by marketfreedomalliance1 | May 14, 2014 | In The News
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.
by marketfreedomalliance1 | Apr 4, 2014 | In The News
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.
by marketfreedomalliance1 | Feb 19, 2014 | In The News
February 19, 2014
Wealth Daily
Geoffrey Pike
There is debate stirring about a possible minimum wage increase.
Obama and the Democrats in DC are advocating a proposal to raise the minimum wage from $7.25 per hour to $10.10 per hour.
This would actually be an increase in the minimum wage of 39%, which is extraordinarily high, especially given the already high unemployment rate, particularly among less skilled workers.
Overall, the American people are in a state of naivety about the minimum wage, thinking there is such a thing as a free lunch. The majority of Americans, who support not only a minimum wage, but also an increase in the minimum wage, do not understand that there will be negative consequences, or they don’t think they will be affected.
Some Republicans will speak out against raising the minimum wage. You will find fewer who will advocate an elimination of minimum wage laws. We also have to remember that the last time minimum wage legislation was enacted to raise the amount, it was under George W. Bush.
Neither side is consistent, with the occasional exceptions. If the Republicans say that raising the minimum wage will cause higher unemployment, then why wouldn’t they advocate getting rid of it? There are a few who do say that, but not nearly enough.
And if the Democrats think that raising the minimum wage is great and virtually cost free, then why not raise it to $15 per hour or $50 per hour?
The minimum wage simply prevents employment between consenting parties. It doesn’t mandate that someone be hired or that someone can’t be fired. It just means that some transactions won’t take place that otherwise would have.
If someone wants to pay another person $6 per hour to do some manual labor and the other person is willing to do the job at that price, then the government is telling them they are not allowed to enter into such an agreement. If the person willing to pay $6 is not willing to pay $7.25 (maybe soon to be higher), then the transaction will never take place.
Like so many laws, it hurts the people most who it is purported to help. In this case, it tends to be younger people and those with fewer skills. These are the people most likely to lose a job or have more difficulty in finding one.
Ironically, it is legal to hire an unpaid intern in many circumstances. The intern would be willing to work for no pay just to gain experience. But if the company offered to pay the intern $5 an hour, then the transaction all of a sudden becomes illegal.
There was a CBO report just released saying that raising the minimum wage would lead to the loss of half a million jobs by late 2016. But the report also said that it would lift 900,000 people out of poverty, meaning it would push them above the designated poverty line.
Of course, these numbers are meaningless. The CBO has no idea what’s going to happen. They can plug their numbers into graphs, charts, and various computer-modeling programs, but it can’t actually tell you how humans will react.
A 39% increase in the minimum wage could easily lead to greater poverty. If there are that many more people unable to find work, we really have no idea how bad the effects could be.
The estimate of 500,000 lost jobs could easily end up much higher than that, too.
Think of a small business with about 20 employees. Half of the workers are making around the minimum wage and the other half are making more, maybe even significantly more.
If the employer simply can’t make a big enough profit paying an extra $2.85 per hour per worker, then the employer might just shut his doors for business. The extra expense might be around $5,000 per month. And if any of the other workers were making around $10 per hour, how would they feel making the same amount as the other people who have less experience or fewer skills?
If the employer shuts down his business, then it would mean all 20 people would be out of a job, not just the minimum wage workers.
It’s also important to point out that there are a lot of other hidden effects from minimum wage laws. An increase in the minimum wage may not lead to some people being fired, but it could lead to jobs not being filled or jobs never being created in the first place.
The bottom line is that minimum wage laws are bad economic policy. It will cause higher unemployment, assuming that the mandated wage is not lower than what workers would be paid anyway. It will also cause lower overall productivity and it distorts market activity.
The politicians who push for a higher minimum wage are playing on the economic ignorance of the voting population. Meanwhile, it is only hurting the people it’s supposed to help.
The minimum wage should be abolished and people should be allowed to freely associate.
by marketfreedomalliance1 | Mar 27, 2013 | In The News
March 27, 2013
Forbes
Don Watkins
A few years ago, I was in need of some extra cash so I decided to sell my laptop on eBay. A few days later, I got an offer. It wasn’t great, but then neither was my laptop. But before the payment went through, I got a call from the government.
“We have decided that the offer you got was too low. We’re not going to let you sell your laptop for anything less than three hundred dollars.”
“But no one is willing to pay me three hundred dollars,” I said. “I’d rather have two hundred bucks than nothing.”
“Oh, no, you can’t do that,” I was told. “That would be unfair to you.”
Far fetched? Maybe—it didn’t actually happen to me. But the fact is it happens to defenseless victims every single day, albeit in a somewhat different form: through enforcement of the minimum wage.
Right now there is a campaign underway to raise the federal minimum wage from $7.25 to $9 or more, and polls indicate that Americans overwhelmingly support it. And who wouldn’t? Who could object to making sure that everyone can earn a living? Who would oppose guaranteeing that every American is paid fairly?
Well, the problem is that the minimum wage doesn’t ensure everyone can earn a living—it ensures that many of us can’t earn anything. And it doesn’t guarantee that everyone is paid “fairly”—it unfairly denies us the freedom to decide for ourselves what pay to offer or accept.
I remember when I got my first job. I had just turned seventeen and after a bit of a search—I think I submitted three applications at the local mall—I got a call to interview for an entry-level position as a ticket taker at the mall theater. I sat down with Michelle, the theater’s hiring manager, and after going over my work experience—“I once helped my dad wash his car”—Michelle offered me a starting position at $5.35, just above the minimum wage at that time. I remember thinking: it’s not much, but it’s better than anyone else is offering me, and it’s certainly better than being out of work.
And that’s how employment should work. Employment is a contract—an arrangement between a person who wants to work and someone who wants to hire him. But under minimum wage laws, Michelle and I weren’t the only ones who had a seat at that negotiating table.
Had Michelle only offered me $5 an hour and had I wanted to accept it, Mr. Minimum Wage Enforcement Goon—I picture him as Bluto from Popeye—would have crossed his arms, sat back in his chair, and shook his head. And had he tried to enforce today’s minimum wage of $7.25, well, then, it’s very likely I would have never gotten the job to begin with.
The question is: Who invited him? Why was my employment agreement anyone’s business but mine and Michelle’s?
Here’s one answer: “But it’s not voluntary! You needed the money, while the movie theater could have afforded not to hire you.”
But the fact that someone badly wants or even needs something doesn’t imply that his efforts to get it aren’t voluntary. I may have needed a job, but it’s not like Michelle could have zapped me with a cattle prod to stop me from going to work at Subway.
Michelle’s only power was the power to offer me a better deal than any of her competitors. We sometimes forget that companies have to compete for employees the same way they have to compete for customers. When I interviewed with Michelle, I was no more powerless than a consumer shopping for condiments: Heinz is free to charge a thousand bucks for a pint of mustard, but it’s not free to keep you from buying a jar of Grey Poupon instead.
Did I wish I could have gotten more than $5.35 an hour? Sure, but no one was offering me that, and as an ambitious but inexperienced worker eager to get my start, I understood why: I wasn’t worth more yet. I wasn’t just getting the paycheck—I was building the skills and resume that would make it possible for me to make a whole lot more than $5.35 some day.
That’s the logic behind internships, which few people object to. Young people regularly work for low and even no pay in order to build their resume, learn useful skills, and make networking connections. If you forced companies to pay interns significantly higher wages, you would achieve only one result: you would prevent young people from realizing those benefits. By the same token, if the government had stepped in and forced the movie theater to pay a wage higher than what my ability justified, it wouldn’t have magically made me more productive—it would have made me unemployable.
Those who don’t think the world owes them a living understand that they can’t expect to get paid more than the worth of their value to an employer, and that to earn more they have to become worth more. Such people know that a low-paying job can be the best path to a high-paying job. Contra the minimum wage cheerleaders, it isn’t low pay that’s unfair—it’s preventing people from offering and accepting jobs that’s unfair.
Then again, maybe it’s not those who believe in individual responsibility that the supporters of the minimum wage are trying to appeal to.
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