Tag: Minimum wage

It Takes a Village to Waste Money

For a time, it looked like Hillary Clinton might actually end up being the more conservative candidate in the race. Trump has been talking about restricting trade, blowing holes in the debt, opposing entitlement reform and expanding executive power.

Well, no longer. Apparently afraid that Bernie Sanders will bolt the Democratic Party for the Green (this tends to happen when you let people run who aren’t technically members of your party), she has now basically adopted Bernie Sander’s agenda in full.

  • She’s supporting the push for universal Pre-K, proposing a new bunch of subsidies and tax credits, doubling the size of the failed Head Start program and pushing for 12 weeks of mandatory paid leave. I’ve argued before the universal pre-K is a solution stumbling around in search of a problem and documented the complete failure of universal pre-K efforts. Clinton doesn’t care; there’s votes to be bought!
  • Clinton has now abandoned education reform in favor of more spending and more spending. There’s no evidence that this approach does anything but employ more union members. Clinton doesn’t care; there’s votes to be bought!
  • She’s now supporting a $15 minimum wage, a plank taken straight from Bernie Sanders. I’ve pointed out before that the push for $15 is a kind of mass insanity that has gripped the Left, only slightly more scientific than if the Republicans had responded to the Ebola epidemic with prayer. The cruelty of this is that it if the Democrats are wrong, it will not destroy their jobs, but the jobs for the people they purport to care for: the poor, the workings class, minorities, dropouts and convicted criminals trying to straighten out their lives. Clint doesn’t care; there’s votes to be bought!
  • She’s now embraced Bernie’s plan to massively inflate college tuition … uh … “make college more affordable“. As has been pointed out innumerable times, shoveling money at colleges will simply raises costs, increase debt and persuade more people to waste their time in college when they could be working or training. Clinton doesn’t care; there’s votes to be bought!
  • She’s now supporting creating a public option for Obamacare. Obama is now calling for this too, claiming the markets are not competitive enough. You have to admire the gall. First, the crush the insurance market with Obamacare. Then, they refuse to let insurance be sold across state lines. Then they propose a “public option” to bankrupt the insurance companies that remain. Every day, Obamacare looks more and more like a deliberate plan to destroy the private insurance market to create the “need” for socialized medicine. In this case, Clinton does care; there’s vote to bought!
  • She’s now turned not just against TPP but against free trade in general. Never mind that trade has made our country wealthy while almost eliminating poverty in other countries. Clinton doesn’t care; there’s votes to be bought!
  • All of this will be paid for with big tax hikes on “the rich”, who are close to maxed out. Clinton doesn’t care; there’s votes to be bought!

The $15 minimum wage is the issue for me with Democrats. It is so mindless, so stupid, so at variance with economics and so destructive to the future of the people it supposedly helps. If you wanted to create unemployment, make poverty more intractable and condemn a generation of people to lifelong unemployment and poverty, you’d be hard pressed to come up with a better plan than the $15 minimum wage.

I realize that a lot of liberal organizations don’t pay their interns or, in the case of groups like Ralph Nader’s, pay them sub-minimum wage through legal loopholes. But the University of California already fired 500 people to account for the minimum wage. Even the dumbest Democrat can do math. And Hillary Clinton is many things, but she’s not dumb. They must know, on some level, that this is going to be bad. They just Don’t. Fucking. Care.

But it’s worse. As McArdle points out in the link above, Clinton is proposing to pay for all this stuff with the usual litany of Democratic tax hikes: raising rates, eliminating the Social Security cap, closing the “carried interest” loophole, etc., etc. She’a also proposing to eliminate almost all tax deductions for the rich (which will produce 100+% marginal rate in some income brackets). But:

For while it is true that these programs are paid for, that doesn’t mean that the budget math is sound. The government’s spending capacity is, in the end, limited, and every dollar that you spend on one thing is a dollar that cannot be spent on something else. Virtually all of Clinton’s “pay fors” are concentrated on a relatively small number of affluent-to-rich people, and because of that, they represent a large cut of those incomes; if she managed to enact all of her plans, her top bracket would be inching close to a marginal tax rate of 50 percent before you factor in state and local taxes that can easily add another 10 percentage points to that figure.

Even if you think that it would be politically possible to extract taxes at those levels, and that you could do so without causing any unwanted economic side effects, the question remains: What do you do for an encore? After enacting Clinton’s agenda, America will still need to fix Medicare, Social Security, state and local pensions, the disability insurance program, and so forth. And given that Democrats have proven as unwilling as Republicans to raise taxes on the middle class, where are we going to get the money?

I’ve said this many times and I will keep repeating it until it sinks in: you can’t fund a welfare state by taxing the rich. There simply isn’t enough money. European welfare states aren’t funded by the rich. They’re funded with massive taxes on the middle class.

The United States has one of the most progressive tax systems in the world, being very reliant on the wealthy for revenue. The European welfare states, by contrast, are more regressive, having flatter taxes and relying on VATs and sales taxes that are regressive. They have to be that way because you simply can’t finance a welfare state by taxing the 1%.

A welfare state financed by the rich doesn’t even work politically. When everyone is paying taxes, there is more support for a welfare state because everyone is pitching in. The perception is that you’re getting out something related to what you paid in, which is why Social Security and Medicare are popular in this country (both financed by a regressive tax that is denounced by Democrats for not soaking the rich enough). But a system that is dependent on taxing the rich isn’t a welfare state, it’s a plunder state. And as I’ve pointed out before, most people don’t want that. They don’t want to feel like they’re living on someone else’s dime or on stolen property. The Communists discovered this 70 years ago when they tried to “redistribute” estates to the commoners only to discover that the commoners didn’t want that wealth if it was stolen.

But proposing to fund this garbage through a middle-class tax hikes would be political suicide. So — in a situation where we are already half a trillion in deficit, have $19 trillion in existing debt and have trillions of dollars in future unfunded liabilities — the Democrats are proposing to burn our last few sources of revenue on a series of brand new will-o’-the-wisp social spending programs.

(Yes, yes, we once had marginal tax rates of 70%. And we also had a huge number of exemptions. No one ever paid that rate. We are very close the practical limit on marginal rates.)

I understand why Clinton is selling out wholesale like this. She’s afraid Bernie on the Green Party ticket will wreck her chances. But I think this tells you how principled Hillary Clinton is. She has either completely changed her views on several major issues or she is going to betray her campaign promises the second she gets into office. I don’t think she actually cares either way. She just wants to be President. And if she has to wreck the economy to get there, well, she’ll wreck the economy to get there. This is way more of a sell-out to the party fringe than any Republican has ever made. But you won’t see it described as such because 98% of our media are going to vote for Clinton anyway.

This is worst election ever. Two rich leftists are battling to see who gets to the screw the country over and how badly they can screw us. And people wonder why I’ve voting for Johnson:

I will not vote for Trump. And I will not for Clinton. To hell with them both. The only election I really care about is Congress. It is absolutely critical that the Republicans hold onto Congress, preferably retaining a majority in both houses. Look at the agenda. Imagine the damage Clinton could do with a Democratic Congress. And then, whatever you may think of Trump, put that Republicans roadblock in her way.

Who would thunk it?!

The people pushing for a $15 minimum wage have assured us that the wage hike will not destroy jobs. After all, there was this one study back in the 90’s that showed that a small increase in minimum wage didn’t immediately destroy jobs. Granted, almost every other study has shown differently but, you know, A STUDY SHOWED SOMETHING. ONCE. So we’ll assume that gigantic increases in the minimum wage will have no effect, none whatso-

Oh:

Wendy’s (WEN) said that self-service ordering kiosks will be made available across its 6,000-plus restaurants in the second half of the year as minimum wage hikes and a tight labor market push up wages.

It will be up to franchisees whether to deploy the labor-saving technology, but Wendy’s President Todd Penegor did note that some franchise locations have been raising prices to offset wage hikes.

McDonald’s (MCD) has been testing self-service kiosks. But Wendy’s, which has been vocal about embracing labor-saving technology, is launching the biggest potential expansion.

Wendy’s Penegor said company-operated stores, only about 10% of the total, are seeing wage inflation of 5% to 6%, driven both by the minimum wage and some by the need to offer a competitive wage “to access good labor.”

It’s not surprising that some franchisees might face more of a labor-cost squeeze than company restaurants. All 258 Wendy’s restaurants in California, where the minimum wage rose to $10 an hour this year and will gradually rise to $15, are franchise-operated. Likewise, about 75% of 200-plus restaurants in New York are run by franchisees. New York’s fast-food industry wage rose to $10.50 in New York City and $9.75 in the rest of the state at the start of 2016, also on the way to $15.

Wendy’s plans to cut company-owned stores to just 5% of the total.

I hate to say I told you so, but … no, wait, I don’t hate that. I hate it when people’s lives and the nation’s economy are upended by the utterly predictable results of feel-good liberalism.

The Cruelty of the $15 Minimum Wage

Reason posted this over the weekend. It’s a good review of why the $15 minimum wage, which Clinton has now embraced, is insanity.

Boudreaux gets into an aspect of the wage hike I didn’t: that he thinks the gradual increase is designed to conceal the effects. If the economy does well for other reasons, the Democrats will then claim the $15 minimum wage is having no effect on jobs.

Here’s the thing: the Democrats are claiming, based on a grand total of one study that doesn’t say what they think it says, that we can raise the minimum wage without increasing unemployment. Let’s pretend that this point is up for debate and that we are, in effect, engaging in a massive gamble on the laws of economics. What is the downside risk if they’re wrong?

As I noted in my last post, long-term unemployment is one of the most damaging things that can happen to someone. It can repress earnings for a lifetime, it can affect health and happiness and, as we’ve seen in Europe, masses of unemployed young men can become a hotbed of crime and extremism. That’s the risk if they’re wrong.

The Democrats are gambling the futures of millions of people on this will-o-the-wisp idea that the Law of Supply and Demand is magically suspend for labor because … well, because the unions want it to be. If they’ve gambled wrong, they won’t be paying the price. Millions of poor people and minorities will. If the $15 wage causes mass unemployment, the effects will last for generations. It may not be reparable in our lifetime.

I’m glad the Democrats have a few pet economists who will tell them this is a low-risk bet. But it’s yet another illustration of how the Democrats “help” people by holding their heads underwater. I have no doubt that they think they are being compassionate. But gambling someone’s life on crackpot economic ideas is not compassion.

The Minimum Wage Insanity

Well, here we go:

A deal to raise California’s minimum wage to $15 an hour by 2022 was reached Monday by Gov. Jerry Brown and state legislators, making the nation’s largest state the first to lift base earnings to that level and propelling a campaign to lift the pay floor nationally.

The increase will boost the wages of about 6.5 million California residents, or 43% of the state’s workforce, who earn less than $15, according to worker group Fight for $15. The proposal had been headed to a statewide referendum. It’s now expected to be approved by the state assembly.

This $15 thing is part of Sanders campaign and may be passed into law in New York as well. We’re told that this will increase the earnings of low-wage workers and … somehow … not increase unemployment.

Megan McArdle has a really good must read about why the people proclaiming that minimum wage hikes won’t increase unemployment — a tenet of economics that was proclaimed to be gospel as recently as ten years ago — should worry:

The people confidently proclaiming their ability to see the future are often what I like to call “one-study wonders”: people who have gotten their hands on a single study that confirms what they already believe (or would very much like to) and then proceed to wave it around while ignoring the rest of the vast, conflicting, suggestive but hardly definitive economic literature on the subject.

One-study wonders are always dangerous. A single study, no matter how well done, is never proof of anything. It’s too easy for something to accidentally go wrong.

Because being unemployed, especially for a long time, is about the worst thing that can happen to someone in a modern democracy, short of death or dismemberment. People adjust even to terrible life events such as divorce or widowhood; five years after the loss, research shows that happiness levels recover to about where they were before. But five years in, the unemployed are nearly as miserable as they were on the day they got the sack — and this research was done in Germany, which had a quite generous unemployment compensation program.

Moreover, the people affected are most likely to be low-skilled workers, who are most in need of jobs, not just for the money, but also for the skills that employment provides. The job market is like a ladder, and the lowest rungs are where people gain the critical skills and experience to climb that ladder. If you keep someone off those bottom rungs, studies show that their future employment and salary prospects can be permanently harmed.

The case that minimum wage hikes do not cause unemployment is mostly based on one study — the Card and Kreuger study. In this study, they looked at what happened when New Jersey raised its minimum wage and Pennsylvania didn’t. New Jersey saw a slight increase in employment. Supporters of the minimum wage have proclaimed this to be “the perfect experiment” (ignoring perfect experiments that don’t support their theory). But it’s not. No matter how well done the study was:

  • It’s one study.
  • It measured a relatively small increase in minimum wage.
  • It’s one study.
  • It didn’t look at long-term effects, such as whether people didn’t open new stores as a result of higher wages.
  • It’s one study.
  • It was done in 1992, when regulations were way less burdensome, the economy was in a strong recovery phase and Obamacare did not exist.
  • It’s one study.

The Fight for Fifteen people also cite this letter from “600 economists” supporting a minimum wage. There are only four problems with this seemingly bulletproof letter. One, some of the people on that letter are not economists. Two, most of them work in academia or other fields where they can just ask the government for more money; they’re not running businesses. Three, that letter advocates increasing the minimum wage to $10.10 an hour, not $15. I suspect that many of them would argue that while small wage increases do not affect unemployment, large ones do. Four, their conclusions are theoretical. This is real life.1

Let’s take a step back. As McArdle notes, long-term unemployment can have a damaging lifelong effect on earnings, way more than low entry-level wages do. So the Democrats have decided that they are willing to gamble the long-term futures of millions of people on a theory that the Law of Supply and Demand is magically suspended because … well because they want it to be. And even that theory is stretched. It’s mostly based on one paper for a small minimum wage increase in one specific circumstance. And they are extrapolating that to a massive increase.

In the space of one hundred and seventy six years the Lower Mississippi has shortened itself two hundred and forty-two miles. That is an average of a trifle over a mile and a third per year. Therefore, any calm person, who is not blind or idiotic, can see that in the Old Oölitic Silurian Period, just a million years ago next November, the Lower Mississippi was upwards of one million three hundred thousand miles long, and stuck out over the Gulf of Mexico like a fishing-pole. And by the same token any person can see that seven hundred and forty-two years from now the Lower Mississippi will be only a mile and three-quarters long, and Cairo [Illinois] and New Orleans will have joined their streets together and be plodding comfortably along under a single mayor and a mutual board of aldermen. There is something fascinating about science. One gets such wholesale returns of conjecture out of such a trifling investment of fact. – Mark Twain

This isn’t trivial. This is people’s lives. I’m glad the liberals have a a study that makes them feel good about this. I’m sure that will be comfort to people who can’t find even the most basic entry-level jobs or people who lose their jobs to automation. Maybe they can print copies of the study and burn it to keep themselves warm. Back in reality, let’s check in with those crazy right wing hacks at … Brookings:

In a city like Washington D.C. where unemployment among those with a high school education or less is at a worrisome 15%, jobless rates will almost certainly rise. Many employers will be very reluctant to pay high wages to workers whose skills – including the ability to speak English, in the case of many immigrants – are so modest. A likely result would be not only increases in unemployment but also drops in formal labor force activity (where workers work or search for legal jobs) and perhaps some growth in undocumented work among immigrants.

It’s actually worse in California because they are raising the minimum wage in the entire state. Cities that are in economic turmoil with high unemployment? $15 an hour. Suburbs where the unemployment rate is low? $15 an hour. Minority neighborhoods were unemployment rates for young men can be as high as 50%? $15 an hour.

This isn’t some kind of fancy-schmancy rocket science here. This is math. You simply can not increase wages by 50-100% and not expect there to be an effect. The AEI has now looked at Seattle’s labor market after their big minimum wage hike. Now, granted, it’s only nine months and there are reasons to be skeptical. But the preliminary result is devastating. A full point increase in the unemployment rate.

And let’s suppose, for the moment, that this doesn’t increase unemployment. The money has to come from somewhere. People running business aren’t sitting on giant stacks of money that we can just force them to pay to their employees. So what are they going to do? Increase prices. And what kinds of businesses pay minimum wage? Is it fancy-pants restaurants in Beverly Hills? Is it software companies in Silicon Valley? No. It’s McDonalds. It’s Walmart. It’s Burger King. What do these businesses have in common? They are frequently the choice of the poor and middle class. So we’re going to give them higher wages with one hand and take it away with higher prices on the other. So why bother? Stick a pin in that question.

One frequent justification for raising the minimum wage is that low-wage workers are often eligible for food stamps and Medicaid. However, the eligibility for those programs was expanded specifically to benefit low-wage workers. You can’t expand a social program and then claim that the expansion of the social program proves you need to raise wages. On balance, having workers make less wages but get government benefits is better than having them make marginally higher wages. Because it means less unemployment. It is effectively a government subsidy of the lowest rungs on the economic ladder. Yes, I wish the government just stayed out of the whole thing. But we don’t live in that country.

Now, what is the real motivation here? Why are liberals so hell bent on raising the minimum wage? Why are unions members, who generally don’t make anywhere close to the minimum wage, so supportive of such massive increase? Well, mainly because it will increase union wages, which are frequently indexed to minimum wage.

When you see it from that angle, you see what’s really going on here. Labor unions are limited in their ability to demand more wages by the give-and-take of negotiation and by the constraints of what the market will pay for their products. What this is really about is forcing unionizing businesses to pay much higher wages through the back door (and remember, the Democrats are big supporters of card check, which would make it easier to coerce employees into unions).

So when you really break this down, it comes to this: the Democrats are screwing over the poor, screwing over the working class, screwing over the consumer and screwing over businesses so that their primary source of support — labor unions — can enjoy the benefits. And they are basing this on fuzzy-minded idealism, one-study-wonders and a media that can’t be bothered to question the narrative.

And in five years, California — already enjoying one of the highest unemployment rates and inequality indices in the nation — will be wondering where it all went wrong. They’ll probably blame Republicans. I’m sure there’s one or two left in the legislature they can pin it on.

1. Another point: the Democrats are proclaiming that if the minimum wage were equal to what it was in 1968, it would be $10.66 an hour. They pick that year because it was a peak in minimum wage, a peak way higher than any year before or after. It was right after a huge increase that was enacted to deal with inflation that our government was deliberately creating. These are the same liberals who mock global warming skeptics for saying there has been no warming since 1998 — a huge isolated peak in global temperatures cause by a powerful El Nino. Again: it’s not cherry-picking data that liberals object to; it’s someone else cherry-picking data.

The Cuomo Apple Doesn’t Fall Far

At one point, I was optimistic that Andrew Cuomo wouldn’t be the big disaster for New York that his father was. Fat chance:

Under a plan approved by New York’s Fast Food Wage Board, a $15-per-hour minimum wage would be phased in over three years in New York City and six years across upstate New York, whose economy has long been the American equivalent of East Germany. The mandate would apply to any restaurant chain with 30 or more locations in the state.

Speaking at a rally in Manhattan, Cuomo pledged that he’s just gettin’ started:

“You cannot live and support a family on $18,000 a year in the state of New York — period….This is just the beginning. We will not stop until we reach true economic justice.”

The legal status of the diktat is not immediately clear. Cuomo created this particular board after failing to push a broader minimum wage hike through the legislature. Chains are expected to fight the rules, which single them out for particular treatment.

OK, do we have to go over this again? You’re not supposed to raise a family on minimum wage. It’s an entry level wage. Yeah, I know Roosevelt referred to it as a “living wage”. It’s still an entry-level wage that we have set up all kinds of anti-poverty programs around to make surviving on it easier.

(Obama’s former cabinet member Janet Napolitano is also raising the minimum wage to $15 in California schools. Expect, in a few years, to see a bunch of think pieces asking why the UC system is having to raise tuition again.)

We are now engaged in one of the most massive economic experiments in history, seeing if governments can magically create wealth and prosperity by fiat. That’s fine … if you don’t care about the people affected by it. But when prices go up and employment goes down, it will be cold comfort to people to learn that the liberals were wrong and the Law of Supply and Demand actually exists.

(As it happens, New York and California already have two of the highest minimum wages in the country. They also have two of the highest levels of income inequality and, if you account for cost of living, very high levels of poverty. It’s a mystery as to why that is.)

Cuomo has a bunch of other idiotic policies you can find at the link. But the minimum wage hike takes the cake. It applies to everyone in the state, whether they live in areas with a high cost-of-living or a low cost-of living. It singles out a particular industry with the hope of diving and conquering. It’s not even clear that it’s legal. But, I guess nothing will stand in the way of idiotic liberals determined to achieve “social justice”.

This sort of crap almost has me hoping that Hillary Clinton wins the election next year. Because there should be a Democrat around to take credit for the mess they’re creating.

The Minimum Wage Follies

Ten days ago, LA made a historically dumb decision to raise its minimum wage to $15 an hour. The usual chorus of Leftists emerged to claim that the contention that raising the minimum wage destroys low-wage jobs — a premise that was accepted by most economists until about two years ago — has been “debunked” as a myth (it hasn’t and it won’t be because the Law of Supply and Demand isn’t magically suspended for low-wage labor).

Some of the biggest supporters of the minimum wage hike were labor unions. You may wonder why labor unions would support hiking the minimum wage since most labor members don’t make minimum wage. The reason is that many union wages are pegged to the minimum wage and are set to automatically rise if the minimum wage does. It further gives them leverage in negotiations. If the minimum wage if $30,000 a year, it gives them an argument for larger starting union salaries. And since, in California, most labor arbitration is done by former union lawyers, it’s a nice racket. So their support has nothing to do with how much they care about the poor masses. It’s about cynically playing on sympathy for those masses to leverage their own pay hikes.

The unions have been at the forefront of claiming that the idea that minimum wage hikes destroy jobs is a myth. Well, guess what folks: they are perfectly aware of what a higher minimum wage will do. Why else would they want this:

Labor leaders, who were among the strongest supporters of the citywide minimum wage increase approved last week by the Los Angeles City Council, are advocating last-minute changes to the law that could create an exemption for companies with unionized workforces.

The push to include an exception to the mandated wage increase for companies that let their employees collectively bargain was the latest unexpected detour as the city nears approval of its landmark legislation to raise the minimum wage to $15 an hour by 2020.

For much of the past eight months, labor activists have argued against special considerations for business owners, such as restaurateurs, who said they would have trouble complying with the mandated pay increase.

But Rusty Hicks, who heads the county Federation of Labor and helps lead the Raise the Wage coalition, said Tuesday night that companies with workers represented by unions should have leeway to negotiate a wage below that mandated by the law.

So here’s how this two-step works:

1) the unions advocate for a higher minimum wage.

2) the raising of the minimum wage either triggers pay hikes for union members or gives them a leg up in negotiations.

3) However, they allow exceptions for industries that might have to lay people off … as long as those industries are unionized.

4) Industries that can’t pay the minimum wage either leave or … become unionized.

The net result? More money for unions, more union members, less jobs and higher prices for everyone else. And liberals wonder why we are so cynical about Big Labor.

That Thing That Wasn’t Supposed to Happen

For years, the Left Wing has been agitating for hikes in the minimum wage. When conservative and libertarian critics have pointed out that raising the minimum wage increases unemployment, they respond that “studies” prove this not to be the case (said studies usually being deeply flawed and having little connection to reality). As I’ve said before: you’re going to have to go a long way to convince me that the law of supply and demand is magically suspended when it comes to wages.

Last year, Seattle raised their minimum wage to $15 an hour. How’s that working out?

Seattle’s $15 minimum wage law goes into effect on April 1, 2015. As that date approaches, restaurants across the city are making the financial decision to close shop. The Washington Policy Center writes that “closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.”

Of course, restaurants close for a variety of reasons. But, according to Seattle Magazine, the “impending minimum wage hike to $15 per hour” is playing a “major factor.” That’s not surprising, considering “about 36% of restaurant earnings go to paying labor costs.” Seattle Magazine,

According to the Washington Restaurant Association, restaurants currently spend 36% of their income on labor. This hike could send that as high as 47%. Very few businesses operate with that massive a profit margin. They either have to fire employees or raise prices to compensate.

Restaurant owners, expecting to operate on thinner margins, have tried to adapt in several ways including “higher menu prices, cheaper, lower-quality ingredients, reduced opening times, and cutting work hours and firing workers,” according to The Seattle Times and Seattle Eater magazine. As the Washington Policy Center points out, when these strategies are not enough, businesses close, “workers lose their jobs and the neighborhood loses a prized amenity.”

Right now, this “grand experiment” is producing panic. We’ll see how things look in a year. Keep in mind that increased prices will move many of the poor out of the city completely, which may dim the impact of this on paper. But even with that cushion, this is looking very bad.

Told ya so.

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 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.