Tag: Labor economics

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 CBO Thorn in Obama’s Side

Fresh off their recent report on Obamacare that predicted a decline in the workforce of 2.5 million (partially as a result of employer cutbacks, mostly as a result of people leaving jobs due to high effective marginal rates), the CBO today issued a report on the effect of raising the minimum wage.

Raising the U.S. minimum wage would lead to the loss of about half a million jobs by late 2016 but lift almost a million Americans out of poverty, the Congressional Budget Office forecast in a report on Tuesday that reignited debate over one of President Barack Obama’s top priorities this year.

Buoyed by polls showing three-quarters of Americans in favor of a minimum wage hike, Obama and his fellow Democrats advocate raising the minimum hourly wage to $10.10 from the current $7.25 in a move to boost the stagnant wages of millions of low-income workers.

In the long term, Democrats also want to tie future minimum wage increases to inflation, avoiding the legislative fights over wages for lower-paying jobs.

The political flacks at the White House and AFL-CIO are disputing this, claiming they know more about economics than the CBO does. In fact, much of the Left Wing has declared the debate on minimum wage and employment to be over. Last week, Bill Maher said the idea that raising the minimum wage cost jobs was completely discredited. This isn’t, of course, reflective of the view of any, you know, economists. The most they will argue — as Krugman has — is that the effect is small. But no honest economist will argue that the law of supply and demand is magically suspended when it comes to low-wage jobs.

In fact, the connection between the minimum wage and unemployment is so natural that one of the honest liberals, Matt Yglesias, had this to say:

If the White House genuinely believes that a hike to $10.10 would have zero negative impact on job creation, then the White House is probably proposing too low a number. The outcome that the CBO is forecasting—an outcome where you get a small amount of disemployment that’s vastly outweighed by the increase in income among low-wage families writ large—is the outcome that you want. If $10.10 an hour would raise incomes and cost zero jobs, then why not go up to $11 and raise incomes even more at the cost of a little bit of disemployment?

Yglesias is uncorking the argument many conservative have: if raising the minimum wage has “little to no impact” on unemployment, why not raise it to $20 or $50 an hour? If you can’t countenance such hikes, then you are implicitly admitting that raising the minimum wage costs jobs.

Anyone who is honest about the issue will admit that there’s a tradeoff: how many fewer workers are you willing to put up with for an increase in the wages of those still employed? I would argue, given the present labor market, that the number is zero; that we should, at minimum, hold off until the labor markets recover (if that ever happens). Of course, in a recovered labor market, wages will go up anyway because employees will be scarcer than jobs.

Supporters of the minimum wage like to point out that the low minimum wage means we are subsidizing jobs at places like Walmart, where some employees qualify for food stamps. This is circular logic, of course. Food stamps, Medicaid, EITC — these were expanded specifically to give access to the working poor. You can’t then turn around and complain that that more people are taking advantage of them when that was the entire point.

But setting that aside: isn’t having subsidized jobs for four million people better than having unsubsidized jobs for two million? Someone who has job — even it’s a bad one — has an opportunity to prove themselves, to advance, to aspire. But someone who doesn’t have a job has no opportunities and no hope.

We’ve seen this kind of snobbery before and we’ve seen it hurt poor people before. Building codes are designed to outlaw cheap apartments — and then we wonder why poor people can’t find anywhere to live. Health insurance regulations are designed to outlaw cheap insurance — and then we wonder why millions aren’t insured. And now we want to outlaw low-paying jobs. And then we’ll wonder why low-skill workers can’t find employment.

It’s easy for someone who already has a job to say that no one should have to take a job at Walmart for $7.25 an hour. It’s a lot harder to say that when you have no prospects and you’re falling further and further behind the rest of the country. For many people, that “bad” job can be a lifeline.

I sometimes think that Stephen Bainbridge is right when he says we are headed toward a society like Jerry Pournelle’s CoDominium where we have one group of citizens totally dependent on government and another who work. Only in our CoDominium, the welfare recipients get to vote.

We need to make sure everybody has skin in the game, not just the top few percent. Everybody ought to vote and everybody ought to pay taxes.

And everyone ought to work, too. Even it’s just part-time and pays a shit wage, no able-bodied adult should go through a week without putting at least a few hours into the grindstone (preferably around 40, but at least more than 0).

I’m somewhat supportive of programs that help the working poor — that give them the means to bring themselves up out of poverty. The minimum wage is not that. It benefits some working poor while putting other completely out of work at a time when jobs are very very hard to come by.

Making progress easier for low-wage workers is one thing — we’ve talked about the guaranteed income and negative income tax proposals circulating around. But throwing 500,000 more people into the jobless hopeless class is just a recipe for disaster.

The numbers are in. And it’s time to shelve this bad idea.

A Living Wage! … But Not For You

Liberal pundits and advocates are constantly talking about a “living wage”. The last few years have a been a constant drumbeat about how we need to raise the minimum wage, with some now advocating that Obama should just bypass Congress and do it by executive fiat. It’s even gotten to the point where America’s Dumbest Intellectual deceitfully disputes the basic economic consensus that increasing the minimum wage increases unemployment.

(That last part is not complicated. It’s called the Law of Supply and Demand. There’s room to argue about how much unemployment minimum wage hikes create. But to argue that that amount is zero requires some intellectual stretching to make the labor market behave differently than every other market in the world. This is particularly relevant given our current problem with long-term unemployment and the recent tendency of employers to increase productivity by getting more out of existing employees as opposed to hiring new ones.)

Today, many fast food workers are effectively striking to demand higher wages. And more power to them. If they want higher wages, they can demand them. They should be aware that there are many who will take those jobs at the current wages. And raising fast food worker wages will mainly transfer wealth from … um … the middle class who will pay more for their burgers or make less from franchises.

In the end, today’s strikes are less about benefiting workers than about increasing union membership. If fast food workers want higher wages, what they really need is job growth to create demand for workers and a middle class able to pay more for Big Macs. But, of course, to do that, they’d have to stop voting for people like Barack Obama (not withstanding November’s slightly less crappy job numbers).

I’m drifting from the point.

Vice has an amazing report this week on how liberal publications flog for a living wage on the backs of … unpaid or minimally paid interns. Keep in mind, this is coming from a liberal perspective, so you’ll excuse the Left Wing petito principii:

America’s leading liberal periodicals are aware of the obstacles to advancement the less privileged face in our decidedly not meritocratic society. Indeed, they often provide excellent coverage of the class war, from union-busting at Walmart to the fight for a living wage at fast-food chains. At the same time, though, many of them are exploiting workers in a way that would make corporate America proud: relabeling entry-level employees “interns” and “fellows” in order to dance around US labor laws.

Paying people little to nothing because you can—a practice aided by the awfulness of the job market and the desperation of people trying to make it in “glamour” industries like journalism—is both exploitive and discriminatory, but many good liberals do not appear to recognize it as such, even as they decry that behavior elsewhere.

What follows is so incredibly delicious I will not excerpt it for you. You have to go to Vice’s article and taste the sweet sweet hypocrisy for yourself. OK, just one bit, about America’s Smallest Communist:

Robert Reich served as labor secretary under Bill Clinton and is outspoken in his support for a living wage. But when I asked him about the trend of entry-level jobs being relabeled “internships” and being stripped of the pay, benefits, and legal rights they once offered recent college grads (by some estimates, half of the estimated 1.5 million interns in America are unpaid), he professed ignorance.

“This is not a topic I’ve given much thought,” said Reich.

Reich is a busy guy, but he should think about the issue more. His political advocacy group, Common Cause, is only one of the organizations he has a hand in that relies on free or near-free labor. In a recent listing, The American Prospect, a magazine founded by Reich and other veterans of the Clinton administration, announced it was looking for editorial interns to assist “with fact-checking and research.” The interns will be “encouraged to contribute editorially and participate in meetings in addition to pursuing their own projects.”

Sounds good, but, “This is a full-time internship and comes with a $100 weekly stipend,” according to the listing. That comes to about $2.50 an hour, or “not nothing” if you are a glass-half-full type. However, there is a catch: “Interns who receive full course credit are ineligible for the weekly stipend.”

Mother Jones even told their workers to apply for food stamps while working on articles decrying Walmart for … having workers who get food stamps.

This does not surprise me at all. I mean at all. Megan McArdle wrote many years ago about working for Ralph Nader’s organization and how they assigned her some of the worst and poorest areas of town to solicit donations from. They did this so that they could fire her for lack of collections and skip paying half her wages. A similar scam — hiring people at less than minimum wage on the promise of a balloon payment, then firing them before the balloon is due — was behind ACORN’s voter registration fraud. The conservative media missed the real scandal. ACORN was bound by law to turn in the bogus registration, which will promptly rejected. But they existed in the first place because ACORN volunteers were desperate to not get fired for a lack of registrations.

Doubtless, many of these organizations will say they are on a shoestring. But everyone is on a shoestring these days. Small business owners aren’t exactly rolling naked in stacks of cash. This does not, however, exempt them from paying minimum wage and respecting worker rights. No, this is standard issue liberalism: claim that your cause is so just and righteous that the rules should not apply to you.

(In fact, I’m open to a debate about whether unpaid internships should be legal at all. It’s clear that the system is being abused.)

Mother Jones, in response to this, increased their payments to interns. Other liberal orgs are changing policy or maintaining a stony silence. But it’s telling that some of the biggest liberals in the world think a living wage should be guaranteed … for other people.

A Trio of Weekend Headdesks

Three stories that aren’t big enough for blog posts of their own … well, they are actually, but I don’t have time to tear into them.

First, you may have heard that the FDA is taking the unprecedented step of banning trans-fats. Actually, they’ve removed them from the list of foods that are GRAS (generally regarded as safe), a first step toward a ban. This despite the fact that trans fats are not dangerous per se. They raise LDL levels and lower HDL levels which may contribute to heart disease. I have no problem with encouraging people not to use them (always keeping in mind that it was the food snatchers who put it there in the first place). But banning?

The trans-fat ban is not the worst thing about the trans-fat ban, though. The worst is the precedent it is setting for banning a substance that does not make people sick and the inspiration this is giving to various Nanny State dunderheads, who are now hoping the FDA will heavily regulate (or ban) genetically modified food — technically speaking, all food is genetically modified. THey also want to regulate sugar. Yes, sugar:

The most outspoken enemies of sugar, like Robert Lustig, are trying to take it off the GRAS list–something that CSPI petitioned the FDA to do last February, asking it to study and determine safe levels of high-fructose corn syrup. The chance of an FDA announcement of that in six years seems pretty unlikely now. But soda makers already have more than dozens of low-sugar and sugar-free drinks: they have scores and scores of them. They’ve quietly been working to solve the problem, while spending (often literally) untold sums not to risk their core products. The advocates against trans fats who seemed so crazy even six years ago, when the New York trans fat ban went into effect, are seeming a lot less crazy today.

No, the advocates against trans fats still seem crazy. They’ve just found an Administration that listens to crazies. Needless to say, the idea of the FDA removing sugar from the GRAS list is insanely stupid. Sugar is natural substance that occurs in many foods and refining it has been around for millennia. Sugar is not dangerous. I repeat, sugar is not dangerous. Eating too much of it can make you fat but that is true of every food in existence. In fact, there is some evidence that the artificial sweeteners he touts are actually worse because they fool the palate and thus interfere with the body’s ability to regulate its sugar intake.

This is a perfect illustration of why you can never given the Nanny Staters an inch; they will demand ten miles and demand that you jog all of them. And without any bottled water.

Our second story comes from my home state of Georgia where Circle K has thrown their lot in for dumbest business of the year:

Johnny Jarriel Jr. has a state permit to carry a concealed weapon. He said that he often carried his pistol in his three years of working at the Circle K on West Stewart’s Mill Road in Douglasville.

Jarriel said he was in the office at the Circle K on West Stewart’s Mill Road on Saturday morning when armed suspect attempted to rob him. He said the man used pepper spray, demanded money and threatened to kill everyone in the store.

“Pointed it directly at my head and said, ‘Give me the money or I’m going to kill you,'” Jarriel said.

Instead of panicking, Jarriel convinced the attempted robber to follow him to the front for the money. When the gunman turned away, Jarriel reached for his pistol.

“He was turning around towards me, but before he got fully…I aimed at him this way and fired three shots,” Jarriel said.

The gunman fled, apparently wounded by one of the shots.

Authorities cleared Jarriel of wrongdoing and gave him back his .45, but the assistant manager was given the pink slip from his employer.

Circle K says this is corporate policy. Circle K is also an idiot. Forbidding employees for carrying guns is corporate policy, not holy writ. They’re acting like waving the rule violation is setting a Supreme Court precedent. In fact, a clerk was killed at that store four years ago. If I ran a store and one of my clerks was murdered, I’d be asking my employees to carry weapons, preferably in open holsters so everyone knows that the store is protected.

The final entry in our Trilogy of Error is that Seattle has elected a socialist to its City Council. Granted, the difference between an admitted socialist and everyone else on the city council is probably minor. But she hilariously calls for rent control, which even liberals admit destroys the supply of housing. She also supports a $15 minimum wage. That may sound swell to you, but if you look at Europe, you’ll find that countries without minimum wages have lower unemployment rates than those with them. Germany, for example, abolished its minimum wage and has 5.2% unemployment.

(Germany and other non-minimum wage countries like Sweden (!!) balance this with stronger unions and social safety nets. There’s a debate to be had whether a no-minimum-wage+safety net system is preferable to a minimum-wage system (although a system with neither might be best). Personally, I think we need people working. The strength of any economy is the total productivity of its citizens. If we’re going to give money away, we might as well give it away to people working for a living. Say what you want about Germany’s system, but if we had 5.2% unemployment in this country, we’d be dancing in the streets.)

So there you have it. Three stories that show our society at its dumbest. Work hard this week, my friends. Someone has to support these cretins.

Obligatory post on the Unemployment bullshit from the LSM.

I am certain the LSM will be all happy to report that unemployment remained steady at 7.6%, and whilethey all were hoping for a drop to 7.5%, this is just great news still. Well, as this Zerohedge post neatly shows, focusing on reported unemployment number outside of the other real factors is stupid.

So much for any doubts about a September taper: with the street expecting a 165K NFP number for June, the actual print of 195K following an upward revised May print of 195K as well, means the Fed’s September flow fade, aka Taper, is now virtually assured. On the other side, the Household Survey printed a 160K increase in jobs. The Unemployment Rate stayed at 7.6% despite expectations of a drop to 7.5%, although the real action was in the underemployment rate which exploded from 13.8% to 14.3%.

Emphasis mine. Sure the LSM is happy to tell you that you should believe the bullshit that the economy is at a minimum steady, if not getting better, but the fact is that’s all bullshit. The number of people that want to be full time employed but can’t find full time jobs keeps climbing. And it will be going up even more as employers everywhere react to Obamacare. Things are not getting better. In fact, we should be happy they are not deteriorating as fast as they could be based on all the stupid from the credentialed elite running our nanny state.

Your Daily AFL-CIO Headdesk

The only time I really have issues with Walmart is when they use the machinery of government to their advantage. They supported the ACA, for example, because it would benefit them. They’ve support eminent domain seizures in the past. Other than that, however, I really don’t understand the Walmart hatred. They provide cheaper products to the poor and middle class thanks to the economy of scale. They are known to hire people with little job experience of checkered pasts and give them a chance to move up. And, earlier this year, they announced a plan to hire 100,000 veterans and returning soldiers. Veterans have an unemployment rate that is a couple of ticks higher than the general population and could use a little bit of a boost.

This is a good thing, right? Giving entry-level jobs to people who’ve served our country? Well, it isn’t if you’re one of the biggest assholes on the planet:

Walmart’s recent announcement of a plan to hire returning honorably discharged veterans is more about public relations than honoring our heroes. That this effort was valorized by President Obama and Vice President Biden reflects an acceptance of economic failure out of line with America’s history or future.

We owe it to our returning veterans to make sure they are treated as the heroes they are, rather than as symbols used to “greenwash” Walmart’s eroding brand. After facing enemies abroad, is an $8.81 an hour part-time job the best we can offer returning veterans?

Already, working families and our economy are struggling against an epidemic of low-paying, low-benefit, part-time work. Instead of legitimizing that trend, we need to treat the talents of our veterans—and of all of America’s people—as a critical national resource.

We need businesses in this country to step up and make family-sustaining jobs available to returning veterans. Previous generations of heroes returned from overseas service to critical jobs in manufacturing, construction and public service, jobs that enabled veterans to help build the nation and support families. With the right policies, including those in President Obama and Vice President Biden’s American Jobs Act, we can live up to the standards of our past and empower our veterans for the future.

That’s Richard Trumka, head of the AFL-CIO, in case you didn’t recognize his style about three sentences in.

Yeah, it would be great if we had waiting jobs in factories for returning soldiers (although it bears noting that after World War II, a lot of those jobs were created by women leaving the workforce to become housewives again). But we don’t have that. We have an economy that is slowly creeping along thanks in part to the policies supported by Trumka’s allies and the debt-busting spending they have engaged in to try to “create jobs”. To the extent that manufacturing jobs have recovered it is because of innovation and improving living standards in foreign countries.

I would love for every veteran to come back to a $25 an hour job building solar panels. I would also love it if, every month, I were given two comely lasses of virtue true. But that’s not the world we live in. We live in a world were over 10% of honorably discharged veterans are unemployed. We live in a world where long-term unemployment is crippling: many employers simply throw out the resumes of those who’ve been unemployed for a couple of years. $8.81 an hour may not sound like a lot to Richard Trumka (current salary about $283,000 a year). But for someone looking to get a leg up into the job market and build up some experience, it could be a godsend.

Minimum wage, in a way even the most stupid can understand.

The concept of a living wage and a minimum wage are universally accepted on the left as great ideas. That they do not work in the real world and produce serious consequences is ignored. But now we have an example that is too easy to ignore:

The catchy Subway sandwich shop jingle involving a variety of foot-long sandwiches available for $5 doesn’t apply in San Francisco. The sandwich-making chain stopped selling the five-dollar footlongs in San Francisco due to the “high cost of doing business,” according to SF Weekly.

Signs posted at Subway sandwich shops sadly inform San Francisco patrons — we hear Willie Brown is a big fan — that “all SUBWAY Restaurants in SF County DO NOT PARTICIPATE IN Subway National $5.00 Promotions,” according to the newspaper.

Customers can still buy the sub of the month for $5, according to an employee at Subway on Market and Castro streets. Apparently, the city’s new minimum wage, raised to $10.24 as of Jan. 1, make $5 footlongs an impossible business model.

Unless you want tuna fish, which is the sub of the month. Yum.

I guess it is Karmic justice that this happens in one of the biggest liberal bastions in this country, and definitely not a coincidence, but I doubt the left will get the lesson.

It’s simple really: when government forces employers to pay too much for labor, especially labor that can be performed by a monkey because it requires no serious skills or abilities, the customer bears the brunt of that coerced transaction. The price of everything goes up, often by far more than whatever the jacked up minimum wage supposedly added to the pocket of the person making it.

Seriously, if the minimum wage/living wage concept worked, we could just make sure everyone was paid $60K or more a year for a 40 hour week, couldn’t we? Of course that $60K would not do much good, because it can’t happen in a vacuum. Once you force employers to pay out that much, they have to adjust their business model. For one, it means that less people will be employed, as employers adjust to accommodate this new burden, and then the employers will have no recourse but to jack up prices to make up the balance. And contrary to the belief collectivists have that otherpeople should just do things for the satisfaction of helping out, private sector owners will still need to make a profit too.

Only idiots that are totally disconnected from reality believe that all employers should be like government and provide non-profit make-work jobs that pay a living wage to everyone. That government can only do what it does now because it is taking a whole lot of money away from those that actually are being productive and actually have to make a profit to justify the effort to the owners, and that they constantly are trying to take more to feed the ravenous unproductive machine, gets ignored.

Seriously, is it so hard to understand that if everyone making at least $60K a year, the cost of living adjustment needed to accommodate this burden, suddenly makes the necessities that used to cost $X a month, now cost $10X? Don’t even start on luxury items. This logic is not that hard to work through.

I guess San Franers can now envy the rest of us for being able to get them $5 footlongs, while those of us that understand economics and the way the world works can laugh at their stupid move to have such a ridiculously high minimum wage. The fact is that someone ALWAYS pays for the free stuff the collectivists believe they are due.