Category Archives: Economics

Union Mentality

Posted on August 11, 2009 | Leave a comment

This from WRAL.com:

Although it is still unclear how many teaching positions could be cut because of the state’s long-awaited budget, educators are just now learning that their salary for the upcoming school year will be the same as last year.

How is that possible?

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Posted in Economics, Education, Politics: North Carolina

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Unions and More Unions

Posted on August 6, 2009 | Leave a comment

More and more I am seeing evidence that the Labor movement is continuing to gather strength here in North Carolina.  We are seeing more stories in the newspaper, we are hearing more about it in the news broadcasts and we are beginning to see more action in the political front here in Raleigh.  See this article.

Unionists poured at least $4.7 million into Tar Heel political campaigns, and they put at least 1,000 boots on the ground, knocking on doors, putting up signs and handing out literature.

It’s clear, the efforts by the union have been ramped up.  And this might represent the last best chance for the unions here; their window of opportunity is now.  Right now.  They have a ground swell of Democratic support, both here in State and nationally as Obama helped the Democrats sweep into power.  And now, right now, is when we have to do our best work.  We have to be willing to do the hard work to make sure our voices are heard; both from the Democrats here in the tar Heel state as well as the Republicans.  See, Carolina is unique in that both sides of the aisle support business here.  It’s to both of our benefits to see that business are not held down by the horrible horrible weight of a union and the absolute drag on the economy they represent.

And don’t think that this fight is something that is limited to our humble state.  This fight is being fought in the National arena as well:

There is a bill in Congress that would allow all the nation’s sworn officers — police, firefighters and correctional officers — to bargain collectively. Its primary targets are North Carolina and Virginia.

In short, don’t sit back and think that others are going to work to stop this.  In fact, that is the opposite of reality; others are working to advance the cause of Labor.  And with it, the loss of jobs, the reduction in wages, the lack of investment In Carolina.  Basically, everything that we don’t wanna see come to North Carolina.

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Posted in Economics, Economy, Politics: North Carolina

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Minimum Wage Increase

Posted on July 26, 2009 | Leave a comment

Well, we’ve done it again.  Though this time, to be fair, we knew it was coming.  The minimum wage increased another $0.70 and is now at $7.25.

I have several personal stories from friends of mine explaining how hard it is for their teen child to find a job.  I suspect that it’s only going to get harder.  Employers are already struggling to make ends meet and now they’re forced to make due with a 10% higher labor force.  If this were any other commodity, experts would understand that somewhere the employer would have to cut.  For example, if the price of electricity went up by 10%, the businessman would be forced to make up for that cost somewhere else.  Or, if the price of milk went up by 10%, again, he would make up for it in other places.

I’ve been awfully hard on the minimum wage proponents and have done some thinking.  As one of the core pillars of my argument, raising the minimum wage may actually impact only a very few.  Only a very small percentage of Americans actually make the minimum wage.  Next, the employer may react not be cutting workers, but by reducing hours.  If done perfectly, that is each worker would see a 10% decrease in hours worked, he comes out ahead; he gets the same pay as before, but does so at a 10% discount in his time.  And last, labor may only be a small part of an individual employers expenses.  For those businesses with small labor costs, the increase will be negligible.

Last, before I walk away from this for a bit, is my favorite question for the pro-minimum wage folks.  If raising the wage 70 cents is a good idea, why not raise it to 20 bucks?

The Michigan Democratic Party is considering asking voters to raise the state’s minimum wage from the current $7.40 an hour to a national high of $10 an hour, increase unemployment benefits and require all employers to provide health coverage.

Unbelievable.

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Posted in Economics, Economy

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Two Parallels in One Article

Posted on July 16, 2009 | Leave a comment

I’ve admitted before that I am no economist.  Fact is, I haven’t even ever taken a class in economics.  However, I did major in mathematics and work significantly with statistics at my current job.  As I tell my boss, “I’m nifty with numbers”.

So, as I wax poetic on all of these economic issues I do so with a bit of trepidation.  See, really, from an “expert’s” point of view, I don’t know what I’m talking about.

Which makes seeing two of my most often repeated mantras in text at one time very exciting.  This article from Mises.org just made my morning:

Mandating benefits for employees imposes costs on employment. The would-be worker bears the cost. It makes the worker more expensive to hire. The employer has to pay not only a salary but also a benefit. If you make it more expensive to hire people, fewer people will be hired.

It is no different from eggs at the supermarket. If they are $2 each, you will purchase fewer of them — you will economize. This is nothing but the law of demand: consumers will demand less of a good at a higher price than of a good at a lower price. A salary plus benefits amounts to a price that the employer must pay to purchase the work of a laborer. At a higher price, less work will be purchased by the employer.

You should read the whole article; it’s fantastically simple.  And for once, I see in print, what I seem to intuit.  And furthermore, it is verbalized with economic expertize that I simply can’t claim:

There is no real reason to prove these assertions empirically since they flow from the logic of economics.

The article is entitled  “The Jobs Program” and deals with health care:

Sadly, there is no way that free health care can be granted to all living things with the stroke of a pen. Broadening availability will require that the entire sector be turned over to the private sector, so that it can be controlled through the price system like everything else.

But while Mr. Rockwell is speaking about the current health care bill, his article could easily be speaking about the new minimum wage increase slated this month.

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Posted in Economics, Health Care

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How to Raise Unemployment

Posted on July 16, 2009 | Leave a comment

Raise the cost of labor.

See, labor, like copper or plastic, oil or stamps, is a commodity.  Businesses need commodities to operate.  Businesses see how much a thing costs, calculates value analysis and then buys some.  How much depends on that analysis.  For example, if copper becomes too expensive, business will try to find a way to use less of it.  Perhaps substituting for something else; a batter value.  Stamps too high?  Go to bulk mailing, or e-mail services.  So it goes with labor.

Why people don’t see this is beyond me.  For example, if we are interested in reducing unemployment, why don’t we mandate that all McDonalds have twice the current number of workers on each shift?  If one McDdude is good, certainly two McDudes is better?  Yes?

No.

See, at some point, more labor doesn’t mean more revenue or profits.  Now, at some point it does.  If I have to wait 20 McMinutes for my McBurger, I am going to walk out the McDoor.  Here, more labor would be worth it to the store.  However, once McDonalds has reached the point that it is servicing the clientele adding more labor doesn’t add up.  The cost doesn’t justify the return.  The simple truth is that the amount of labor someone buys is limited to the business model.  Raising the unit cost of labor reduces the units.  Or, increases the price of the widget.?

So, does raising the minimum wage increase or decrease employment?  In an article from the Wall Street Journal, it seems that studies show jobs will be lost:

There’s been a long and spirited debate among economists about who gets hurt and who benefits when the minimum wage rises. But in a 2006 National Bureau of Economic Research paper, economists David Neumark of the University of California, Irvine, and William Wascher of the Federal Reserve Bank reviewed the voluminous literature over the past 30 years and came to two almost universally acknowledged conclusions.

First, “a sizable majority of the studies give a relatively consistent (though not always statistically significant) indication of negative employment effects.” Second, “studies that focus on the least-skilled groups [i.e., teens, and welfare moms] provide relatively overwhelming evidence of stronger disemployment effects.”

Now, let’s continue to pretend that we don’t know, for sure, that raising the minimum wage will result in job loss.  Let’s instead use the Global Warming argument.  What if it’s just possible that it does?  Why raise it?  What is the upside?  And there, gentle reader, is the rub.  As far as I can see, there is no upside.  Very very few people actually make the minimum wage or less.  Almost none of them will be making the minimum wage in a year.  Most of them are from families with annual family incomes well well above poverty.  The fact is, there just aren’t that many people making the minimum wage.  And for those that do, they would rather make that amount than make the true minimum wage: $0.00.

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Posted in Economics

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How to Get Less of Something: Only More

Posted on July 5, 2009 | 1 comment

Last week I posted about how to get less of something; raise the price.  You see, as price goes up, demand goes down, that’s how it works.  If you sold 3 cases of beer at a buck a bottle, you could expect to sell less than 72 bottles at 2 bucks a bottle.  Now, this isn’t all bad news.  Sometimes, the supply is limited.  Take, for example, a concert.  You can only fit so many people into the RBC Center.  So, what sense would it make to price the tickets where the demand exceeds the supply?  Rather, a shrewd business manager would continue to raise the prices until the demand met the supply exactly.  Anyway, I digress.

In our story, the Great State of North By God Carolina has only begun, Be-GUN, to talk about assessing state sales tax for on-line purchases made as a result of pass though retailers.  Wow.  That’s a lot to think through.  But it works like this.

Say, as readers are flocking to this site by the ones and twos, I decide to cash in on the traffic.  I make a deal with randomsite.com and put their advertisement on the side of my web page.  Then, as my gentle readers clock though to randomsite.com and make purchases, I get a percentage.  The beauty of Capitalism.

Now, however, North Carolina is wanting to apply sales tax to those purchases made as a result of click through programs.

Much like our local pub above, these retailers are seeing sales go down as a result of prices going up.  After considering their situation, costs, benefits and other tricky business school kinda stuff, they decide to end their commission relationships with their on line partners.

Net/net – North Carolina sees the same amount of sales tax dollars as they would have without the law.  Namely $000,000.00.  And, this is the best part, North Carolina residents who run websites see a reduction in their incomes.  Further, we have to assume that these North Carolina residents are reporting the income that they make as a result of these relationships.  That is, they have to submit as income and then pay State and Federal income taxes on any money that they make.  Now the state, AND Obama, is losing the State Income tax revenues too.

Awesome.  Simply by talking, just talking, about such a tax, we have seen two on-line retailers leave the market.  The latest?  The NewsandObersever is reporting that Overstock.com is ending their arrangements with North Carolina partners.

The real slap in the face for Carolina?  This concept is SO insane that even the Govna’ of California, The Terminator, vetoed a similar bill in California.

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Posted in Economics, Politics: North Carolina

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Minimum Wage Going Up – If You’re Lucky

Posted on July 4, 2009 | Leave a comment

So, the next phase for the minimum wage hike is set for July 2009.  Right around the corner.  And this might seem like good news, heck, even in my own household I’m told this is a good idea.  To which I reply “The real minimum wage is $0.00.”  See, if you don’t have a job, you don’t get paid.  Which brings me to the point of it all I guess.  Or, rather, what should be the point.  See, government is really really bad at setting expectations, conducting data driven analysis, implementing a solution and then tracking that solution for results.  Heck, even private industry is generally bad at this, but really, government is horrible.  The reason?  It’s easier to manufacture spin than it is to demonstrate results.  Spin is easy.  Results are hard.  One gets you elected, the other gets the other guy elected.

So, let’s take minimum wage.  Let’s see if we can’t try to:

  1. Identify what we are trying to accomplish.
    1. Or, perhaps, more specifically WHO were are trying to help or assist.
  2. Identify some metrics that we can use to study data and later, measure results.
  3. Get some data, run some analysis.
  4. Since we have already implemented this policy, we’ll skip the whole “should we implement it” phase.
  5. Go back and see if the policy has worked.

Alright, so, let’s see if we can work to identify what we are trying to accomplish with a minimum wage law.  In my search, I found this, a study entitled “The Who and Why of the Minimum Wage” from The Economic Policy Institute.  The EPI is a liberal economic think tank; imagine Cato or Heritage for the Democrats. Right away we are given a hint of a possible metric:

Raising the wage floor is an essential part of a strategy to support working families.

Now, I’m going to clarify here.  All families, ALL of them, are working families.  While I don’t make the minimum wage, nor does my wife, I would take umbrage with anyone who tried to claim that ours is not a working family.  Yet, somehow, I understand from this study that mine is not the family we are trying to “support”.  The author is trying to support the poor or near poor, working family.  So, alright, we have a start.   We want to increase the income of the families, or people, who make the minimum wage.

To be clear, the authors do devote a significant portion of the study to those making more than the minimum wage, they do claim that the minimum wage is only a start.

Moving on to bullet #2 we need to see if we can identify a metric that we can use.  That would be something that would be able to give us an idea as to where we are now and then compare it to after we have implemented our change.  For me, one metric that jumps right out is the Annual Income of the target population.  So, we have as a metric “Annual income of people who made minimum wage before the increases of that minimum wage went into affect”.  If the law works, that metric should go up.  If it didn’t work, that metric would go down.

The third bullet point is what they always skip, and since they did, we can’t recreate it here.

So now we move on to number 5.  Let’s see if the policy worked.  Here we go!

First task, who earns the minimum wage?  Let’s check.

  • 2.2 million workers with wages at or below the minimum made up 3.0 percent of all hourly-paid workers.
  • Workers under age 25 represented only about one-fifth of hourly-paid workers, they made up half of those paid the Federal minimum wage or less.
  • About 7 in 10 workers earning the minimum wage or less in 2008 were employed in service occupations, mostly in food preparation and serving related jobs.
  • The industry with the highest proportion of workers with hourly wages at or below the Federal minimum wage was leisure and hospitality (about 14 percent). About three-fifths of all workers paid at or below the Federal minimum wage were employed in this industry, primarily in the food services and drinking places component. For many of these workers, tips and commissions supplement the hourly wages received.

Do you know what this means?  This means that A). Very very few people make the minimum wage. B). Those that do are young.  And C). A large portion of minimum wage or less earners are bringing in tips.

As an aside, I used to tend bar, at one point I did it for a living.  When I did, I would calculate an annual “salary” based on wage and tips adjusting for taxes [that I didn’t pay on tips].  Every year I brought in more than 40K.  Often I was making better than 44k.  And this did not include the added benefit of eating most meals at the restaurant as well as a significant discount on my “liquid” needs.  While I didn’t have health insurance provided, I was young and in good health; though I did smoke and did work in a smoky environment.

Needless to say, in 2008, the vast vast majority of workers in America did not make the minimum wage.  While the numbers above reflect the 2008 year, as recently as 2005, 67% of teens and young adult making the minimum wage:

  • Worked part time jobs – Again, I worked a part time job in school, high school and college.  In each case, I was paid the minimum wage at the time.
  • Had average family incomes of 64k.

Folks, I get the fact that we wanna help people who are struggling, but the facts is the facts; almost everyone makes more than the minimum wage.

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Posted in Economics, Politics: National

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How to Get Less of Something

Posted on June 28, 2009 | Leave a comment

Tax it.

If you want less alcohol being sold, tax it.  Same with cigarettes.  Do you wanna have fewer homes built in a certain area?  Tax new home construction.  This is true of all things.  People will buy less of something when that thing is more expensive.  This concept is very powerful; and should be equally obvious.  When you ask someone on the street to identify their favorite beer and then present them with the option of buying as many of them as they want at $10 a pop, think they’ll buy more or less than if you offered that same beer at $0.50 a bottle?  Right.  Me too.

However, when you get politicians involved you get different responses that you might expect.  Now, I’m not sure why this is the case, but I suspect that it has more to do with politicians enjoying the fruits of power than anything else.  But, you could also argue that politicians are just like everybody else and they just don’t KNOW certain things.  And so it should not be surprising when corporations walk away from States who want to tax business.  Remember, when you tax a thing, you get less of it.

The law hasn’t even passed yet and already North Carolina is getting “less of it”.

Amazon.com said Friday it has pulled the plug on commissions for North Carolina Web sites that make referrals to the online retailer, because a law designed to collect taxes on some of its sales transactions could soon be enacted.

Seattle-based Amazon said it wrote to Web site operators, telling them its “Associates program” will end after Friday. Web sites that posted links to the company about its products have received up to a 15 percent cut on sales.

As I mentioned, this law is only being considered at this time, it hasn’t been voted on or sent to the Governor.

But the Legislature is considering a provision in its final budget plan designed to collect sales taxes on these so-called “click-through” transactions.

Competing House and Senate plans both contain the provision, so it’s likely to be in the compromise budget proposal that could be approved in the next several days.

Rather than driving money OUT of North Carolina, how about our State Government just reduce our spend, by, say:

North Carolina expects to collect an additional $13.2 million in the coming fiscal year on the “click-through” transactions and by companies collecting sales taxes on music, video and software downloads purchased electronically, according to a legislative fiscal analysis.

I don’t know, 13.2 million?

Just another example of our Government trying to do too much.

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Posted in Economics, Politics: North Carolina

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State Run Health Care

Posted on February 9, 2009 | 2 comments

Was reading an article last night regarding North Carolina’s State Health Care system.  This is a program that offers employees health insurance.  What caught my eye was the headline:

State health plan wants the young, healthy

That’s awesome.  Another way of reading that headline would be this way:

State health plan wants the people who don’t have health problems to pay for health care.

I get where the State is coming from, I really do.  They have found that they are $138 million short in their fiscal planning.  And that’s a lot of money.  But the problem I have with this really became apparent to me as I was reading the article and mentally comparing it to my life in corporate America.  You see, I have a wife and some kiddos, so I can relate to the manipulation of pricing when trying to cover the family.

The problem, you see, is that the State was $138 million short in their goals.  That is, they are losing about $138 million.  In other words, the plan that they operate is not profiting.  What?  How can that be?  Is it possible that a business, run by the government, competing directly with private corporations is losing money?  Are you KIDDING me?  And then it REALLY came home and began to sink in.  Why in the world is the government in the business of selling health insurance?

The rest of the article talks about ways that the government is going to have to manipulate their model to become profitable.  The problem with this, however, is that the hard decisions required to do that will not be allowed to be made.  You see, it would require that some people won’t be able to afford the care that the government thinks that they need.  And the reason government thinks that certain people need certain coverage is because, well, because they were voted in by those people.  In short, it is NOT the goal of this government to run a profitable health insurance company, or even to provide the care they think they should.  The goal of these government folks is to stay in government.  There is no way the government can turn a profit here.

Now, I work for a Big Ugly Company [BUC] and I have health insurance through that BUC.  But guess what?  The insurance that I have through the BUC is not BUC’s Health Insurance.  Rather, BUC has negotiated with several different  other health insurance providers and found, what I hope, to be the best deal for me, or at least for the BUC.

Why can’t the State of North Carolina do the same thing?  Why is it that the State feels that they have to offer their own insurance?  If they would contract with a private firm, they would be able to set up SLA’s, minimums and yes, perhaps maximums as well.  There would be contractual expectations that would need to be met, and if they weren’t, the State could take their business elsewhere.  And in this economy, even the mean insurance companies don’t want that!

Now, the State could even offer to pay 100% of the cost if they wanted to.  This isn’t to say that they should, but they could.  If they want to feel that they are competitive in the field, attract and retain the best employees, it may very well be in the State’s interest to do this.  If, on the other hand, the State finds that they can obtain very skilled labor, say 85% of the best while only paying half the premium, they should do that.  It’s called open market.  And it works.

The State of North Carolina should be getting back to the business of the State.  After all, the State doesn’t manufacture their own paper clips, right?


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Posted in Economics, Health Care, Politics: North Carolina

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The Loyal Minority

Posted on January 23, 2009 | Leave a comment

Many Republicans, conservatives especially, have railed against the stimulus package proposed by either The Chairman or the Democrat party.  The fact is that it contains so much extra spending that we are left unsure what is really meant to be stimulus and what is meant to be long held Democratic pet projects.  Say nothing of the fact that it likely won’t work.

It is a long standing pet peeve of mine for people to continually point out the obvious, the wrong, the bad ideas without coming up with their own.  And so it is that the Republicans have, in fact, come forth with ideas of their own.

For a nice read see this article from Reason.

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Posted in Economics, Politics: National

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