Tag Archives: Minimum Wage

How Does The Minimum Wage Help Those It Intends To Help

Minimum Wage

I started blogging after the last minimum wage legislation was proposed, debated, voted on and then passed.  So I missed the massive onslaught of economic debate surrounding it.  However, I have certainly enjoyed reading this round.

What I do remember reading from the debate as the wage was being implemented was that unemployment rates for certain “at risk” groups was increasing.  This struck me as somewhat disingenuous due to the fact that the minimum wage was being uplifted right in the teeth of the recession.  However, Mark Perry at Carpe Diem posted data that showed what I was beginning to think.  Mainly, how much worse was it for those groups than for the population as a whole?

The concept is “Excess Unemployment” and is described as taking the difference between the unemployment rate for the general public and the group being described.  However, even this statistic understates the impact because these groups contribute to the rate in general.  A better metric would be to show the difference of the group and then the public at large without that group influencing the number.  Further understating the data is the fact that we include states and cities that already have wages set HIGHER than the federal minimum wage.  Taking those locales into account would only make the data all the more striking.

So, which groups are likely “targets” of the minimum wage?  Young workers, black workers and undereducated workers.  Here is the devastating impact for each:

Teen Excess Unemployment.2013.01

The data is showing excess unemployment for employees 16 years of age to 19.

Now, to those employees who are black:

Black Excess Unemployment.2013.01

Just as the minimum wage is effectively repealed due to inflation the black excess unemployment spikes up as the minimum wage rises.  And then, of course, the unmistakable impact in recent years.

Finally the undereducated:

Undereducated Excess Unemployment.2013.01

Honest to God.  If you wanted to craft a policy that would hurt the most vulnerable among us could you think of one that would gather as much support and be so accepted as the minimum wage?

We Can’t Be Racist If We Call You Racist

I’ve been watching the whole series of “The West Wing”.  Its a great series, I loved it then and I like it even more now.  Sadly, even as I obtained the ability to rip scenes from my DVDs, YouTube has objected claiming copyright infringement.  And I don’t wanna take material that isn’t mine so….

The scene is this:

There is a party going on and Sam is entertaining an old professor of his.  This professor wants funding for his project.

Sam’s advice, his comment?

What are you for?

Sam’s point is that if you want something, all you have to do is stake ground that you are FOR something and then cast your opponent as against it.  And that has summed up the liberal left’s attack on reality.  What are you against?

See, if the conversation can be shaped into one where there is a good guy and a bad guy, and you simply make sure that you are the good guy, then whatever it is that you are proposing is “good.”

For example:

A student at Eagle Rock Junior High won first prize at the Greater Idaho Falls Science Fair, April 26. He was attempting to show how conditioned we have become to alarmists practicing junk science and spreading fear of everything in our environment. In his project he urged people to sign a petition demanding strict control or total elimination of the chemical “dihydrogen monoxide.”

And for plenty of good reasons, since:

  1. it can cause excessive sweating and vomiting
  2. it is a major component in acid rain
  3. it can cause severe burns in its gaseous state
  4. accidental inhalation can kill you
  5. it contributes to erosion
  6. it decreases effectiveness of automobile brakes
  7. it has been found in tumors of terminal cancer patients

He asked 50 people if they supported a ban of the chemical.

  • Forty-three (43) said yes,
  • six (6) were undecided,
  • and only one (1) knew that the chemical was water.

This is where I think that left is playing fast and loose with race.  See, the left sells this notion of a minimum wage as a way out for minorities and the poorest among us.  In reality, the minimum wage traps those very people into a continuous cycle of unemployment and dependence.  And who wins?

The rich elite labor leaders who just so happen to mobilize to elect those very same democrats and siphon millions upon millions of dollars from their ranks into the coffers of democrats across the country.

Witness one man’s explanation:

The minimum wage is one of the most effective tools for racism in the world.

Quotes From Carpe Diem

Anytime I get a good chuckle out of reading economic news and political soap-operas, I have to post.  Today I have two, both from Mark Perry over at Carpe Diem:

The First:

It’s hard to believe that this is the same paper that hosts former economist Paul Krugman, but check out this shocking New York Times staff editorial arguing against raising the minimum wage because it’s a fundamentally flawed solution to overcoming poverty.

I love the idea of referring to Krugman as a former economist.

The Second:

I’ve found that somebody’s position on the minimum wage is a pretty good “litmus test” of a person’s ability to understand basic economic principles and think logically.  Those who support increases in the minimum wage demonstrate their inability to think clearly, logically and rationally, and their inability to understand basic economic theory.  Supporters of the minimum wage embrace emotional “thinking” over truly rational thinking, and generally therefore really can’t be taken seriously. Just my opinion.

Yoda Speaks On Minimum Wage

Posted without comment:

The Liberal War On Black Americans

Thomas Sowell on the impact of the minimum wage as it pertains to minorities in America, specifically black Americans:

Over the years, some of the most devastating policies, in terms of their actual effects on black people, have come from liberal Democrats, from the local to the national level.

As far back as the Roosevelt administration during the Great Depression of the 1930s, liberal Democrats imposed policies that had counterproductive effects on blacks. None cost blacks more jobs than minimum-wage laws.

In countries around the world, minimum-wage laws have a track record of increasing unemployment, especially among the young, the less skilled, and minorities. They have done the same in America.

One of the first acts of the Roosevelt administration was to pass the National Industrial Recovery Act of 1933, which included establishing minimum wages nationwide. It has been estimated that blacks lost 500,000 jobs as a result.

After that act was declared unconstitutional, the Fair Labor Standards Act of 1938 set minimum wages. In the tobacco industry alone, 2,000 black workers were replaced by machines, just as blacks had been replaced by machines in the textile industry after the previous minimum-wage law.

Fortunately, the high inflation of the 1940s raised the wages of even unskilled labor above the level prescribed by the minimum-wage law. The net result was that this law became virtually meaningless, until the minimum-wage rate was raised in 1950.

During the late 1940s, when the minimum-wage law had essentially been repealed by inflation, 16- and 17-year-old blacks in 1948 had an unemployment rate of 9.4 percent, slightly lower than that of whites the same ages and a fraction of what it would be in even the boom years after the minimum-wage rate kept getting increased by liberal Democrats.

Emphasis mine.

And who gains by the enactment of minimum wage laws?

Organized labor union.

Obama and the democrats continue to wage an economic war on a group of people in the most need of our help  in order to win the union vote and its financial gravy train.

The Continued Assault On Undereducated And The Underskilled

On Tuesday night, Barack Obama announced a continued assault on the prosperity of America’s most vulnerable; the undereducated and the underskilled.  He did this in his annual State of the Union Address when he announced a desire to raise the federal minimum wage to $9.00 an hour.

While the president may very well feel that he can slow the rise of the oceans:

Yes, while he may slow the rise of the oceans, he is not able to defy the laws of economics.

Now don’t get me wrong, the intentions are noble and honorable, if you are to believe politicians are capable of such things.  We all would like to see the folks who make the least be able to earn more and enjoy a better life.  We want to see a steady rise n the incomes of the poorest among us so that they too may avoid the constant worry of bills past due and the need to feed hungry children.

But that isn’t what Obama is doing.  In fact, what Obama is doing is sacrificing the very people that he claims to be helping in order to make a catchy and effective sound bit during his speech.  See, raising the minimum wage doesn’t help the people who are the ones making the least amount of money; it hurts them.

The minimum wage prevents business from hiring them in the first place.  It raises the barrier to entry past the meager skills that they posses.  At a time in their life when they should be willing to take a job, any job, to learn new skills, become proficient in new trades and crafts, during a time when they need to begin to understand the expectations of employers as it relates to employees, they are being priced out of the market.

The market is very effective at setting the value of scare resources.  And labor is nothing more than a scare resource; we all want more of it as cheaply as we can get it.  And so, in the course of voluntary trade, we set the rate at which we are willing to pay for it.  And most labor, believe it or not, is set at rates already ABOVE the minimum wage.

But for those entering the job market, such as high school kids, they are finding that they lack the skills required to demand such a wage.  And as a result, they are being left behind and find themselves unemployed.  This at a time when we need these young people working.  The years lost at the beginning of the working career are very difficult to make up.  And the longer they are out of the work force, the further and further they fall behind those in it.

If you wanted to target the poor an the undereducated, many of which are minorities, you would be hard pressed to contrive a more malicious program that would guarantee to make life worse for those folks than the impacts of minimum wage laws that Obama supports.

But who benefits?

Unions.

Barack Obama has made a decision.  He has placed a bet that he can secure the Union vote by selling out the poor, the undereducated and the underskilled all the while using words and rhetoric that would cause that group of people to support him.

It is depravity at its worst.

The Economics Of Pay

I’m a vocal opponent of the minimum wage.  The idea, of course, is that when you implement a minimum price for labor, you get an excess of labor.  In other words, higher unemployment.  I’m equally a vocal opponent of a “maximum wage.”  When you place a maximum price on labor, you get a shortage of it.  In other words, you can’t find people to hire.

For this reason I take the decidedly unpopular combination of policy stances that we should abolish the minimum wage AND allow corporate CEOs to earn as much money as they can command.

However, this does not mean that I am in favor of just throwing money at the executive suite.  The money should be commensurate with the level of competence.   And a recent study is finding that it’s not always the case:

To determine how much to pay a CEO, corporate compensation committees look at how much the chiefs of similar companies earn, which has the result of lumping together all CEO talent into one pool. Elson and Ferrere argued that expertise in management isn’t the same, and isn’t as good, as having a deep base of knowledge in one particular industry.

Many of the skills that make a chief executive successful don’t translate to another company. “The theoretical underpinning of [peer grouping] became the notion of transferability,” Elson said. “That was false. The superstar theory of the CEO failed, and if transferability failed, the peer system has to fail.”

“There’s been a sense for some time that the external view of pay-setting has been a problem in ratcheting up pay,” said Paul Hodgson, chief research analyst at corporate governance research company GMI Ratings.

Elson and Ferrere said benchmarking against what other CEOs make is flawed in several ways that inflate pay packages.

One problem is that the definition of what constitutes a “similar” company can be manipulated to skew pay higher by including larger companies or ones in different industries. Institutional shareholders are “very, very suspicious” of that practice, Hodgson said.

Even without manipulation, Elson said companies should decide how much to pay a CEO based on performance, not how much his or her counterparts earn. “If you don’t have that internal benchmark you’ve made a mistake to begin with,” he said.

Make no mistake, highly successful corporate managers earn every dollar they make.  But when companies don’t link pay to success, they are hurting themselves.

Economists Ignore Laws Of Economics

It would appear that a set of economists are willing to ignore reality:

As the three-year mark since the federal minimum wage was last raised approaches, we urge you to once again raise the federal minimum wage. A three-step raise of 85 cents a year for three years—which would mean a minimum wage of $9.80 by 2014—and then indexing to protect against inflation (corresponding to the legislation proposed by Senator Tom Harkin and Representative George Miller) would be a reasonable approach. The increase to $9.80 would mean that minimum wage workers who work full-time, full-year would see a raise from their current salary of roughly $15,000 to roughly $20,000. These proposals also usefully raise the tipped minimum wage to 70% of the regular minimum.

This policy would directly provide higher wages for close to 20 million workers by 2014. Furthermore, another nearly 9 million workers whose wages are just above the new minimum would likely see a wage increase through “spillover” effects, as employers adjust their internal wage ladders. The vast majority of employees who would benefit are adults in working families, disproportionately women, who work at least 20 hours a week and depend on these earnings to make ends meet. At a time when persistent high unemployment is putting enormous downward pressure on wages, such a minimum wage increase would provide a much-needed boost to the earnings of low-wage workers.

These esteemed economists must have forgotten the negative repercussions of raising the minimum wage:

  1. Reduced employment for marginal workers
  2. Reduced hours for minimum wage earners
  3. Restriction of new job market entrants reducing valuable work place skills

The laws of economics are incontrovertible.  You may no more pass legislation that says gravity is discretionary.

Minimum Wage And Rent

The image above is making its way around the internet and for me, Facebook.  The idea, of course is to make the point that someone making minimum wage isn’t able to afford even rent, much less eat.  However, the chart fails to examine some deeper truths about minimum wage:

  1. Very few Americans work at minimum wage.  And the vast majority of them that do live in homes with other wage earners making significantly more.  Examples include teenagers and spouses of primary bread winners.
  2. Minimum wage earners should not be in the market for 2 bedroom units without a roommate.  For many years I bunked up with a friend.  At times even two.  In fact, there were times I slept on the couch or floor of a buddy until I could make ends meet.
  3. Minimum wage earners almost always make more than the minimum wage very quickly.
  4. By raising the minimum wage, the marginal employee will make the REAL minimum wage – $0.00

To be sure, we all want an environment where anyone who wants work can find work.  But we have to agree that we live in a world where people bring different levels of value to the table.  Further, that these people travel a graduation of value.  We start out with no work experience and are compensated poorly.  As we grow in experience and knowledge, our productivity rises and our compensation likewise increases.  By changing this, the only thing that will occur is less employment.

Wherein The Economist Channels Pino

If I’ve said it once I’ve said it a thousand times, if you wanna sell more beer, lower the price.  The same concept exists for labor.  If you want people to buy more labor, lower the price of labor.

But even as we face unprecedented levels of unemployment, there are people in the world that wanna make it harder for people to hire people.  They suggest that the real value of the current minimum wage is low and that we should consider raising it match past level.

I don’t understand how pricing low margin workers out of the job market right now makes sense.  And the Economist agrees with me.

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