There has been much discussion lately about raising the minimum wage. This seems to be in response to the growing wage disparity in the United States, along with the recognition that most people relying on the minimum wage for full-time positions live in poverty.
While those receiving minimum wage now may reap the benefits of changes in this law, it would not be without unwanted side effects: some people would lose their jobs, if employers cannot afford the increase; and unemployment would rise, as employers look to automation and customer self-service as alternatives to hiring low-skill labor.
The timing of this proposal is not the best, either. The nation is still recovering from the deepest recession since the Great Depression, and there is a great deal of uncertainty and anxiety over the impact of the Affordable Care Act (ACA) on both individuals and businesses.
These views are of the author only, and do not represent those of IFPRI or its divisions, or the CGIAR or any of its programs.
The potential of a more fully integrated CGIAR is to have experts from many different fields working together closely to accomplish goals that are more targeted than what might have been accomplished under the old system. Yet to realize the potential, collaboration has to be more than an afterthought. In my relatively brief 3 years in the CGIAR, I have seen levels of integration increase, yet much of the increase seems to come with one institute taking the lion’s share of the funds and credit, and subcontracting a portion of the work. This tends to allow one institute to function in its strength, and the supporting institute to do rather mundane work.
As I was spending time working on a concept paper focusing on the Red River Delta (RRD) of Vietnam, I realized that to focus on the RRD as a landscape requires bringing in expertise from many institutes right from the beginning. IFPRI’s expertise is in economics and policy analysis, but development at the landscape level in RRD requires experts who understand livestock (ILRI), rice (IRRI), maize (CIMMYT), fish (WorldFish), and perhaps perennials and agroforestry (ICRAF). In order to get the best from collaborating institutions requires that they be brought in right on the ground-level, so they can help shape the research to reflect the strengths they bring to bear.
Much of my work as an economist is built upon the insight of a book written in 1826 by Johann Heinrich von Thunen, called “Der Isolierte Staat”, which is translated, “The Isolated State”. In it, he presented a model of land use that suggested where various crops would need to be produced, given the cost of transportation of the crop to market.
As I was thinking about von Thunen’s theory, it occurred to me that when used in conjunction with how the wage rate is set in a market economy — equal to the value of the marginal product of labor — it provided insight into how a deteriorating highway infrastructure — as we have in the United States — could explain in part the wage stagnation. My point in what follows is not that it explains all wage stagnation, or even a large part of wage stagnation, but only that it can be seen from a theoretical standpoint to explain some wage stagnation.
Ester Boserup is an economist who wrote two books which influenced me greatly. I read both of these books around 15 years ago while in grad school, and I can’t find my copies at home, so I can’t refer to them more precisely. I bet they are both at work. The first book, published in 1965, is “The Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure”, which I was delighted today to find online for free. This book describes how agricultural intensification results from increased population density. I think the underlying story is one of production technologies changing based on land abundance and scarcity. The second, published in 1981, is “Population and Technological Change: A Study of Long Term Trends”, was broader, looking at specialization throughout the economy. It is the second one that I mostly think about in this post.
What I am trying to get at is what may cause a country to get stuck in a high population, low GDP situation, and what might be done to help it get unstuck. My thoughts, based on Boserup’s books, began in regard to the issues of intensification and specialization. The first thing that came to mind was that once a country was more market-oriented or integrated into the global system, what drives development is investments in improving the productivity of labor and capital, since returns to land (owned by someone) and returns to labor are paid at the rate of the value of the marginal product of labor.