True, but let’s do the math.
The range of labor cost in agriculture is 20% to 40% of the price of the goods. Let’s take the midpoint of 30%. So increasing farm worker wages raises the price of agricultural goods by 30% of the wage increase (in gross dollar terms).
Let’s double the wages paid to a minimum wage worker, from $7.25 per hour to $14.50 per hour. Meanwhile, the price of agricultural products has gone up by 30%. I am going to express these figures in relative terms of dollars per hour so that I’m not stacking percentages on percentages.
Agriculture as a sector is 5.5% of GDP. So if the low wage worker spends an average amount on agriculture, that is 5.5%. If you compare that to the starting wage, that means prior to the raise, the worker was paying a share of his or her income equal to 40 cents per hour for agriculture products. So the farm worker’s net wage after buying ag products was $6.85/hr. Now we bump the farm worker’s wage up to $14.50 and we bump the $0.40/hour for ag products up by 30%. The cost of buying ag products is now 52 cents/hr. So after the adjustment for higher wages and higher ag costs, the farm worker’s net wageis $14.50/hr minus $0.52/hr or $13.98/hr. That’s $7.13 per hour more than the $6.85/hr prior net previously earning, an increase of about 105%.
Of course, a low wage worker might spend a much higher percentage on ag products than the average American, spending relatively more on basics and relatively less on big ticket items. Let’s quadruple the percentage spent on ag from 5.5% to 20%. That means the pre-increase worker is paying 20% of $7.25/hr for ag products, which is $1.45/hr. So the net wage post-ag but pre-bump is $5.80/hr. After the ag inflation, that $1.45/hr becomes $2.00/hr. If we subtract that $2.00/hr from the increased wage of $14.50/hr, the net “real wage” is now $12.50/hr, which is $6.70/hr higher than the prior net of $5.80/hr, a 120% increase.
Basically, since the wage bumps affects the entirety of the worker’s income and the ag inflation only affects the portion of that income that is spent on ag, the net effect for the farm worker is going to be positive.
Now, there is a tradeoff here in that the other sectors of the economy would be hit with inflation, and the non-farm workers would not see an income bump. If the general inflation is too high, that’s bad for the whole economy.
Basically, the numbers matter and the magnitude of the changes matter.
In the bigger picture of political discussions, people often make statements that sound kinda numerical (is “mathiness” a word? if not, it should be.) People say “raising wages will cause inflation” or “raising wages will cost jobs” or etc. Yeah, so? What are the actual numbers?
I mean if you raise gross wages by 100% and increase inflation by 1%, that’s a huge net win for the low wage workers. If you raise gross wages by 100% and cost 1 person in 10,000 a job, that sucks for the 1 in 10,000 but it’s massively great for the entire group of workers.
The numbers matter. If, contrary to my above examples, wage increases cause huge spikes in inflation, that would be bad. If, contrary to my above examples, the job loss from a wage increase is much much higher than 1 in 10,000 that would also be bad.
You can’t just say “well bad number X would go up”. How much does it go up? What are the net effects? If you can’t say with precision, what is the likely range of outcomes? How do the current numbers compare to the historical numbers, etc.
In the big picture, real wages for American workers, especially in the lower end of the wage market are incredibly low, especially when compared to the stratospheric rise in the costs of the market segments that most affect long term prosperity (health care, higher education and housing).
The wage issue is important in the immigration discussion, but IMO it’s important to pretty much every economic question in the US right now.
