem. One strategy would be giving the poor money. Not healthcare insurance, not healthcare, not food, not utility assistance, not education assistance, not any of the 1,001 services we provide now. Money. And count the money as income.

The other strategy is jobs. Create more jobs and, especially, more jobs that pay more than minimum wage. IMO that’s a more durable strategy and one more conducive to social welfare.

If you’re afraid that the poor will just take the money and buy wine or dope or fancy clothes or other consumer goods or you don’t want to change the policies that are leading to slow job growth and the increasing trend towards low wage jobs, stop yammering about income inequality.

I want to urge you to read Brad DeLong’s musings on whether we’re in for a protracted period of slow growth that may, in fact, go on forever. In one paragraph he summarizes pretty well my view of where we are right now:

Say that the expansion of finance from 4% to 8% of GDP has been a waste, that the 18% of GDP we spend on health–twice as much in real dollars as other North Atlantic countries with better health outcomes–is half wasted, and that our 6% of GDP spent on education doesn’t buy us anything more than 4% did 30 years ago. Add those up, and reach the conclusion that GDP per capita growth over the past 30 years has been overstated by 0.5%/year. That would mean that the 1.8%/year of measured growth in the economy’s potential to produce real GDP per capita has actually been 1.3%/year. Apply the 0.5%/year reduction in labor quality and participation growth we got from Lindsey, and get 0.8%/year–and note that we are now up to a doubling time of not 35 years for real GDP per capita but 87 years.

In the post he reviews, I think quite fairly, the views of Brink Lindsey, Tyler Cowen, and Robert Gordon, each of whom is a serious economist who has published on this subject. I will leave you to read Dr. DeLong’s analysis, counter-arguments, and prescriptions. My only comment is that I believe that anyone who believes that we are embarking on a period during which we will do substantially greater redistribution of income and wealth within the United States than we have over the last forty years may be doing brilliant economics but is seriously misreading history, psychology, technology, and politics.

Another way of saying what I’m getting at here is that although I agree with the president’s remarks today about the problems posed by income inequality, I don’t think that redistributing from the top .1% of income earners to the next .9% of income earners or, worse yet, entirely within the top 1% of income earners, which is what the bulk of our redistribution does will do much about income inequality. Try noodling around with pencil and paper (or with Excel if you’re not into hand calculations) and you’ll see what I mean.

But that’s where the “commanding heights of the economy” are pushing us and their momentum will be darned hard to overcome.

The Chicago Sun-Times has an editorial on the pension reform plan enacted yesterday that is practically content-free except for one minor detail. They are implicitly acknowledging the state’s inability to increase revenues by raising tax rates and are instead suggesting something different:

The Legislature also has to get cracking on passing legislation to cut pension costs for the Chicago Public Schools and city police and firefighters. Those pension systems are in even worse shape than the state’s. Lawmakers also have much work ahead to make Illinois more business-friendly and competitive, starting with an overhaul of the tax structure. The aim should be to broaden the tax base, reflecting the realities of an increasingly service-sector economy, rather than raise tax rates.

Perhaps I’m misinterpreting that statement but I read it as urging the legislature to start treating the fees of physicians, lawyers, architects, computer programmers, and so on as sales subject to the retail sales tax rather than exempt as they are now. The only way that has a chance in hell of passage is by exempting lawyers.

Do you recall that I mentioned the Milwaukee Journal-Sentinel editorial advocating that the “individual mandate” of the PPACA be deferred and my remark that we’d see a lot of similar editorial in the coming weeks? Add the Chicago Tribune to the list:

The next three weeks are crucial. There will be a mad scramble to keep fixing a massively complex computer system while processing millions of sensitive personal documents. That’s not just about covering the uninsured. Millions of people who had individual coverage but lost it because of Obamacare need coverage starting Jan. 1. Many of them are still in limbo, their applications lost in the giant federal maze.

All the more reason for the administration to delay the mandate that Americans buy insurance or pay a penalty.

The White House already has granted businesses a pass on providing employees insurance or paying a fine.

Last month, administration officials told state regulators they could allow insurers to extend individual insurance policies into 2014. Blue Cross Blue Shield of Illinois announced Monday that it will allow customers to do that.

Last week, the administration postponed for at least a year plans to allow small businesses in many states to use a website to choose health insurance plans for their employees.

How about an early Christmas present? Give everyone a pause on Obamacare.

The Trib has been skeptical about the PPACA since its very start so this editorial isn’t particularly surprising.

Detroit is making history. Yesterday a federal judge ruled that Detroit’s bankruptcy could proceed and that the pensions of past and present city workers were not protected by the state’s constitution:

DETROIT — In a ruling that could reverberate far beyond Detroit, a federal judge held on Tuesday that this battered city could formally enter bankruptcy and asserted that Detroit’s obligation to pay pensions in full was not untouchable.

The judge, Steven W. Rhodes, dealt a major blow to the widely held belief that state laws preserve public pensions, and his ruling is likely to resonate in Chicago, Los Angeles, Philadelphia and many other American cities where the rising cost of pensions has been crowding out spending for public schools, police departments and other services.

The judge made it clear that public employee pensions were not protected in a federal Chapter 9 bankruptcy, even though the Michigan Constitution expressly protects them. “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,” he said.

What remains to be seen is whether this ruling will touch off a wave of municipal bankruptcies. And I wonder if Chicago is far behind.

Detroit’s and Chicago’s problems are much like the problems in healthcare: too many people making too much money. Chicago and Detroit add to that gross mismanagement over decades. You can only kick the can down the road for so long.

The fate of the 72 Dominicks stores in the Chicago area has been uncertain since Safeway announced it was leaving the Chicago market back in October. It’s becoming clearer now. Jewel will buy a few stores. Whole Foods will buy a few stores. With the announcement that Mariano’s will purchase another eleven stores, the picture is becoming more complete. Roughly half of the stores will close and the other half will continue operations under other names.

Neither of the two Dominicks stores nearest to me are on anybody’s buy list so I guess they will close. I used to be a regular Dominicks shopper. However, when Safeway purchased Dominicks from Fisher Foods fifteen years ago, the quality dropped immediately while prices rose. When the Dominicks employees went on strike against the new owners it was the last straw for me. I moved my custom to a small, local store, Happy Foods, and I’ve never looked back. The selection is great, the quality is high, and the prices are lower than when I was shopping at a major chain. Now I set foot in a Dominicks store perhaps two or three times a year.

The acquisition of Dominicks stores by Mariano’s is an instance of coming full circle. IIRC Bob Mariano was the CEO of Fisher Foods when it was acquired by Safeway and the ideas he was implementing in the Dominicks Fresh Stores have reached full flower in his Mariano’s chain. There’s a Mariano’s about ten blocks from me. I go there occasionally but I remain loyal to my beloved Happy Foods.

Mariano’s is a good store, very reminiscent of the Dierberg’s chain in St. Louis. As I think I’ve written before I’m not certain there’s really a niche for Mariano’s here in Chicago, positioning itself as it does somewhere between Whole Foods and Jewel. From a merchanising standpont the layout of my nearby Mariano’s store is awful.

With the shuttering of Dominicks Jewel’s consolidation of the Chicago market will be nearly complete. I suspect that most Chicago are customers will transfer their custom to Jewel or Walmart. With the city of Chicago and Walmart’s mutual aversion that will leave city-dwellers in the lurch even more than they are now. There are a number of Dominicks stores on the South and Southeast sides and my guess is those are the stores most likely to close.

There’s a considerable volume of state and local news that deserves comment. Most important for Illinois, the Illinois legislature has voted to reform public pensions:

SPRINGFIELD — Illinois lawmakers narrowly approved a historic, sweeping overhaul of government worker pension systems Tuesday, overcoming years of political and philosophical differences in an attempt to address one of the state’s most pressing financial problems.

The collective exhale from the state’s political leaders may be short-lived, however. Even before Gov. Pat Quinn carries through with his promise to sign the bill, unions are prepping a lawsuit to try to overturn it. They contend the benefit cuts are unconstitutional and unfair to employees and retirees.

Supporters hailed the bill as a solution that would “ensure retirement security” for current and retired state workers, public school teachers outside Chicago, university employees and state public officials. They also said it would end the squeeze on state tax dollars that increased pension costs have placed on education and social services.

But Republican opponents who argued that the measure doesn’t do enough to decrease the state’s costs contended it will lead to the continuation of a 2011 state income tax increase that was billed as temporary.

The Democratic governor, who is seeking re-election next year, would not discuss whether an extension of the tax hike will be required. He did, however, take a victory lap, relishing a breakthrough after years of stalemate on the controversial but pressing issue.

The reform is much along the lines I described yesterday:

*Establishes a payment plan to fully erase pension shortfall by 2044.

*Allows a retirement system to sue to force state to make required pension payment.

*Reduces public employee pension contribution by 1 percentage point.

*Limits future cost-of-living pension increases to 3 percent multiplied by the number of years worked times $1,000 — or $800 for those who also get Social Security. The $1,000 and $800 figures will be adjusted yearly by the rate of inflation. For example, a state employee who worked 30 years could see a $900 pension bump in year one of the plan.

*Skips some cost-of-living increases for current workers. Those 50 and older will miss one bump. Workers 43 and under will miss five bumps spread out over the years.

*Raises retirement age by up to five years for workers younger than 46.

*Creates a 401(k)-style defined contribution plan that a worker can opt into instead of continuing with the state pension plan.

*Prohibits future members of nongovernmental organizations from participating in state pension systems and bans new hires from using sick or vacation time toward their pensionable salary or years of service.

There’s a more detailed description of the provisions of the legislation and, in particular, how it affects teachers at the web site of the Teachers Retirement System.

The bill results in a significant reduction in compensation for public employees. For teachers in particular even the one percentage point reduction in employee pension contribution, presumably a figleaf being offered to gain judicial approval, is, paradoxically, a reduction in compensation since many district pay the nominally employee contribution directly and don’t deduct it from the teachers’ paychecks. The law will unquestionably be challenged in the courts.

It hasn’t been mentioned in any of the press reports I’ve read but I’ve heard that the law exempts judges’ pensions from the reform. That may sweeten the deal for the judges who will decide on the law’s fate but it’s certainly unseemly and I might be naive but it would appear to me that would present grounds for challenging the law in federal court. As mentioned above the reduction in employee contribution sets the stage for the state arguing that the new law doesn’t violate the state’s constitution because of it. IMO it will take state justices who are very committed to legislating from the bench and, coincidentally, taking the pressure off the governor and the legislature to rule that the new law doesn’t violate Article XIII Section 5 of the state’s constitution. A reduction is a reduction.

Basically, public employees have been hornswoggled. As I suggested yesterday some of that is their own darned fault for persistently voting governors and state legislators into office who preferred extending the state’s financial commitments over paying the expenses to which the state had already committed.

I don’t honestly know what recourse Illinois’s public employees will have. At this point the reform movement in Illinois is moribund and there is no progressive populist faction waiting in the wings.

And, of course, this reform does nothing to pull Chicago’s onions out of the fire. Chicago faces a fiscal cliff of its own next year, due to a combination of pensions for city workers and the state’s insistence that the city start righting its fiscal house immediately.