The questions isn’t really whether companies will lower the wages of existing employees — although they will. Along these lines, there are many examples of companies reducing the hours worked by employees when their wages rise too high — as a result of minimum wage laws, for example.

Beyond that, it’s entirely normal for companies to lay off employees who make too much, in favor of others who will work for less. And if companies and employees together insist on keeping wages above the market level, others will enter the market and take advantage of lower wages.

It includes such exchanges as this:

Borders: And at the same time you eliminate the considerable degree of bureaucratic interference and, for that matter, the bureaucracy itself.

Murray: Yes, that’s a topic I actually don’t even mention in the book. I have not calculated the number of government officials who would be put out of work by my plan, but I’m sure it numbers in the hundreds of thousands.

Or this:

Borders: You don’t really mention the cost savings when the bureaucracies would go away, but I think that is an important underlying point.

Murray: Well, I’m saying throughout the book that this plan is revenue neutral. So this is not promising people big tax cuts. What I do is take the current projected costs of the current system, which have been done by the Congressional Budget Office and many others, and in all cases I use very conservative estimates of how much the cost of the current system is going to be in the out years. And then I have very detailed calculations of the cost of “the Plan,” as I call it. And it would be that the cost of the plan and the cost of the projected current system cross in 2011.

Don’t know how I overlooked the book, because I’m overwhelmingly in favor of eliminating, or at least curtailing, bureaucracies.

Here’s Murray’s WSJ Article, and a follow-up Essay, on the same subject. I think “provocative” was one word bandied about at the forum.

I am working on a column on that, as well as Lawrence Lindsey’s payroll tac cut proposal as stimulus.

thanks for the links

A few notable articles of interest:

The Inequality Taboo

Intelligence in the Classroom

What’s Wrong with Vocational School?

Aztecs vs. Greeks

What’s the justification for funding anti-American ideology in any university that accepts American tax-dollars?

Said nothing about indiscriminate downsizing. The point of reorganization is to justify every position, every department, every course and every expenditure in order to free-up existing funds. Re-direct those funds into areas of study that will ensure our competitiveness in the global market. They could even be used to lower college tuition.

The debate will then be about “what constitutes justification,” not the unintended consequences of more government spending.

The US university system (in engineering, economics, and the hard sciences) is probably the best in the world and a huge competitive advantage for the US. The last thing you want to do is encourage an indiscriminate downsizing across hundreds of disparate research institutions.

Increasing the available supply of labor on the other hand — by keeping people out of school, for example — would be likely (all things being equal) to lower the average worker wage. And reducing the price of a critical input such as labor would tend to increase economic activity. Many economists argue today that one factor which may tend to lengthen and worsen the slowdown is the fact that wages tend to be ’sticky’ downward. Increasing the size of the workforce and reducing wages would help wages fall, if they need to in order to grow the economy. Over time of course, as economic growth picks up, wages will tend to rise back to previous levels.

You’re right that wages are “sticky”, but further increasing the oversupply of labor is not going to make them less sticky. It will increase the number of folks who are unemployed because wages (and jobs) tend to be sticky. Companies are going to stop hiring long before they start decreasing the wages of current employees.

You state the following:

The post purports to reflect economic theory, but its title misstates economic theory. “Latest Stimulus Idea: Keeping People in School, Out of Workforce” implies that encouraging people to stay im school during a recession is a bad idea. That is true only if there is currently more demand for labor than there is supply, and thus we can stimulate the economy by encouraging more people to work. [I.e., increase the supply of labor - shift S(l) out.] If only more people were out hunting for jobs, the economy would improve, the logic of this post goes.

However, that’s not correct. First off, I am not arguing that ‘encouraging people to stay im school during a recession is a bad idea.’ I am arguing that spending scarce resources to keep people in school is not a way to stimulate the economy. If you believe it’s a good idea to keep people in school during a recession or slowdown, I won’t argue the point. However, it is not likely to increase economic growth.

Increasing the available supply of labor on the other hand — by keeping people out of school, for example — would be likely (all things being equal) to lower the average worker wage. And reducing the price of a critical input such as labor would tend to increase economic activity. Many economists argue today that one factor which may tend to lengthen and worsen the slowdown is the fact that wages tend to be ‘sticky’ downward. Increasing the size of the workforce and reducing wages would help wages fall, if they need to in order to grow the economy. Over time of course, as economic growth picks up, wages will tend to rise back to previous levels.

Regards,

Brian

That’s the problem. Our university system has not been held accountable.

“Supporting education” is code for increased government spending.

Increased government spending does nothing but increase the cost of a college education across the board. The net effect: More middle-class Americans, those who do not qualify for government subsidies, find that a college education has been priced out of their reach.

The answer: Force our university system to undergo a “Chapter 11″ type reorganization. The same structural changes that any corporation facing a financial crisis would be forced to make in order to remain viable.

A few options: Down-size the entire university staff; eliminate all nonessential departments; eliminate all courses with a “Studies” suffix; eliminate all financial aid to foreign students; cut salaries across the board; eliminate “tenure” and institute a “merit-based” system.

The real issue I have these days is the fact that most colleges are merely indoctrination camps for the Left. Governments and large corporations are imposing degree requirements that have no real relationship to the needed job skills and consequently pose and aritificial barrier to the poor, women, and minorities. These requirements also insure that both government and large organization employees will be reliably left wing.

The post purports to reflect economic theory, but its title misstates economic theory. “Latest Stimulus Idea: Keeping People in School, Out of Workforce” implies that encouraging people to stay im school during a recession is a bad idea. That is true only if there is currently more demand for labor than there is supply, and thus we can stimulate the economy by encouraging more people to work. [I.e., increase the supply of labor - shift S(l) out.] If only more people were out hunting for jobs, the economy would improve, the logic of this post goes.

But that’s not correct: there is currently an oversupply of labor, not an undersupply. Descreasing the labor supply – by, e.g., having folks choose to stay in school instead of entering the workforce – is better for all workers. Strong workers continue to work and see less wage pressure; marginal/weaker workers stay in school and have an opportunity become stronger workers.*

Spending on schools is not a stimulus that’s going to create a short term improvement — it’s essentially like spending on infrastructure. But then very little on the fiscal side is going to work as a short-term stimulus. (Unemployment benefits and some tax cuts/rebates do, but that’s about it.)

So the question is not “will spending on education create a short-term stimulus” but whether supporting education during a recession is good public policy. Frankly, I think that it is. You’re not taking needed workers from the workforce, as this title of this post implies: These folks are more likely than not going to sit idle anyway. Better to get them in a program that will maximize their earning power once the economy picks up.**

von

*The choice is rational from an individual perspective as well. School is relatively more attractive when jobs are hard to find. School delays entry into the labor market while improving one’s prospects when one does enter. That’s not a bad thing from any perspective.

**I don’t support many of the other so-called stimulus packages on offer. But there’s a clear case for treating education differently.