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How to Outsource Your Compassion to the Government by Robert P. Murphy

I saw the mom and her two little kids camped out in the shopping center parking lot. She held a sign asking for help to feed them. I bought some oranges and bananas for them.

Imagine if someone from the government had swooped in to explain that my bag of fruit was hardly sufficient to feed the struggling family. What if the government then passed a law saying that if anybody decided to donate food (or cash) to people begging on the street or in a parking lot, the contribution had to be worth at least $15? Anybody caught giving, say, a $1 bill or a small bag of fruit would be fined heavily. Does that sound like “pro-homeless” legislation?

Try a different example: there are civic and church groups who will pick a weekend to go to a specific elderly widow’s house and help her put on a fresh coat of paint, clean up the yard, restock the pantry, and so on. Such one-off bursts of assistance obviously can’t fill the void for someone without an extended family or a generous pension. Shouldn’t the government pass legislation insisting that if you are going to donate time and goods to an elderly widow, you must do so in a way that allows her to live comfortably? Isn’t that a great “pro-widow” method for raising the living standards of the target demographic?

Or consider families who adopt children from war-torn regions. These actions, though seemingly noble, are clearly a drop in the bucket, with hundreds of thousands of orphans left behind. What if the government passed a law saying that US families were only allowed to adopt foreign children if they did so at least 15 kids at a time? Would activists agree that such a “pro-adoption” measure would increase the number of adoptions and be an unmitigated boon for foreign orphans?

Currently there are people who volunteer to teach adults how to read. But adult illiteracy is still a vexing problem in certain communities, so clearly these volunteer efforts have been inadequate to overcome the challenge. The obvious, pro-literacy way to fix things is to pass a law saying volunteers must give at least 15 hours of tutoring per week. If they are caught only teaching adults how to read for, say, 14 hours, then the volunteers will be heavily fined.

I’ll offer one final example. There are millions of people in the United States who do not have very marketable skills. There are a few thousand people who are willing to give them jobs. Wouldn’t it be a great benefit to these unskilled workers to pass a law saying that if you want to hire any of them, then you must pay at least $15 per hour of their labor? (If you get caught only paying, say, $14 per hour, then you get heavily fined.) What could possibly be a downside to such “pro-labor” legislation?

At this point, you surely recognize that I am being facetious. I am highlighting the absurdity of minimum wage legislation as an alleged “pro-labor” device. First and most obvious, by raising the hurdle to giving a job to unskilled workers, minimum wage legislation might perversely reduce employment among the very groups the government is supposedly helping.

This textbook claim about the danger of minimum wage laws is repeated by free-market economists so often that people have been lulled into complacency, especially in light of econometric studies that seem to show that minimum wage hikes do not have disastrous effects on employment. Yet, there is a strong prima facie case against the minimum wage in the analogous examples. Would advocates for the homeless, widows, adult illiterates, and other disadvantaged groups be so confident in the other hypothetical legislation I described above?

I designed my hypothetical examples to underscore another perversity in minimum wage legislation — and, more generally, all mandates placed on employers: it attacks the benefactors of the unskilled. Consider: there are millions of people who have trouble earning a living. Isn’t it perverse to burden those specific people who are doing the most to alleviate the problem? This is analogous to singling out volunteers doing at least something to battle adult illiteracy, making them bear the brunt of further efforts on this score, while allowing the rest of society to continue doing nothing to mitigate the problem.

To be sure, as both an Austrian economist and a libertarian, I consider it neither appropriate nor ethical for state officials to interfere with property rights in order to help unskilled workers. But if the government is going to “do something,” then it is particularly perverse to lay down the burden exclusively on the people who are already giving some money to unskilled workers. A more sensible approach would, say, give government subsidies to workers who were earning a bona fide paycheck in the market, or (better yet) would give targeted tax breaks to the unskilled workers that the government wanted to assist. Incidentally, this type of reasoning is why many economists — even progressives — are pushing the earned income tax credit as a much more efficient way to help poor workers than minimum wage mandates.

The minimum wage is a perverse tool with which to (allegedly) help unskilled workers. At best, it helps some unskilled workers while drastically hurting others — by making it impossible for them to find work at all. Beyond that, minimum wage legislation perversely places the entire (direct) burden of helping such workers on their employers, the one (tiny) group of people who are actually helping them solve the problem. The rest of society, which has done nothing whatsoever to help the unskilled workers have a higher standard of living, can pat themselves on the back for voting for certain politicians while continuing to do nothing whatsoever to help those who want to work.


Robert P. Murphy

Robert P. Murphy is senior economist with the Institute for Energy Research. He is author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015).

Labor Unions Create Unemployment: It’s a Feature, Not a Bug by Sarah Skwire

Did the labor unions goof, or did they get exactly what they want?

Los Angeles has approved a minimum wage hike to $15 an hour. Some of the biggest supporters of that increase were the labor unions. But now that the increase has been approved, the unions are fighting to exempt union labor from that wage hike.

Over at Anything Peaceful, Dan Bier has nicely explained why the unions would do something that seems, at first glance, so nonsensical. But what I want to point out is that this kind of hijinks is not a new invention of 21st century organized labor. Instead, it’s pretty much what labor was organized to do. It’s a feature, not a bug.

Part of the early reasoning for the minimum wage — which originated as a “family wage” or “living wage” — was its intent to allow a worker to “keep his wife and children out of competition with himself” and presumably to keep all other women out of the workforce as well.

Similarly, the labor movement, from the very beginning, meant to protect organized white male labor from competition against black labor, immigrant labor, female labor, and nonunion labor. There are subtleties to this generalization, of course, and labor historian Ruth Milkman identifies four historical waves of the labor movement that have differing commitments (and a lack thereof) to a more diverse vision of labor rights. But unions — like so many other institutions — work on the “get up and bar the door” principle. Get up as high as you can, and then bar the door behind you against any further entrants who might cut into the goodies you have grabbed for yourself.

Labor union expert Charles Baird notes,

Unions depend on capture. They try to capture employers by cutting them off from alternative sources of labor; they try to capture workers by eliminating union-free employment alternatives; and they try to capture customers by eliminating union-free producers. Successful capture generates monopoly gains for unions.

Protection is the name of the game.

Unsurprisingly, the unions made sure to be involved when, about 50 years before the 1970s push for an equal rights amendment, there was another push for an ERA in the United States. Written by suffragist leader Alice Paul, the amendment was an attempt to leverage the newly recognized voting power of women into a policy that guaranteed men and women shall have equal rights throughout the United States and every place under its jurisdiction.” This amendment would have prevented various gender-based inequities that the courts supported at the time — like hugely different hourly wages for male and female workers, limits on the number of hours women could work, limits on when women could work (night shifts were seen as particularly dangerous for women’s health and welfare), and limits on the kinds of work women could do.

Reporting on the debates over the ERA in 1924, Doris Stevens noted three main objections to the amendment:

First, there was the familiar plea for gradual, rather than sweeping change.

Second, there were concerns over lost pensions for widows and mothers.

And in Stevens’s words,

The final objection says: Grant political, social, and civil equality to women, but do not give equality to women in industry.… Here lies the heart of the whole controversy. It is not astonishing, but very intelligent indeed, that the battle should center on the point of woman’s right to sell her labor on the same terms as man. For unless she is able equally to compete, to earn, to control, and to invest her money, unless in short woman’s economic position is made more secure, certainly she cannot establish equality in fact. She will have won merely the shadow of power without essential and authentic substance.

Suffragist Rheta Childe Dorr (in Good Housekeeping, of all places. How the mighty have fallen!) pointed out again the logic behind labor’s opposition to the equal rights amendment:

The labor unions are most opposed to this law, for few unions want women to advance in skilled trades. The Women’s Trade Union League, controlled and to a large extent supported by the men’s unions, opposes it. Of course, the welfare organizations oppose it, for it frees women wage earners from the police power of the old laws. But I pray that public opinion, especially that of the club women, will support it. It’s the first law yet proposed that gives working women a man’s chance industrially. “No men’s labor unions, no leisure class women, no uniformed legislators have a right to govern our lives without our consent,” the women declare, and I think they are dead right about it.

Organized labor — founded to ensure the collective right to contract — refused to stand up for the right of individual women to contract. From their point of view, it was only sensible. And, perhaps most importantly, women in organized labor refused to stand up for the women outside the unions.

Organized male and female labor’s fight against the ERA was at least as much about protectionism as it was about sexism. Maybe more. Women’s rights and union activist Ethel M. Smith attended the debates on the ERA to report on it for the Life and Labor Bulletin, and found that union workers did not even attempt to gloss over their protectionist agenda:

Miss Mary Goff of the International Ladies’ Garment Workers Union, emphasized the seriousness of the effect upon organized establishments were legal restrictions upon hours of labor removed from the unorganized. “The organized women workers,” she said, “need the labor laws to protect them from the competition of the unorganized. Where my union, for instance, may have secured for me a 44-hour week, how long could they maintain it if there were unlimited hours for other workers? Unfortunately, there are hundreds of thousands of unorganized working women in New York who would undoubtedly be working 10 hours a day but for the 9-hour law of New York.”

So labor unions excluded women as long as they could, then let in a privileged few and barred the doors behind them. And they continue to use the same tactics today in LA and elsewhere.

How long can they keep it up?


Sarah Skwire

Sarah Skwire is a senior fellow at Liberty Fund, Inc. She is a poet and author of the writing textbook Writing with a Thesis.

Los Angeles Shows Us the Real Reason Why Unions are Pushing for Minimum Wage Increases

Unions like the SEIU have spent millions funding “worker centers” that stage “grassroots,” “Fight for $15” minimum wage protests.

In Los Angeles, they scored a win. However, unions want to be exempted from the wage hike:

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.

On the surface it seems odd that labor unions being big proponents of raising the minimum wage would want an exemption.

But it’s not when you understand the push isn’t about raising workers’ wages; it’s about boosting union membership, as Diana Furchtgott-Roth of the Manhattan Institute explains:

Although the union-funded Raise the Wage campaigned so vociferously in favor of a $15.25 minimum wage, unions are seeking exemptions from the higher wages for their members. The exemption, or escape clause, would allow them greater strength in organizing workplaces.  Unions can tell fast food chains, hotels, and hospitals that if they agree to union representation, their wage bill will be substantially lower.  That will persuade employers to allow the unions to move in.

There’s a reason minimum wage protesters often use the phrase, “Fight for $15 and a union!”

With more union members will come more union dues and bigger budgets, Furchtgott-Roth writes:

Once the higher minimum wage bill is signed into law, with the exemption for unions, then organizing becomes a win-win for employers and unions. Unions get initiation fees of about $50 per worker and a stream of dues totaling 2 percent to 4 percent of the workers’ paychecks.

As a minimum wage increase in the Bay Area has shown, there will be pain. Businesses there have had to cut workers’ hours or close because of the additional labor costs.

Unions haven’t found a way to reverse the decades-long trend of declining membership. So instead of finding new ways of convincing workers to join unions, they come up with scheme to raise the minimum wage then demanding carve outs for themselves.

It’s blatantly obvious these minimum wage campaigns are cynical efforts for expanding union rolls.

Meet Sean Hackbarth  @seanhackbarth Follow @uschamber

RELATED ARTICLES:

Who’s Hurt Most by Los Angeles’ $15 Minimum Wage

The SEIU’s Latest Plot to Destroy the Franchise Business Model

EDITORS NOTE: The featured image is of protesters holding signs at a rally in support of minimum wage increase in New York City. Photo credit: Victor J. Blue/Bloomberg.

LA Unions Demand Exemption from $15 Minimum Wage They Created by Daniel Bier

If there was ever any doubt that LA’s minimum wage hike was meant to help the labor unions at the expense of everyone else, I hope we can now put that idea to bed.

The LA Times reports,

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. . . .

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.

“With a collective bargaining agreement, a business owner and the employees negotiate an agreement that works for them both. The agreement allows each party to prioritize what is important to them,” Hicks said in a statement. “This provision gives the parties the option, the freedom, to negotiate that agreement. And that is a good thing.”

Unions want to give workers and business the option — the freedom! — to prioritize what’s important to them and negotiate their own pay! Isn’t that nice. But only if those workers are paying union dues, and only if those businesses are using union labor.

The minimum wage hike was always meant to make independent workers more expensive and make unions look better by comparison. But it’s a bold move for the unions to simply say, in one breath, “Everyone deserves a living wage! It’ll be good for everyone! Except us, thank you. We’ll set our own pay — and also, give a break to any businesses who agree to go back to union labor.”

More on this transparently corrupt policy of the minimum wage by FEE’s Jeffrey Tucker.


Daniel Bier

Daniel Bier is the editor of Anything Peaceful. He writes on issues relating to science, civil liberties, and economic freedom.

A Simple Question for Minimum Wage Advocates by Donald J. Boudreaux

I will return in a later post to the topic of my previous post, namely, the validity or (as I see it) invalidity of the argument that proposes a tolerance of locally set minimum-wage rates if not of nationally or super-nationally set rates.

I state, however, here and again my conclusion: Legislating minimum wages – that is, enacting a policy of caging people who insist on entering voluntarily into employment contracts on terms that political elites find objectionable – is no more attractive or justified or likely to succeed at helping low-skilled workers if the particular caging policy in question is enacted locally than if it is enacted nationally or globally.

In this short post, I ask a simple question of all advocates of minimum wages:

If enforcement of minimum-wage policies were carried out in practice by policing low-skilled workers rather than employers – if these policies were enforced by police officers monitoring workers and fining those workers who agreed to work at hourly wages below the legislated minimum – would you still support minimum wages?

Would you be good with police officers arresting those workers who, preferring to remain employed at sub-minimum wages rather than risk losing their current jobs (or risking having do endure worsened employment conditions), refuse to abide by the wage terms dictated by the legislature?

Would you think it an acceptable price to pay for your minimum-wage policy that armed police officers confine in cages low-skilled workers whose only offense is their persistence at taking jobs at wages below those dictated by the government?

If a minimum-wage policy is both economically justified and morally acceptable, you should have no problem with this manner of enforcement.

(You might still prefer, for obviously aesthetic reasons, enforcement leveled mainly at employers. But if the policy is to unleash government force to raise wages above those that would be otherwise agreed to on the market voluntarily between employers and workers, then you should agree that, if for some reason enforcement aimed at employers were impossible or too costly, enforcement aimed at workers is morally and economically acceptable.)

If, however, you do have a problem with minimum-wage regulations being enforced by targeting workers who violate the legislature’s dictated wage terms, then you might wish to think a bit more realistically and deeply about just what it is you advocate in the name of economic improvement or “social justice.”

This post first appeared at Cafe Hayek, where Don Boudreaux blogs with Russ Roberts.

Donald Boudreaux

Donald Boudreaux is a professor of economics at George Mason University, a former FEE president, and the author of Hypocrites and Half-Wits.

Los Angeles Pummels the Poor: A $15 an hour wage floor is a cruel and stupid policy by JEFFREY A. TUCKER

Does anyone on the Los Angeles City Council have a clue about what they have just done? It really is unclear whether reality matters in this legislative body. Rarely have we seen such jaw-dropping display of economic fallacy enacted into law.

The law under consideration here is a new wage floor of $15, phased in over five years. Why phased in? Why not do it now? Why not $30 or $150? Perhaps the implied reticence here illustrates just a bit of caution. Somewhere in the recesses of the councilors’ minds, they might have a lurking sense that there will be a price to pay for this.

Such doubt is wholly justified. Recall that the minimum wage was initially conceived as a method to exclude undesirables from the workforce. The hope, back in the time when eugenics was the rage, was that a wage floor would cause the “unemployable” to stop reproducing and die out in one generation.

Racism drove the policy, but it was hardly limited to that. The exterminationist ambition applied to anyone deemed unworthy of remunerative work.

“We have not reached the stage where we can proceed to chloroform them once and for all,” lamented the progressive economist Frank Taussig in his 1911 bookPrinciples of Economics. “What are the possibilities of employing at the prescribed wages all the healthy able-bodied who apply? The persons affected by such legislation would be those in the lowest economic and social group.”

Professor Taussig spoke for a generation of ruling-class intellectuals that had egregiously immoral visions of how to use government policy. But for all their evil intentions, at least they understood the basic economics of what they were doing. They knew what a wage floor excludes marginal workers, effectively dooming them to poverty — that’s precisely why they favored them.

Today, our situation seems reversed: an abundance of good intentions and a dearth of basic economic literacy. The mayor of LA, Eric Garcetti, was elated at the decision: “We’re leading the country; we’re not going to wait for Washington to lift Americans out of poverty.”

Leading the country, maybe, but where is another question. This is a policy that will, over time, lock millions out of the workforce and forces many businesses to cut their payrolls. Machines to replace workers will come at a premium. The remaining workers will be expected to become much more productive. Potential new business will face a higher bar than ever. Many enterprises will close or move.

As for the existing unemployed, they can forget it. Seriously. In fact, it is rather interesting that in all the hooplah about this change, there’s not been one word about the existing unemployed (officially, 7.5% of the city’s workforce). It’s as if everyone intuitively knows the truth here: this law will not help them at all, at least not if they want to work in the legal economy.

The underground economy, which is already massive in Los Angeles, will grow larger. New informal enterprises will pop up everywhere, doing a cash-only business. The long, brawny arm of the state will not be powerful enough to stop it. Sneaking around and hiding from the law is already a way of life for millions. Look for this tendency to become the dominant way of work for millions more.

All of this will happen, and yet the proponents of the minimum wage will still be in denial, for their commitment to the belief that laws can make wealth is doctrinal and essentially unfalsifiable.

As for those who know better, business owners all over the city pleaded for the Council not to do this. But their pleas fell on deaf ears. The Council had already been bought and paid for by the labor unions and interests that represent the already employed in Los Angeles. Such union rolls do not include the poor, the unemployed, or even many of the 50% of workers in the city who work for less than $15. They represent the working-class bourgeoisie: people rich enough to devote themselves to politics but do not actually own or run businesses.

Will such unions be helped by this law? Perhaps, a bit — but at whose expense? Those who work outside union protection.

This is a revealing insight into why unions have been so passionate about pushing for the minimum wage at all levels. Here is the truth you won’t read in the papers: a higher wage floor helps cartelize the labor market in their favor.

You can understand this by reflecting on your own employment. Let’s say that you earn $50,000 for a task that could possibly done by others for $25,000, and those people are submitting resumes. This is your situation, and it potentially applies to a dozen people in your workplace.

Let’s say you have the opportunity to enact a new policy for the firm: no one can be hired for less than $50,000 a year. Would this policy be good for you? In a perverse way, it would. Suddenly, nobody else, no matter how deserving, could underbid you or threaten your job. It’s a cruel way to go about padding your wallet, but it might work for a time.

Now imagine pushing this policy out to an entire city or an entire country. This would create an economic structure that (however temporarily) serves the interests of the politically connected at the expense of everyone else.

It certainly would not create wealth. It would not help the poor as a whole. And it would do nothing to create a dynamic and competitive marketplace. It would institutionalize stasis and cause innovation to stall and die.

The terrible effects are many and cascading, and much of the damage will be unseen in the form of business not formed, laborers not hired, efficiencies not realized. This is what the government of Los Angeles has done. It is a self-inflicted wound, performed in the name of health and well-being.

The City Council is cheering. So are the unions. So are the ghosts of the eugenists of the past who first fantasized about a labor force populated only by the kinds of people they approved.

As for everyone else, they will face a tougher road than ever.


Jeffrey A. Tucker

Jeffrey Tucker is Director of Digital Development at FEE, CLO of the startup Liberty.me, and editor at Laissez Faire Books. Author of five books, he speaks at FEE summer seminars and other events. His latest book is Bit by Bit: How P2P Is Freeing the World.

Reich Is Wrong on the Minimum Wage by DONALD BOUDREAUX

Watching Robert Reich’s new video in which he endorses raising the minimum wage by $7.75 per hour – to $15 per hour – is painful. It hurts to encounter such rapid-fire economic ignorance, even if the barrage lasts for only two minutes.

Perhaps the most remarkable flaw in this video is Reich’s manner of addressing the bedrock economic objection to the minimum wage – namely, that minimum wage prices some low-skilled workers out of jobs.

Ignoring supply-and-demand analysis (which depicts the correct common-sense understanding that the higher the minimum wage, the lower is the quantity of unskilled workers that firms can profitably employ), Reich asserts that a higher minimum wage enables workers to spend more money on consumer goods which, in turn, prompts employers to hire more workers.

Reich apparently believes that his ability to describe and draw such a “virtuous circle” of increased spending and hiring is reason enough to dismiss the concerns of “scare-mongers” (his term) who worry that raising the price of unskilled labor makes such labor less attractive to employers.

Ignore (as Reich does) that any additional amounts paid in total to workers mean lower profits for firms or higher prices paid by consumers – and, thus, less spending elsewhere in the economy by people other than the higher-paid workers.

Ignore (as Reich does) the extraordinarily low probability that workers who are paid a higher minimum wage will spend all of their additional earnings on goods and services produced by minimum-wage workers.

Ignore (as Reich does) the impossibility of making people richer simply by having them circulate amongst themselves a larger quantity of money.

(If Reich is correct that raising the minimum wage by $7.75 per hour will do nothing but enrich all low-wage workers to the tune of $7.75 per hour because workers will spend all of their additional earnings in ways that make it profitable for their employers to pay them an additional $7.75 per hour, then it can legitimately be asked: Why not raise the minimum wage to $150 per hour? If higher minimum wages are fully returned to employers in the form of higher spending by workers as Reich theorizes, then there is no obvious limit to the amount by which government can hike the minimum wage before risking an increase in unemployment.)

Focus instead on Reich’s apparent complete ignorance of the important concept of the elasticity of demand for labor.  This concept refers to the responsiveness of employers to changes in wage rates. It’s true that if employers’ demand for unskilled workers is “inelastic,” then a higher minimum wage would indeed put more money into the pockets of unskilled workers as a group. The increased pay of workers who keep their jobs more than offsets the lower pay of worker who lose their jobs. Workers as a group could then spend more in total.

But if employers’ demand for unskilled workers is “elastic,” then raising the minimum wage reduces, rather than increases, the amount of money in the pockets of unskilled workers as a group. When the demand for labor is elastic, the higher pay of those workers fortunate enough to keep their jobs is more than offset by the lower pay of workers who lose their jobs. So total spending by minimum-wage workers would likely fall, not rise.

By completely ignoring elasticity, Reich assumes his conclusion. That is, he simply assumes that raising the minimum wage raises the total pay of unskilled workers (and, thereby, raises the total spending of such workers).

Yet whether or not raising the minimum wage has this effect is among the core issues in the debate over the merits of minimum-wage legislation. Even if (contrary to fact) increased spending by unskilled workers were sufficient to bootstrap up the employment of such workers, raising the minimum wage might well reduce the total amount of money paid to unskilled workers and, thus, lower their spending.

So is employers’ demand for unskilled workers more likely to be elastic or inelastic? The answer depends on how much the minimum wage is raised. If it were raised by, say, only five percent, it might be inelastic, causing only a relatively few worker to lose their jobs and, thus, the total take-home pay of unskilled workers as a group to rise.

But Reich calls for an increase in the minimum wage of 107 percent! It’s impossible to believe that more than doubling the minimum wage would not cause a huge negative response by employers.

Such an assumption – if it described reality – would mean that unskilled workers are today so underpaid (relative to their productivity) that their employers are reaping gigantic windfall profits off of such workers.

But the fact that we see increasing automation of low-skilled tasks, as well as continuing high rates of unemployment of teenagers and other unskilled workers, is solid evidence that the typical low-wage worker is not such a bountiful source of profit for his or her employer.

Reich’s video is infected, from start to finish, with too many other errors to count.  I hope that other sensible people will take the time to expose them all.

Donald Boudreaux

Donald Boudreaux is a professor of economics at George Mason University, a former FEE president, and the author of Hypocrites and Half-Wits.

EDITORS NOTE: Here’s how Reich cherry-picked his data to claim that the minimum wage is “historically low” right now; here’s why Reich is wrong about wages “decoupling” from productivity; here’s why Reich is wrong about welfare “subsidizing” low-wage employers; here’s why Reich is wrong that Walmart raising wages proves that the minimum wage “works”; Reich is wrong (again) about who makes minimum wage; and here’s a collection of recent news about the damage minimum wage hikes have caused.

This post first appeared at Cato.org, while Cafe Hayek was down for repairs. 

Communist member of the Seattle City Council steps down

Goodbye Comrade Sally Clark City Council District 9 Seattle, Washington State. Many thanks for your personal email telling me you are now stepping down from this position. I hope my emails telling you over the years what a disaster you are-were for free markets and capitalism in Seattle helped you pack your little ditty bag and clean out your cubicle.

Your mission to raise the minimum wage in Seattle for entry level non skilled jobs from $9.32 to $ 15 was a huge success. Now you are part of the history books and can be remembered for crushing the Seattle economy and destroying jobs. Karl Marx would be very proud of you but now you are quitting and this is great.

So now your job killing strategy is a success and many workers look forward to the higher pay, while employers are looking for ways to absorb the big increase in labor costs. Some plan on eliminating jobs. Some plan on moving out of Seattle. I say come to Florida to a free market capitalist state free of Communism.

“We’re going to be looking at making some serious cuts,” said Cedarbrook Lodge General Manager Scott Ostrander. “We’re going to be looking at reducing employee hours, reducing benefits and eliminating some positions.” Hey Obama-Romney care did this too…. wam wam double wammy on Seattle.

A local trade group it is going to close one of its two restaurants, eliminating 200 jobs.

The plan has also caused Han Kim — who runs Hotel Concepts, a company that owns and manages 11 hotels in Washington state — to shelve plans to build a hotel in SeaTac. The company already has three hotels in SeaTac, and Kim and a business partner were looking to build a fourth on land they own. More jobs lost. Source Fox News.

“Uncertainty is bad for business, and right now we’re right in that area so we’re just putting everything on hold,” Kim said.

One of the biggest supporters is your friend Kshama Sawant, a self proclaimed socialist-Communist who also won her election to the Seattle City Council. She plans on keeping Seattle a $15 minimum wage city. You won’t have many hotels or restaurants left but who cares right ?

Your colleague Sawant said. “There may be a few jobs lost here and there, but the fact is, if we don’t fight for this, then the race to the bottom will continue,” Really…? The race to the bottom will continue ? My friend in Baton Rouge started out flipping burgers in McDonald’s 30 years ago and now he owns 9 restaurants. You call that a race to the bottom? Typical Communist mentality. Sawant needs to move back to North Korea cleaning the barracks at the forced labor camp.

The American Car Rental Association estimates 5 percent of low-wage jobs will be cut; and another 5-10 percent of those workers will be replaced by more experienced workers.

The owner of Dollar Rental Cars told Fox News she’ll outsource some functions, change schedules and cut some staff in response to the new policy. More jobs lost!

So Ms. Sally there you go, your Communist ideology just put thousands of people out of work but you did probably down size the city as more people move to free states. So as Seattle becomes a ghost town and you plug in your iron from your solar paneled apartment and run it over your Hammer and Sickle a few times before draping it over your balcony, smile.

Much luck in your future endeavors. I know you tried to ban plastic bags too and that failed but keep on trying Comrade. Don’t let the door hit you in your rear on the way out.

EDITORS NOTE: The featured image is courtesy of Alan Berner / The Seattle Times, 2014.

Raise the Minimum Wage? A Socratic Dialogue by Lawrence W. Reed

The ancient sage Socrates, a giant in the foundation of Western philosophy, was known for a teaching style by which he aggressively questioned his students. He employed his Socratic method as a way to stimulate logical, analytical thought in place of emotive or superficial pronouncement. Rather than lecture or pontificate, he would essentially interrogate. The result was to force his Greek pupils to see the full implications of their conclusions or to realize that what they had accepted as solid was nothing more than the intellectual equivalent of crumbled feta.

In his January 28 State of the Union speech, President Obama called upon the U.S. Congress to enact a hike in the hourly minimum wage from $7.25 to $10.10. (The dime may have been added because a nice round number without a decimal would sound unscientific.) Economists have long argued that raising thecost of labor, especially for small and start-up businesses, reduces the demand for labor (as with anything else). But Congress may do it anyway—with the usual, oversized measure of self-righteous breast-beating about helping workers. Maybe what members of Congress need is not another lecture on the minimum wage from an economist, but rather an old-fashioned Socratic inquisition. If the old man himself were with us, here’s how I imagine one such dialogue might go:

Socrates: So you want to raise the minimum wage. Why?

Congressman: Because as President Obama says, minimum wage workers haven’t had a raise in five years.

Socrates: Can you name one single worker who was making $7.25 five years ago who is still making $7.25 today? And if you can’t, then please tell me what caused their wage to rise if Congress didn’t do it. Come on, can you name just one?

Congressman: I don’t happen to have a name on me, but they must be out there somewhere.

Socrates: Well, we’ve just been through a deep recession because successive administrations from both parties, plus you lawmakers and your friends at the Fed, created a massive bubble and jawboned banks to extend easy credit. The bust forced many businesses to cut back or close. Now we have the weakest recovery in decades as ever-higher taxes, regulations, and Obamacare stifle growth. No wonder people are hurting! Do you take any responsibility for that, or do you just issue decrees that salve your guilty conscience?

Congressman: That’s water over the dam. I’m looking to the future.

Socrates: But how can you see even six months into a murky future when you refuse to look into the much clearer and more recent past? You guys think the world starts when a problem arises, as if you’re incapable of analyzing the problem’s origin. Maybe that’s why you rarely solve a problem; you just set everybody up to repeat it. If you really look to the future, then why didn’t you see this situation coming?

Congressman: Look, in any event, $7.25 just isn’t enough for anybody to live on. Workers must have more to meet their basic needs.

Socrates: An employer doesn’t have anything to pay an employee except what he first gets from paying customers. I wonder, whose “needs” do you consider when you decide to buy or not to buy: the workers’ or your own? Have you ever offered to pay more than the asking price just to help out the guy who made the product? And if customers like you won’t do that, where do you expect the employer to get the money?

Congressman: That’s not a fair question. My intent here is purely to help.

Socrates: Sounds to me like the answer is “no,” but let’s move on. Why do you assume your intentions mean more to a worker than those of his employer? It’s the employer who’s taking the risk to offer him a job, not you. You’re only making speeches about it. Don’t you see a little hypocrisy here—you, who are personally offering no one a job, self-righteously criticizing others who are actually creating jobs and paying wages even if they’re not all at a wage you like?

Congressman: Employers are interested only in profits.

Socrates: Are you saying employees are not? Are they more interested in working for companies that lose money, and if so, then why don’t they all line up for government jobs?

Congressman: Well, we lose money here in government every year and there are plenty of people who are happy to work for us.

Socrates: You have a printing press. You also have a legal monopoly on force. When you borrow in the capital markets, you shove yourself to the head of the line at everybody else’s expense. Are you saying these are good things and that we’d be better off if the private sector could do these things too? Try to keep up with me here.

Congressman: I repeat, employers are interested only in profits. People before profits, I say! I even have a bumper sticker on my car that says that.

Socrates: So are you saying that employers would be better people if, instead of seeking profits, they tried to break even or run at a loss? How does that add value to the economy or encourage risk-takers to start a business in the first place?

Congressman: You’re trying to belittle me but I went to a state university. All of my sociology, political science and gender studies professors told us that raising the minimum wage is good.

Socrates: Were any of those tenured, insulated, and government-funded pontificators actual job-creating, payroll tax-paying entrepreneurs themselves, ever?

Congressman: That’s beside the point.

Socrates(Sigh.) Figures.

Congressman: Look, $10.10 isn’t much. I think you must be mean-spirited and greedy if you don’t want people to be paid at least $10.10.

Socrates: Yeah, like you guys in government check your personal ambitions at the door when you take office. I’d like to know how you arrived at that number. Was it some sophisticated equation, divine revelation or toss of the dice? Why didn’t you choose $20.00, which is not only a nice round number but also a lot more generous?

Congressman: Well, $20.00 would be too high, for sure. Too much of a jump at once.

Socrates: It sounds like you think the cost of labor might indeed affect the demand for it. Good! That’s progress. You’re not as oblivious about market forces as I thought. What I want to know is why you apparently don’t think higher labor costs matter when you raise the minimum wage from $7.25 to $10.10. Do you think everyone, regardless of skill level or experience, is automatically worth what Congress decrees? Do you believe in magic, too? How about tooth fairies?

Congressman: Now hold on a minute. I’m for the worker here.

Socrates: Then why on earth would you favor a law that says if a worker can’t find a job that pays at least $10.10 per hour, he’s not allowed to work?

Congressman: I’m not saying he can’t work! I’m saying he can’t be paid less than $10.10!

Socrates: I thought we were making progress, but perhaps not. Can you tell me, if your scheme becomes law, what happens to a worker whose labor is worth only, say, $8.10 because of his low skills, lack of education, scant experience, or a low demand for the work itself? Will employers happily employ him anyway and take a $2.00 loss for every hour he’s on the job?

Congressman: Businesses need workers and $2.00 isn’t much, so common sense and decency would suggest that of course they would.

Socrates: So employers who employ people are too greedy to pay $10.10 unless they’re ordered to, but then when Congress acts, they suddenly become generous enough to hire people at a loss. Who was your logic instructor?

Congressman: Can we hurry this up? I’ve got other plans for other people I have to think about.

Socrates: I give up. You congressmen are incorrigible. You’re the only people on whom my teaching method has no discernible impact.

Congressman: You ask too many questions.

At this point, in utter frustration, Socrates drinks the hemlock. The congressman votes to price many of the nation’s most vulnerable employees out of work and gets reelected.

Whoever warned us to beware of Greeks bearing gifts apparently never met a congressman.

larry reed new thumbABOUT LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

EDITORS NOTE: The featured image is courtesy of FEE and Shutterstock.

The Minimum Wage Poison Pill

As we approach the 2014 General Election, with president Barack Obama set to occupy the White House for two more years, the stakes are higher than ever. As usual, Democrats across the country focus on phony issues, such as a Republican “War on Women,” the widening income gap between the rich and the non-rich, and bogus claims of being champions of the middle class.

In terms of domestic policy, they express support for the “middle class,” while doing everything in their power to turn America into a two-class society: the very rich… whose wealth they only wish to plunder… and the very poor, who, in return for an endless array of government handouts, will be expected to do nothing more than to pull the Democrat lever on Election Day.

In foreign affairs, they express outrage over the gruesome crimes of radical Islam… such as the recent beheading of an Oklahoma City woman by a radical Muslim co-worker… yet they oppose any and all effort at what they see as “racial profiling.” They find moral equivalency between the anti-Christian genocide of radical Islam throughout the Middle East, and the bombing of a Birmingham, Alabama abortion clinic in years past.

They express support for high quality public education, but the teachers unions… who own a controlling interest in the Democrat Party… dictate that Democrats oppose any and all voucher proposals, causing the greatest damage to the hopes of minority parents who want to see their children receive a quality education. They ignore the fact that throwing more money at public schools does nothing to increase the quality of a public school education. Instead, at the behest of the teachers unions, they demand that class sizes be reduced, that new school buildings be constructed, and that teacher salaries be increased… all the while regaling their low-information voter base with the cynical lie that Republicans want to “cut benefits to kids.”

They express a desire for the budget discipline of the 1990s… a direct result of Ronald Reagan’s “trickle down” economic policies and the election of a Republican Congress… and they support the notion of cutting the deficit in half, while supporting every new spending scheme hatched by liberal social planners. (In their 2000 platform, they announced that Democrats would entirely eliminate the public debt by the year 2012. Clearly, they had not heard of Barack Obama.)

While expressing a desire to curb the influence of lobbyists, they attempt to convince low-information voters that Republican administrations are dominated by lobbyists for business interests. Yet, no previous administration has been as heavily staffed and influenced by special interests as is the Obama administration. And while they express strong support for an electoral system that is “accessible, auditable, and accurate,” they insist that every attempt to curb vote fraud is nothing more than a Republican scheme to oppress the black vote.

On the healthcare front, they express a desire to provide healthcare insurance for 30-40 million uninsured, to improve the access to and quality of healthcare for all Americans, to substantially reduce the cost of healthcare for everyone, and to do it all without increasing the number of doctors, nurses, and hospitals. Like president Barack Obama, they see no contradictions in any of this. These are obviously people who would promise, with a straight face, that they could stuff 10 lb. of (excrement) into a 5 lb. Bag. All we need to do to make these magical things happen is to elect more Democrats to public office.

Democrats want to use the tax code to discourage the outflow of jobs overseas. Yet they have no problem with the fact that the United States has the highest corporate tax rate of any developed nation. They express a desire to cut taxes for every working family, including those who pay no federal or state income tax, but they exclude tax relief for the “millionaires” who are expected to provide good-paying jobs for the poor and the middle class.

And finally, while fast food workers go on strike demanding a $15.00 per hour minimum wage, a 107 percent increase, Democrats prescribe a poison pill for the U.S. economy with a proposed increase in the federal minimum wage standard from $7.25 cents per hour to $10.10 per hour a 39.3 percent increase. In doing so, they scoff at studies which show that, for each 10 percent increase in the minimum wage, 1-2 percent of jobs in the nation simply go away. For unskilled entry-lever workers, each 10 percent increase in the minimum wage results in a decrease of 4-5 percent in the number of entry-level jobs available… the jobs most often held by teens, the poor, and the unskilled.

According to a recent report by the Bureau of Labor Statistics, a majority of those who worked at minimum wage jobs in 2013 were 24 years old, or younger, while only 0.8 percent, less than one in a hundred, of those 24 years old, or older, work for a minimum wage.

Minimum wage increases are major job-killers. According to a 2014 report by the non-partisan Congressional Budget Office, an increase in the minimum wage from the current $7.25 per hour to $10.10 per hour would reduce the total number of jobs available by approximately 500,000. For the most part, these are the jobs currently held by all those fast food workers who fill the streets, demanding a $15 per hour minimum wage. And if those who clamor for a $15 per hour minimum wage are anxious to learn what happens to a job market with a minimum wage of that magnitude, they won’t have to wait long. In early June 2014, the Seattle city council voted to increase the minimum wage in that city to $15 per hour, the highest in the nation.

A report by the National Restaurant Association (NRA) tells us that, of every dollar of revenue coming into restaurant cash registers, approximately 33 percent goes to salaries and wages. The remainder of that dollar of revenue goes to cover the cost of food and beverages, other costs of doing business, and a small net profit for the owner. According to NRA statistics, the profit margin of restaurants varies, depending on the size of the average check per patron. Those with average checks under $15 per person… e.g., McDonalds, Burger King, Taco Bell, etc… produce average profit margins of 3 percent, while those with checks of $15 to $24.99… e.g., The Olive Garden, Red Lobster, The Cheesecake Factory, etc… produce profit margins of roughly 3.5 percent, the highest in the industry.

According to a recent report by Gingrich Productions, a good measure of the impact of minimum wage laws can be found in the European experience. Among those countries with no minimum wage… Austria, Germany, Sweden, and Switzerland… the median unemployment rate is just 5.2 percent, while the median jobless rate stands at 11.1 percent in countries with minimum wage laws… more than twice that of those without minimum wage laws.

But there is a much larger issue than the question of whether we should have a statutory minimum wage of $10.10 or $15 per hour… an issue that Barack Obama and congressional Democrats are not anxious to talk about. I refer to the question that more and more minimum wage workers are asking themselves, which is, “Why should I work 40 hours a week at $10.10 per hour, when I can earn more by staying at home and living off the public dole?”

A 2013 Cato Institute study tells us that, in 33 states and the District of Columbia, welfare benefits pay more than the current $7.25 per hour, while in 13 states, welfare benefits pay more than $15 per hour. In Hawaii, for example, the pre-tax “salary” of stay-at-home welfare recipients is $60,590 per year, or $29.13 per hour when compared to a 40-hour work week, while in Washington, DC, the hourly rate for just staying at home is $24.43 per hour. At the lower end of the spectrum among states where sloth is more lucrative than honest toil, the hourly rate for stay-at-home welfare recipients in South Carolina is $10.53 per hour… 43 cents more than the $10.10 minimum wage proposed by Democrtats.

So what do we do to fix the problem?

Instead of catering cynically to the poorest of the poor as a political constituency, as Democrats do, we should be asking exactly how an individual in this, the land of opportunity and economic freedom, can still be working at a minimum wage job when he/she is 24 years old, or older. That circumstance can only be explained by pointing out that a great many people simply make very bad choices in their lives.

But Democrats are clearly more interested in purchasing a “nanny state” constituency than they are in doing what is necessary to really help people lift themselves out of poverty. As one writer, Charles M. Blow, has said, “Much of what happens in Washington occurs at the intersection of political advantage and earnest intentions.”

What is clear is that we cannot perpetuate a system in which it is more lucrative to take a welfare check than it is to earn an honest living. In order to throw off the bonds of that insanity our options are only two. First, one might ask, why not raise the minimum wage to $25 or $30 per hour so that those who work can earn more than those who don’t, or won’t? The answer is, a $25 or $30 minimum wage would literally wreck whatever is left of our fragile economy and price us completely out of world markets.

The one remaining option is to do what we did in the mid-90s when a Republican-controlled Congress forced a Democrat president, Bill Clinton, to sign what was called “welfare-to-work” legislation, requiring those on public assistance to also find honest employment. The country experienced real economic growth, balanced budgets, and a pay-down in the national debt.

The choice is ours. What was done in the 1990s can be done again. But in order to do that we must first have a president who understands at least a “smidgen” about the intricacies of the U.S. economy. That means that our first priority must be to rid ourselves of Barack Obama, sending him back to his Kenyan roots where he can actually learn a thing or two about micro-economics.

RELATED ARTICLES:

Wages and the Free Market, Part 1 — Dispelling labor market myths with theory and data

Wages and the Free Market, Part 2 — Innovation Is the Lifeblood of a Healthy Economy

Raise the Minimum Wage? A Socratic Dialogue

Obamacare and minimum wage push connected?

The US Department of Labor map (above) shows minimum wage laws in the various States as of January 1, 2014. Where Federal and state law have different minimum wage rates, the higher standard applies. Minimum wage and overtime premium pay standards are applicable to non-supervisory non-farm private sector employment under state and federal laws.

  • Green States with minimum wage rates higher than the Federal
  • Yellow States with no minimum wage law
  • Blue States with minimum wage rates the same as the Federal
  • Red States with minimum wage rates lower than the Federal
  • Brown American Samoa has special minimum wage rates

We know many people are now being hired to work less than 30 hours a week so employers don’t have to provide Obamacare. Think that move has anything to do with the push by Democrats to dramatically increase the minimum wage from $7.25 to $10.10?

Well, if you do the math you will find someone working at the minimum wage of $7.25 for 40 hours grosses $290.00 a week. Someone working 29 hours a week at $10.10 an hour would gross $292.90 per week!

Not bad, work 25% less and make the same amount of money. For entry level workers this must sound like a dream come true.

How do you think the Democrats arrived at $10.10 an hour, by coincidence?

When I grew up minimum wage jobs were filled primarily by high school and college kids, , until illegal aliens took them.

Illegal aliens are excited to have a job paying $7.25 an HOUR since a worker at the Ford plant back in Mexico (thanks to Nafta) makes $7.50 per DAY.