Tag: Employment

The Minimum Wage Kills Jobs, Part 5529

Of all the sounded-clever-but-was-actually-idiotic things Obama said in the State of the Union address, this was the most cleverly-sounding-but-really-stupid:

And to everyone in this Congress who still refuses to raise the minimum wage, I say this: If you truly believe you could work full-time and support a family on less than $15,000 a year, go try it. If not, vote to give millions of the hardest-working people in America a raise.

As I said, sounds clever. A bunch of liberals in my Twitter feed said the equivalent of, “Oh, snap!” But the reality is that you’re not supposed to be raising a family on minimum wage. Minimum wage is an entry level wage, a wage to get your foot in the door for future better-paying jobs. I made minimum wage once. Actually, I made less than minimum wage because I was paid in cash under the table. But I was a teenager, so it was fine.

The biggest reason to oppose the minimum wage, of course, is the Law of Supply and Demand. If you artificially set the price of something high (low-skill labor), you will find that people learn to live without it (i.e., they stop hiring people). We’ve been told this is a myth, despite clear evidence that it’s not. Well, here’s another example of this thing that supposedly never happens:

In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018. Although all of us at Borderlands support the concept of a living wage in principal and we believe that it’s possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage. Consequently we will be closing our doors no later than March 31st. The cafe will continue to operate until at least the end of this year.

Many businesses can make adjustments to allow for increased wages. The cafe side of Borderlands, for example, should have no difficulty at all. Viability is simply a matter of increasing prices. And, since all the other cafes in the city will be under the same pressure, all the prices will float upwards. But books are a special case because the price is set by the publisher and printed on the book. Furthermore, for years part of the challenge for brick-and-mortar bookstores is that companies like Amazon.com have made it difficult to get people to pay retail prices. So it is inconceivable to adjust our prices upwards to cover increased wages.

The change in minimum wage will mean our payroll will increase roughly 39%. That increase will in turn bring up our total operating expenses by 18%. To make up for that expense, we would need to increase our sales by a minimum of 20%. We do not believe that is a realistic possibility for a bookstore in San Francisco at this time.

I will point out something else that they gloss over. It’s true that businesses like the cafe side of Borderlands can cover the minimum wage hike by increasing prices. But you know who pays those increasing prices? Primarily poor and middle class people who go to the kind of places — fast food restaurants, cheap bookstores, etc. — that pay their employees minimum wage. So you’re giving them money with one hand while taking it with the other.

This is a liberal bookstore ownership. That’s clear from the way they talk about this. But they point out that the minimum wage hike will increase their operating costs by 18%. Other business will see similar hikes. Do you know how many business are operating at an 18% profit margin? Very very few. And certainly none that are patronized by the poor and middle class.

Minimum wage hikes sound good and make liberals feel good. But they are a nightmare for the job market. If you don’t believe me, believe the guys at Borderlands. They have no reason to spew “right wing propaganda”.

Upscale Seattle

Seattle is about to raise its minimum wage to a staggering $15 per hour. The deal is being touted as a cooperation between labor and business. However, that deal was basically extorted by the local government:

With his Income Inequality Committee failing to reach a decision at its final scheduled meeting April 23, and business and labor representatives still at odds over core issues on a deal for a $15 minimum wage, Seattle Mayor Ed Murray gathered the business members of the committee the following day.

Unless they reached an agreement with labor, he told them, he would announce a plan worse for them — and more closely resembling Socialist City Councilmember Kshama Sawant’s pro-worker initiative.

But Murray didn’t announce his own proposal April 24. He stood before a room packed with local and national media and said while there was broad agreement, there were unresolved issues.

One week later, Murray returned to the same conference room in City Hall to announce a historic agreement between business and labor to raise the city’s minimum wage to $15 an hour over five to seven years.

The negotiated deal calls for a three- to seven-year phase-in, with large businesses — those with at least 500 workers — required to reach the $15 wage first.

As you can imagine, the usual suspects are crowing, claiming this will inject half a billion dollars into the local economy (since we all know that wages can be raised with money grown on trees). I find this claim to be ridiculous. All the minimum wage will do — as the minimum wage proponents themselves so often note — is redistribute income. It will not create income on its lonesome.

But even that comes with a price. With this wage hike, Seattle will have a higher minimum wage than any country in the world.

Any plan that makes hiring a worker more expensive than in France should be cause for concern. We know that businesses in high-wage countries are especially eager to replace workers with software. Fast-food restaurants in Europe, for instance, have been some of the earliest adopters of labor saving technologies like digital kiosks where customers can order. Those innovations are already beginning to make headway in the United States. But by passing a $15 minimum, Seattle would risk speeding the process up within its city limits.

Liberal rag the New Republic, while supporting the minimum wage hike, is honest enough to note at least three negative consequences: employers will hire fewer workers; employers will replace employees with computers and employees will be priced outside of the city.

That last point should really be unpacked. Reihan:

It is entirely possible that as Seattle’s new minimum wage proposal takes effect, the poverty rate within the city limits will decrease. What remains to be seen, however, is if the new proposal decreases the poverty rate by raising the market incomes of low-wage workers currently residing in Seattle or if it instead prices some number of less-skilled women and men out of Seattle’s housing market by reducing their market incomes, either by forcing them to exit the city’s formal labor market to seek lower-wage employment in neighboring jurisdictions or by encouraging local employers to reduce work hours.

A question for the class: what businesses pay the minimum wage? The discount and low-price businesses that the working poor and middle class utilize most often, such as fast food restaurants. So what’s going to happen when the minimum wage is raised? The cost of living for Seattle’s lower classes will go up massively. It won’t go up for Seattle’s upper class since their preferred stores are expensive anyway and pay high wages.

The result will be, as Reihan has documented, poor people moving to areas that have lower minimum wages so that they can afford to live, then commuting long ways to areas of higher minimum wage. I don’t see that having to maintain a car and commute a couple of hours every day improves their lifestyle.

But it’s worse:

However, while this is an even trade of money from one group to another, one specific source of money actually shrinks.

The lost money is federal government benefits that low wage workers lose thanks to the increase in the minimum wage. In fact, many of these workers will lose food stamps, some or all of their earned income tax credit, and other means-tested federal benefits. This money is currently spent in the local economy, but after the minimum wage is increased the money will revert to Washington, D.C., to be spent on something else.

As I showed in an earlier column, low wage workers can lose as much as half of any new income to increased taxes and lost benefits. Given the percentage of low wage workers that live in low income households (around 30 percent) and that eligibility for the earned income tax credit extends to about $50,000 for a family of four, the loss to the Seattle area economy is likely on the order of $75-100 million.

We’ve talked about this before: how the federal tax and welfare systems have created massive effective marginal tax rates for those attempting to climb out of poverty. So the notion that this is a straight-up cash dump into the wallets of poor people is incredibly misinformed. At least half and probably more of that money will swirl right out of the bottom of their wallets in the form of reduced government subsidies. And the rest will vanish with increased prices and long commutes. Reducing people’s dependence on government is a good thing, of course. But let’s not pretend they’ll have more money.

Some people are saying that this will be an interesting economic experiment to test the effect of raising the minimum wage. I’m dubious of that. First, people are not economic lab rats and shouldn’t be treated as such. Second, I am sure that the books will be cooked on this experiment. When poor people flee Seattle to live in places they can actually afford, this will give the appearance of a more prosperous city. It’s the same logic by which a city reduces its poverty rate by using imminent domain is used to force poor people to sell their homes to rich people.

Oh, well, could be worse. Down in California, some fools want to raise the minimum wage to $26 an hour.

I wish that was a joke.

The Right to Work

(I had planned this post for Friday but delayed it for obvious reasons. I don’t expect anyone wants to discuss Right to Work at the moment, but I’ll get it out my queue. A post on Sandy Hook is coming, hopefully tomorrow night.)

I had a few thoughts on the “Right to Work” debate that is raging (literally) in Michigan and other states. While I am generally supportive of what’s going on, I think it needs to be unpacked a bit because it’s not clear that “right to work” is, in and of itself, a good thing.

The argument against RTW is explained by Gary Chartier in a must-read. Essentially, right to work interferes with the right of contract. Right to work doesn’t just open up closed shops; it forbids them.

If employers choose to conclude union-shop contracts with unions, what gives the Indiana legislature the right to interfere?

Employers own the wages they will pay and the sites where work will be performed under such contracts. So it’s their right to dispense the wages and make the sites available specifically to union members, just as it’s their right, more generally, to trade with anyone they choose.

When a legislature interferes with voluntary employment contracts, it infringes people’s freedom to bargain with their own labor and possessions. Treating this kind of interference as acceptable means licensing arbitrary interventions into the market by politicians, who are ill-equipped to second-guess the decisions made by the real people making work agreements with one another.

Ezra Klein makes related points:

The term “right-to-work law” is a triumph of framing. Such laws do not, in fact, give you the “right to work.” They give you the right to refuse to pay union dues when you work for a union shop, even though you get the wages the union bargained for, and the benefits the union bargained for, and the grievance process the union bargained for.

And “union dues” isn’t even the right term here. In Michigan, for instance, you can work in a union shop without joining the union and paying full union dues. The costs of the union’s political activities, its membership events, and more are removed from your dues. You pay a lower fee, because you’re just paying, at least in theory, the cost of the union’s representation activities.

If an employer required an employee to be at work at 9 am, we would think that was reasonable. If an employer required an employee to dress appropriately, we would think that was reasonable. Let’s put aside the dubious proposition that am employer necessarily wants a closed shop. Can that not be part of the agreement they make with a union?

(For the moment, we’re discussing private unions. Public employee unions are an entirely different kettle of newspaper-wrapped fish.)

J. D. Tucille at Reason goes further, pointing out that this is, in essence, a libertarian argument:

The ideal role for the government in business-labor relations is to stay the hell out of it and let the parties work things out themselves. I may prefer one outcome or another, but I don’t have the right to enforce it by law, and that’s what right-to-work legislation does.

This argument sounds reasonable until you account for the context — and Tucille did the next day. I’ll quote Chartier again:

Defenders of right-to-work laws also sometimes point to the background labor-law framework in the United States as a justification for these laws. The National Labor Relations Act (NLRA) and its successors established a system that requires an employer to bargain with a union enjoying majority support in a given workplace. Right-to-work proponents argue that the laws they favor only help to level the playing field created by government action—by reining in special privileges granted to unions under existing labor law.

Exactly. The NLRA has given states two choices: either they are a closed-shop union state or they are an open shop right-to-work state. There is no in-between. If you’re in a non-RTW state, you have to close your shop and deal with the union. If you’re in a RTW-state, you still have to deal with the union but you have to maintain an open shop.

Frankly, these “right to contract” arguments sounds a bid odd coming from the pro-union left who have supported card check and kept silent while unions have attempted to forcibly rope unrelated workers into the union. But I’ll bite. Here’s my suggestion. We overhaul the NLRA to give both employers and unions the right to contract as they see fit. If a union demands a closed shop and their employer is willing to give them one, that’s fine. But other choices have to be available.

Funny, how the right to contract suddenly disappears when that’s on the table.

Interesting twist to the “other people’s money” solution

That’s what Sweden just did:

Under a scheme organised by the local authorities in the town of Soderhamn and by Sweden’s national employment office, anyone aged between 18 and 28 can volunteer to take a “Job Journey” to Oslo and attempt track down gainful employment.

Those who sign up get a ticket to the Norwegian capital and are put up in an Oslo youth hostel for a month, with Soderhamn council picking up the £20 a night bill. The package also includes on-the-spot guidance on how to get a job in Sweden’s northern neighbour.

“We had an unemployment rate of over 25 per cent, so we had to find solutions,” Magus Nilsen, the man in charge of the project at Soderhamn council, told the Daily Telegraph. “Going to Norway to find work has always been quite popular with young people, but sometimes they want to go but don’t know how to find a job or accommodation so we thought we’d give them a bit of help with both.”

What a scam….

Maybe the Greeks can do some of this too to fix their “running out of other people’s money” problem too…

More disinformation and pre-election propaganda from the LSM

Rueters has another bullshit piece about how unemployment is getting better, right in time to help Team Blue claim things are getting better because of them, as the election approaches.

(Reuters) – Employment growth accelerated last month and the jobless rate dropped to a near three-year low of 8.5 percent, offering the strongest evidence yet the economic recovery was gaining steam.

Nonfarm payrolls increased 200,000 in December, the Labor Department said on Friday. It was the biggest rise in three months and way above economists’ expectations for a 150,000 gain.

The unemployment rate dropped from a revised 8.7 percent in November to its lowest level since February 2009, a heartening sign for President Barack Obama whose re-election hopes could hinge on the state of the labor market.

Of course, this is all slight of hand. Reuter’s Team Blue propaganda piece omits some key information:

While some of these forward-looking numbers hold promise, the actual jobs numbers so far have been middling. Hopefully the numbers tomorrow will turn that around. But the real missing piece for a true recovery in the job market has been workers. Even as the unemployment rate dropped from 9 percent to 8.6 percent last month, a little over half of that decline was due to workers dropping out of the labor force.

Labor force participation averaged 66 percent through most of the 2000s. It now stands at 64 percent after declining again last month. If more people were still looking for jobs, and the participation rate were back up at 66 percent, the unemployment rate would now be 11.4 percent instead of 8.6 percent.

What all this means is that workers have been voting with their feet and choosing to not participate in a job market they see as weak. Because participation is a measure of worker/voter attitude, it will be an interesting metric to watch this election year. It points as much to how voters are thinking about the job market as how the job market is actually performing.

This is more of the same. If you recall last spring’s CBO prediction that we would add 2.9 million jobs between 2010 and 2012, halfway there we had only added 200K jobs, would mean an unbelievable 170K plus per month job creation scenario, till the election date, to meet that 2.9 million number. Seriously, how do you get that to happen, with Europe about to implode and China’s economy grinding to a halt, when your policies continue to be anti job creation? The answer is you don’t. So hence, this need to make up shit to pretend you are doing good. And have no doubt this is made up/manipulated numbers. And don’t forget all the part timers looking for full time jobs either.

They are not counted. Things are far worse than they have been trying to convince you for the last 3 years. As I pointed out in this post, get ready for a whole world of misinformation, intended to convince fools that things are getting better. The economy however is doing nothing of the sort, and the people getting hammered by it know it. They will fool many, but they won’t be able to fool enough people.

UPDATE: Even MSNBC watchers seem to understand this is bullshit propaganda.

When I looked at that poll 61.1% of them were saying they saw no improvement whatsoever. I guess they have not been told hard enough that things are better. Don’t worry. More tripe will be shoveled out to try and convince them that what they see and feel and thus perceive as the truth, is not true, but that what the propagandists are telling them should be considered true. They did the exact same thing back in the old USSR and this gets done constantly in most shit hole communist “paradises” these days, yet the people know better.