We’ve Got a New Blog Post!
Check out our NEW Blog! @ nocronycapitalism.org or under the “In The News” above on our Home Page!
Minimum Wage Hike Hurts
August 14, 2014
The Arizona Republic
Joe Galli
Driving up minimum wage hurts the people it’s supposed to helpJoe Galli 8:45 p.m. MST August 13, 2014
Every time I turn around there’s a new study out about the impacts of minimum wage on an economy.
Two months ago, minimum-wage proponents were crowing because, allegedly, a handful of states whose economy had improved in the first quarter were states that had just recently raised their minimum wage, Arizona included.
A Sunday article in The Arizona Republic said Arizona saw a 4.7percent job decrease between 2006 and 2013, years the state was increasing its minimum wage (“An elusive tipping point,” AZ Economy).
The article focuses on the restaurant industry, a thin-margin, private business sector, which, rightfully so, should be concerned about increased labor costs, as should diners-out.
People like Tomas Robles Jr., executive director of Living United for Change in Arizona, argue that business owners should pay more for labor so people can meet their “basic” needs, all while his labor increases drive up the basic costs of goods and services, unfairly penalizing the very people he’s arguing need help — those with low incomes.
Let’s be honest. Our economy and workers would all be better off when individuals compete and are rewarded for their ability and effort, without artificial, arbitrary and punitive wage mandates.
—Joe Galli, Scottsdale
The writer is executive director of the Market Freedom Alliance.
CBO Says Minimum Wage Hikes Cost Jobs
July 31, 2014
USNews
By Sita Slavov and Aspen GorryMay 1, 2014 | 10:01 a.m. EDT
In February, the Congressional Budget Office reported its estimates of the effects of raising the federal minimum wage. According to the CBO, raising the minimum wage to $10.10 per hour – as advocated by President Barack Obama – would cost the economy 500,000 jobs. However, it would also raise wages for those who keep their jobs, lifting 900,000 people out of poverty. A more modest increase to $9.00 per hour would reduce employment by 100,000 workers and lift 300,000 people out of poverty.
The CBO report sparked controversy, with opponents of minimum wage increases highlighting the lost jobs and supporters focusing on the reductions in poverty. In determining how to weigh these factors, policy makers need to know something about both the short- and long-term social costs of the lost jobs.
It turns out that these costs could be greater than previously thought because higher youth unemployment can have lasting consequences for young workers and previous empirical estimates may understate the effect of further minimum wage increases. Indeed, a new study by one of us suggests that most of the job losses from a minimum wage increase will occur among younger workers. Such job losses harm these workers’ ability to gain valuable experience at a critical time in their careers and permanently damage their future employment prospects.
The research suggests that the Fair Minimum Wage Act, which increased the minimum wage from $5.15 to $7.25 between 2007 and 2009, resulted in a 2.8 percentage point increase in youth (under age 25) unemployment. During the great recession youth unemployment increased by 11.2 percentage points, so the increase in the minimum wage can account for about 25 percent of that increase.
The harm done by minimum wage increases gets compounded for young workers because it prevents them from gaining experience, thus increasing their chances of being unemployed in the future. Taking this effect into account, the study finds that the minimum wage increases that occurred between 2007 and 2009 will ultimately generate a 0.8 percentage point increase in the overall unemployment rate for high school educated workers.
In addition, past empirical estimates may be unreliable indicators of the effect of further increases. In particular, raising the minimum wage to $9.00 or $10.10 is likely to have a larger effect than previous increases. This is the case because wages have remained stagnant since the previous minimum wage increases during the great recession. Therefore, a large fraction of young workers earn wages close to the current minimum wage. Also, the proposed minimum wage changes are large, representing a 24 (for $9.00 per hour) or 39 (for $10.10 per hour) percent increase over the current level. Hence, these increases affect more young workers than prior increases.
[See a collection of political cartoons on the economy.]
The second column in each of the two tables indicates the fraction of workers, by age, who are likely to be affected by the proposed minimum wage increases. This group consists of workers earning below the proposed minimum wage. They will either need to be paid more or lose their job as a result of the policy change. The third column in each table shows the fraction of workers in each age group who are less affected by the new minimum wages because they are either salaried or earn at least the proposed minimum wage.
Table 2 shows that hiking the minimum wage to $10.10 affects more than three quarters of 18-19 year old workers and more than half of 20-24 year old workers. In contrast, less than 15 percent of workers aged 25 and older would be affected. Thus, job losses from the minimum wage increase are likely to be concentrated among younger workers. And the large number of workers affected increases the prospect of the policy doing serious harm.
Much of the harm done to younger workers could be avoided by exempting individuals under the age of 25 from the minimum wage, as a number of other countries do. For example, the Netherlands has separate minimum wage levels for each age between 15 and 23, at which point workers are eligible for the full minimum wage. At least partially as a result of this policy, the Netherlands has experienced relatively low rates of youth unemployment compared to other OECD countries.
The CBO appropriately acknowledged the uncertainty surrounding its employment estimates, stating that the drop in employment resulting from a $10.10 minimum wage could range from “very slight” to 1 million workers. The uncertainty surrounding the minimum wage’s effect on employment, as well as the strong possibility that further increases could be more damaging than those in the past, suggests that policymakers should be cautious about using the minimum wage as a policy to alleviate poverty.
What Would Happen if We Got Rid of the Minimum Wage?
May 14, 2014
Slate.com
Jordan Weissmann
Most voters love the idea of raising the minimum wage. But Republican politicians, with a handful of notable exceptions, do not, because they’re convinced that even a small boost will kill jobs. And as my colleague Jamelle Bouie points out this week, a few are honest enough to take their opposition to its logical conclusion and advocate abolishing the minimum wage entirely.
So what would happen if they got their way? What if we bid the minimum wage goodbye for good?
The Econ 101 answer is that it would create more jobs for low-skill workers, such as teenagers and high school dropouts, as wages drifted down to their market rate. When the cost of labor falls, the argument goes, employers should demand more of it. It may not be profitable for your local Five Guys to hire an extra burger cook at $7.25 an hour, but at $5 or $4 an hour, the math might change. The Cato Institute’s James Dorn and the Hoover Institution’s Russell Roberts made this point at length during an Intelligence Squared debate last year in which they advocated doing away with minimum wages. “Right now there are people within a few blocks of where we are sitting who cannot find work simply because their skills are not worth $7.25 an hour,” Russell told the audience. “Why would you condemn those men and women to a wage of zero?”
There’s another big question to answer: If we ripped up the wage floor, would pay for low-skill workers actually fall all that much?
But when it comes to the labor market, Econ 101 is almost never the whole story. To start, it’s actually a bit of a leap to assume that just because existing businesses could hire cheap workers to do new jobs, they necessarily would. Economist Jared Bernstein, who also took part in the Intelligence Squared debate, pointed out last year that although the value of the minimum wage fell 32 percent during the 1980s thanks to inflation, teen employment actually dropped slightly.
“Now, this is nothing like careful analysis—it’s just broad trends,” he wrote. “But it makes the point, especially given the steep 1980s real decline in the wage floor, that you shouldn’t blithely assert without evidence that abolishing the minimum wage would automatically lead to a ‘sliding down the demand curve.’ ” (In this case, sliding down the demand curve is a fancy way of saying “more hiring.”)
It’s easy to think up reasons why nixing the minimum wage might not lead to a flood of new career opportunities for the unskilled. Because we have minimum wages today, businesses are required to work at a certain level of efficiency. Unless a business is understaffed, adding a new worker, even a cheaper one, might not be particularly profitable. Or take technology. Minimum-wage skeptics often point out that when employing a real live human being becomes too expensive, companies start buying computers and machinery instead. In a post-minimum-wage world, it seems unlikely that businesses would suddenly throw their profitable business models into reverse, and start scooping up cheap workers to handle tasks they had already purchased fancy new equipment to accomplish. Your local McDonald’s, for instance, wouldn’t suddenly return the fancy new soda machine that lets customers fill their own cups with umpteen variations on Diet Coke, just so that it could hire another person to work behind the counter for $4 an hour.
Of course, there’s another big question to answer: If we ripped up the wage floor, would pay for low-skill workers actually fall all that much? It’s hard to say. First, many low-wage businesses still offer their workers more than the absolute minimum. Second, wages tend to be “sticky,” meaning that once they go up, they tend not to come down. The reason why is still a bit of a mystery, but it likely has a lot to do with the fact that making your employees take a pay cut is a) emotionally unpleasant for both parties and b) a good way to sap their motivation on the job.
That said, if workers were to quit, it’s entirely possible that businesses would look to hire cheaper replacements, even at the risk of getting a slightly lower caliber employee. Which brings us to another potential problem with eliminating the minimum wage: Just as raising it might encourage businesses to hire more experienced workers to get the best bang for their buck, lowering it could encourage them to hire less skilled workers—such as teenagers, who live rent-free at home—who are willing to work for less. You may well end up imperiling job opportunities for adults who need the work to support their families—remember, the median front line fast-food worker today is 28 years old. Is that a trade a lot of people would want to make?
If wages were to fall quickly across low-wage industries—or simply be eaten away by inflation—there’d be another trade-off to consider. By raising the minimum wage, it’s possible that the U.S. would eliminate some jobs, but increase overall living standards by giving raises to millions of families. If we killed off the minimum, it’s possible that we would create a few jobs, while decreasing living standards by decreasing pay overall. If increasing the minimum wage benefits the many at the expense of the few, eliminating it might well benefit the few at the expense of the many.
Should we abolish the minimum wage?
April 4, 2014
Cafe Hayek
Russ Roberts
Last night, as part of the Intelligence Squared series Jim Dorn and I debated Jared Bernstein and Karen Kornbluh on whether we should abolish the minimum wage. When the audio is available, I’ll link to it. In the meanwhile, here, plus or minus a few ad libs, are my opening argument and then my closing argument. We were given six minutes for the opening and two minutes for the closing. I pretty much used all 480 seconds. At the bottom of this post, I add two caveats about one of my arguments.
My opening argument:
We need to abolish the minimum wage. There is only one argument that matters–the moral argument. Does the minimum wage make the world a better place, especially for the poorest workers and their families?
Those Americans with the least education and lowest skill levels have struggled tremendously over the last few decades. They find themselves in competition with machines and foreign workers. Their job opportunities have shrunk. Their standard of living is mediocre at best.
The minimum wage is the wrong way to help these workers. It attacks the effects of economic change rather than the underlying causes.
You don’t need a special theory of the labor market or a degree in economics to understand that making workers artificially more expensive makes it harder for them to find work.
Those who support the minimum wage will tell you the MW gives needed bargaining power to low wage workers. Yet it helps very few people directly.
95% of those paid by the hour earn more than the minimum wage.
That includes my cleaning lady who earns more than double the minimum wage. Surely she should have little bargaining power. Her English is imperfect. No union protects her. Yet I pay her much more than the legal minimum. I like to think it’s because I’m nice. But I know better. If I don’t pay her around $20 an hour, she won’t show up. She has too many alternatives.
Alternatives force employers to treat their employees well.
For most of us, legislation isn’t necessary.
But the minimum wage does boost the salaries of those at the bottom especially young workers. About 1.7 million workers between the ages of 16-24–about half of all minimum wage workers–get a raise because of the minimum wage. And others with wages just above them also get a boost.
But those artificially higher wages discourage employers from hiring other low-skilled and inexperienced workers. This is particularly tragic when the unemployment rate among young workers today is over 16% and over 29% for young African-Americans.
Many who support the minimum wage argue that somehow, you can raise wages artificially and there will be no effect on employment. But who believes that employers don’t respond to higher wages? That’s why employers replace workers with machines. That’s why they send jobs overseas That’s why manufacturing employment is falling. Why would artificially increasing the wage of low-skilled workers have no effect?
Consider my favorite exemption to the minimum wage–the internship. You’re allowed to pay less than the minimum as long as it’s zero.
Do you think making internships illegal would increase the number of opportunities for young people to get experience? Do you think forcing employers to pay the minimum instead of zero would help young people?
Others justify the minimum wage saying the employment effects are small. Small? When you lose your job or can’t find one, the effect isn’t small. It’s 100%.
So it’s nice to give 1.7 million young workers a raise. But what about the 3.4 million unemployed young workers as of last month, workers actively looking for work who can’t find it? Is it worth it? Is it worth helping those 1.7 million people if it means making it harder for twice as many people to find any kind of job? That’s over 3 million people earning zero. I reject making that tradeoff. It’s a bad bargain.
The irony of the minimum wage is that it reduces the bargaining power of workers and makes them easier to exploit. It increases the number of workers trying to find work while reducing the number of jobs available. That encourages low-skilled workers to stay in lousy jobs where employers treat them badly. If they quit, they know the odds of finding another job is very small.
The best argument for the minimum wage is that our school system is a failure. So we have to do something to help people who have been abused and betrayed by the system. But the minimum wage is the wrong way to fix this failure. It’s just an additional barrier to the least skilled workers of America making it harder for them to begin their careers. Do we really want to make it harder for the least-skilled with the fewest connections, the ones who desperately need that first job to start their career? I beg you to consider that the best intentions don’t always lead to good results. Abolish the minimum wage and let young people and the least skilled have a better chance of getting the experience they need to thrive and prosper.
My closing argument:
In September of 2011, the governor of American Samoa traveled 7000 miles to testify for 5 minutes before Congress. He begged Congress to stop increasing the minimum wage in American Samoa–a process that had begun in 2007 and was scheduled to increase until the minimum wage in American Samoa reached the US minimum of $7.25. In 2009, employment on American Samoa fell 19%. That’s because employment in the tuna industry–1/3 of total employment on the island–had fallen 55%. The governor blamed that collapse on the minimum wage. Here’s a quote from the governor’s testimony:
We are watching our economy burn down. We know what to do to stop it. We need to bring the aggressive wage costs decreed by the Federal Government under control.
Our job market is being torched. Our businesses are being depressed. Our hope for growth has been driven away…Our people live in the middle of the South Pacific Ocean, with no place to seek refuge in any economy other than our own.
Our question is this: How much does our government expect us to suffer?
I have the same question for those who support the minimum wage here in the United States. How much do you expect the least skilled among us to suffer?
Congress stopped increasing the minimum wage in American Samoa. They should have the same compassion for workers in the United States and abolish the minimum wage here.
Right now, there are people within a few blocks of where I am standing who cannot find work, simply because their skills are not worth $7.25 an hour. Why would you condemn those men and women to a wage of zero? Why would you cut off the bottom of the economic ladder and deprive a human being the chance to begin a life of honest work?
There are desperate people among us, people who have nowhere to turn, whose job prospects are poor. Why make their lives worse? It’s not just about the money. It’s about giving people a chance to find meaning and satisfaction from standing on their own two feet. Give the least skilled among us the chance they deserve. Abolish the minimum wage.
Two caveats: I argued that the minimum wage helps 1.7 million workers 16-24 years old get some kind of raise above what they otherwise would get without the minimum wage. But the cost is that it makes it harder for the 3.4 million young workers to find work. This was an elegant but inaccurate rhetorical flourish. Elegant, because 3.4 million (the number of unemployed 16-24 year olds in February of 2013, the most recent data) is exactly double the number of minimum wage workers 16-24 in 2012, the most recent data for minimum wage workers.
But it is not accurate. Just about 1/3 of all workers who earn less than the minimum are in food service. So their salaries are less than the minimum but they get tips which puts many of them above the minimum and many of those are 16-24. So the minimum wage probably helps a lot fewer than 1.7 million workers. But not all of the 3.4 million unemployed are hurt by the minimum wage. Many of them have enough skill and education to make much more than $7.25 and they are unemployed for all kinds of reasons unrelated to the minimum. In 2012, for example, 78% of teenagers (16-19 year olds) earned more than the minimum. More on these issues in another post coming soon.
Recent Comments