Re: On Minimum Wage, "show me the equity" →
After receiving a few messages today regarding the minimum wage, I thought it worthwhile to offer a brief summary of the argument. (For a bit more detail, please see my post Repeal the Minimum Wage.)
The premise can be understood in one sentence: you set a price floor for anything, you create a surplus of supply.
When it’s a price floor on hirable labor (aka a minimum wage) - you get a surplus of hirable labor (aka unemployment).
laliberty
please tell me what happens when the ‘market clears’.
It is when a good (or service) reaches its equilibrium price, courtesy of consensual and mutually beneficial exchange. The market is a discovery process, and prices are merely the natural result of the multitudes of independent exchanges expressing individual preferences. A market, then, is said to “clear” when the demand and supply find relative stability, and satisfaction of consumer desires is thus maximized. Prices set outside this process, such as a minimum wage determined by a central planning state, are necessarily arbitrary, since there is no standard against which they can be said to be correct or incorrect.
what happens to those who would have been willing to work at a higher wage?
You mean the entire human race? Can’t imagine too many individuals who aren’t “willing to work at a higher wage.”
are they not unemployed?
Only if they are, in fact, unemployed.
or are they just not officially unemployed, having been so discouraged at the lack of jobs that cover basic expenses that they don’t even bother looking?
For these unfortunate individuals at the margin, it is the minimum wage that makes them “officially” unemployed; so some earnings are better than no earnings (a preference that is made clear once the individual performs the action of accepting a given job). Plus, once the hurdles of interventionism are removed, competition will ensure that prices reflect the new “savings” of lowered wages, making the necessities the now gainfully employed individual would like cheaper.
and what about notions of fairness?
What’s fair about a third party using aggression to interfere in the voluntary, peaceful, and mutually beneficial exchange of others? And, to be sure, every free market exchange is mutually beneficial. Every participant values what he receives more than what he gives up, otherwise the exchange would not take place as there is no state gun to anyone’s head threatening him to act against his will.
is it not fair that a business entering into a contract with someone for that person to spend a day working for that business, to offer in exchange a wage that covers all that day’s expenses? from travel to board to sustenance to leisure?
What’s fair is for every party in an exchange to only give up what they are willing to, and nothing more.
or do we live in a society where we all see with how little we can get away with paying, or how much we can get away with when entering into any contract, any relation with other people?
Have you ever walked into a store and offered more than the asking price for any item? Have you ever opened a menu and thought, “This is an unfair price! I must pay them double!” Or do you, more often than not, understand that wealth saved at one location can be placed toward another desire elsewhere? Negotiations and haggling aren’t taking advantage because all parties are free to simply walk away if the offers are no longer beneficial. No one’s stopping you from paying more, of course. You are free to be as generous as you please. But the market-clearing price is about fairness not charity. Both parties in a given exchange are always trying to give up less than they receive in order to maximize their material or psychic profit. Meanwhile, the existence of competitors ensures that no one is unfairly overcharged or under-compensated. This is true for all exchanges, even labor. The fact that most people employed today - that is, approximately 95% of all hourly-paid workers in the U.S. - actually earn more than the minimum wage proves that employers must and do compete for labor.
if that is the society we live in, laliberty, why do you wish to reinforce it by abolishing the minimum wage? is that society not just a little worse to live in? a little less safe as people trust each other a little less? a little unhappier as some worry about having a little less?
Let’s consider the previous post on your blog. It says simply, “why do we not stand up to the bully?” and you tagged it “non-violence.”
Now how do you comport that sentiment with your above lament? How can you be against bullies and violence when you clearly advocate for a bully, the state, to use its monopoly on force to threaten violence on individuals if they don’t concede authority over their private decisions.
You speak of society, but what is society? Is it not merely individuals and their consensual interconnected relationships? Well, that’s all the free market is: individuals interacting. If we insert violence into these relationships, even for some purported greater good, we’re already off to a bad start. How can you suggest that your way, with this third party leviathan that inserts itself into the personal decisions of others (usually at the behest of “special interests”), is one that fosters more trust and happiness?
To the contrary, allowing no interference in the peaceful and voluntary interactions of people ensures every exchange is mutually beneficial, and as such we would all be wealthier and more free (which no doubt would lead to greater happiness and, when all individuals enter every exchange with the same power to walk away, greater trust).
I understand your concern. You and some others like you who support the minimum wage are disturbed by the conditions of the poor. (Though there are many - among them racists, xenophobes, and labor unions - who support a minimum wage for strictly selfish purposes). But a minimum wage does not solve these problems. It only makes those very same poor carry a disproportionately heavier burden.
I can, of course, point to no shortage of Austrian and neoclassical literature expressing my problems with minimum wage. But even some Keynesians once understood this…
Paul Samuelson expressed this succinctly:
- “What good does it do a black youth to know that an employer must pay him $2.00 an hour if the fact that he must be paid that amount is what keeps him from getting a job?”
Also, James Tobin:
- “I am against minimum wage legislation and have said so. It diminishes job opportunities, ceteris paribus, and it is an inefficient and haphazard tool for income maintenances or redistribution.”
- “People who lack the capacity to earn a decent living need to be helped, but they will not be helped by minimum wage laws, trade union wage pressures, or other devices which seek to compel employers to pay them more than their work is worth. The more likely outcome of such regulation is that the intended beneficiaries are not employed at all.”
This should be uncontroversial: if you truly care about the plight of the poor, you must not support a minimum wage.
Minimum Wage, a Synopsis
After receiving a few messages today regarding the minimum wage, I thought it worthwhile to offer a brief summary of the argument. (For a bit more detail, please see my post Repeal the Minimum Wage.)
The premise can be understood in one sentence: you set a price floor for anything, you create a surplus of supply.
When it’s a price floor on hirable labor (aka a minimum wage) - you get a surplus of hirable labor (aka unemployment).
It’s fairly basic economics: as the artificially dictated price increases above the market clearing price, the overall quantity demanded by consumers decreases (and thus supply remains unsold).
Lower-skilled workers in particular become un-hireable when their productivity in a given job is less than the wage an employer must pay. If a person can only contribute $5 an hour in productivity, any wage above $5 (plus overhead, insurance, taxes, and whatever profit that makes the employee worth hiring in the first place) would make the hire a net negative, or loss, to the employer. And no business can be competitive, much less sustainable, by carrying losses.
This glut of hirable labor as a result of a price floor in wages, in turn and counter to intentions, grants more power to the employers who now have more candidates for every job opening. Instead of these mostly entry-level candidates being able to negotiate their foot in the door, the employer may be able to use extraneous criteria that may have previously been unnecessary or immaterial (extended referrals, higher education completed, greater experience, church attendance, shared interests, ethnicity, etc.) to decide who to hire.
Employers often also increase prices of their products to compensate for their greater expenses, and thus pass off the costs to consumers (and we’re all consumers).
In the long run, the effects are further compounded as employers invest in ways to stay competitive by using machinery to automate tasks previously performed by workers. And once that investment has been made and the new efficiency has been created, it is unlikely to be reversed. Another long-term effect is that employers lose flexibility in offering non-wage benefits. To be able to afford the new wages: compromises may be made with regards to working conditions, vacation days may be decreased, or a workplace that was once more casual may make stricter and less comfortable demands in order to increase the productivity of the workers commensurate to their increase in pay.
So not only does a minimum wage price some workers out of the market altogether, it also incentivizes employers to find ways to use existing labor less and in a less favorable manner. This is what Bastiat called “that which is not seen.”
It is utter common sense: making something more expensive tends to force people to use less of it (by eliminating it altogether, finding ways to do more with less, or simply turning to alternatives, including black market options). Statists seem to understand this principle with regards to things like sin taxes, gasoline taxes, or penalties for overwatering a lawn - but unfortunately they fail to make the connection when it is the price of labor that is increased.
Minimum Wage Kills the $5 Footlong in San Fran →
The sandwich-making chain stopped selling the five-dollar footlongs in San Francisco due to the “high cost of doing business,” according to SF Weekly. Signs posted at Subway sandwich shops sadly inform San Francisco patrons — we hear Willie Brown is a big fan — that “all SUBWAY Restaurants in SF County DO NOT PARTICIPATE IN Subway National $5.00 Promotions,” according to the newspaper. […]
Apparently, the city’s new minimum wage, raised to $10.24 as of Jan. 1, make $5 footlongs an impossible business model.
So who is hurt most by more affordable meal options becoming unavailable? Inevitably, the same lower-income individuals and families such policy is purported to help.
Here’s Edgar the Exploiter, the follow-up to George Ought to Help.
Related: Repeal the Minimum Wage.
(via antigovernmentextremist)
When I think “limits to [economic] mobility,” two phrases immediately occur to me: minimum wage and public schooling. If you wanted to impede upward mobility, there could hardly be better ways than to scuttle job creation for the unskilled and to give poor people a bureaucratically produced “education.
San Francisco to top the $10 minimum wage →
Hey San Fran - if $10 is so good, why stop there?
Prices and Substitutes →
When the price of anything rises, people search for substitutes. When governments pass laws that make low-skill labor more expensive, firms search for substitutes for low-skill labor. Some of these little bits and pieces of added cost include minimum wages, regulations on the hours that people can work, health care mandates, workplace safety regulations, and a ton of others. Firms search for substitutes, like self-checkout lanes (bonus: here’s Doug French on shadow labor).
What would the world look like if hiring low-skill labor were easier? First, people would have more and better service across the board, perhaps most especially at grocery stores and restaurants. Second, more people at the bottom of the skill distribution would be able to get their foot in the labor market door. As it stands, regulations on the low-skill labor market mean that the least of these among us have the door of opportunity slammed in their faces. Advocates of these interventions think they are redistributing resources from faceless “big business” to downtrodden workers. That isn’t what’s happening. Resources are being redistributed from some downtrodden workers to others.
Would easing the burden on the low-skill labor market mean an economic renaissance? Probably not. In aggregate, burdensome regulations on the low-skill labor market are paper cuts in the world’s largest economy. First, this doesn’t mean we should overlook the burden on the poor. Second, if you give a man enough paper cuts, he’ll bleed to death.
Why have the minimum wage only at $20?
Seriously, I don’t understand why those in the Occupy Wallstreet movement wouldn’t want it higher. How about $30? Or $50? Or how about $10,000, then we can all be millionaires!
I wonder what would happen to the price of groceries or happy meals if the people serving them cost 20 dollars an hour.
(via antigovernmentextremist)
The Emotional Support of Minimum Wage Law →
Minimum wage is one of the absolute simplest issues to address rationally, and yet the irrational law enjoys overwhelmingly popular support.
Abstract arguments and ethical principles leave people cold. They say that they are “results oriented”—which would seem to imply a belief in the positive economic consequences of price fixing. But when confronted with basic economic theory and history, they remain unconvinced.
Why?
Because to them, minimum wage law feels right. They don’t like thinking of someone working for less than $X per hour. To them, it therefore follows that no one should be allowed to hire a person for less than $X per hour. They don’t see it as a prohibition on labor; they see it as a blow against the oppressive bosses!
They associate the libertarian position not with principle or conviction, but with cold hearts, greed, and selfishness. What we call freedom of contract, they call exploitation. What we call reason, they are convinced is merely rationalization.
This is emotional alignment. Symbolic self-image. People who seem to care about the poor tend to support minimum wage law; therefore someone who wants to support the poor supports the position of that group. It’s as if reality itself could be defined by majority rules.
“I am a progressive, therefore I support progressive legislation.” Or, “The Christian position is X, and I’m a Christian, therefore I support X.”
It’s all based in the belief (habit, reflex) that an issue isn’t about a principle, isn’t about reason, but is always about whose side you’re on. There’s management and there’s labor. The rich and the poor. Exploiters and exploited. Minimum wage law is seen as siding with labor, siding with the poor, the underdog. To oppose minimum wage law is to side with management, to support the rich over the poor.
And of course, the whole context is the damned Class Warfare assumption that Marx managed to plant in the brains of even the most ardent anti-communists. An appreciation of market economics reveals the mutually beneficial nature of trade (as would simple philosophical rigor), but our culture has been indoctrinated with the image of economics-as-warfare. People believe that the rich take wealth from the rest of us, rather than creating wealth for the rest of us. To side with the rich in our dichotomous symbology would be to side with the thief over the victim, and no amount of principled argument—or even practical disproof—will shake that impression out of someone’s head when it’s been lodged in there for so long.
What is to be done?
Should libertarians abandon principles and persuasion in favor of symbolism and emotional manipulation? Perhaps we should focus more on public relations and advertising than on philosophy and economics.
No, there’s nothing wrong with [making both the moral/ethical and economic/consequentialist arguments against minimum wage laws]. They are the realms of reason. Abandoning our heads for our hearts leaves us with only arbitrary next steps. But persuasion requires more than reason. It might be less about teaching and more about helping people unlearn certain mental reflexes.
Related: my post on repealing the minimum wage.
On the numerous positive implications of repealing minimum wage laws.
Also, regarding your sub-head, which reads “Basically I’m like Che Guevara with bling on.” - does that mean you are a racist murderer who wears jewelry? An odd thing to confess.
Why We Are Not in a Period of Permanent New High Unemployment →
Any economist who understands the basics of supply and demand should also understand that the economy is not in a period of permanent new high unemployment. Put simply, markets clear. If there are huge numbers of unemployed at a given time, it is because of factors surrounding the unemployment rather than some mystical permanency to the unemployment.
This is not to deny that current unemployment is not high. It is very high, as is the length that many are unemployed.
There are two key factors that are keeping unemployment high and if reversed would do much to change the unemployment picture, even in the face of what is considered a period of high regime uncertainty.
The first factor is the extension of unemployment benefits for many to 99 weeks. Quite simply, if you pay people not to work, many won’t. The second factor is minimum wage laws, which impact those whose skills do not match up well with the current economic environment. If someone has skills that will only generate $5.00 per hour in marginal revenue for an employer, an employer will not employ that person at $7.25 per hour, the current minimum wage.
Some have argued that the ever changing complex regulatory environment forced upon employers (“regime uncertainty”) is a direct cause of some of the unemployment. This is unlikely the case. RU may, however, be an indirect cause.
What RU does directly is force down wages, rather than eliminate jobs. This decline in wages may then cause unemployment because the new RU wage is below the minimum wage or because at the new lower offered wage a person chooses to continue taking unemployment payments. …
In short, minimum wage laws, unemployment benefits and, indirectly RU, are the key components of the current high levels of unemployment. Eliminate minimum wage laws and unemployment benefits and the unemployment picture would improve very rapidly, even if there is high RU. High RU will only push the wage levels down, if there are no minimum wage laws or unemployment payments, and not result in higher unemployment.
But, the important thing to understand is that there is not some new permanency to current high unemployment, an idea that is being promoted by many economists and pundits. That’s a fallacy. On a short-term basis, during the central bank caused downturn of the business cycle, unemployment on a temporary basis can climb quite high, but this would be very short-lived if the laid off had no unemployment payments to look forward to. They would start to offer their services on the market at rates where they would eventually find jobs. That’s supply and demand. Markets clear. Current, high unemployment could be resolved by elimination of two key government interferences that cause unemployment, minimum wage laws and unemployment benefits. Further, by eliminating RU, wage rates would climb.
If these changes are not made, sadly the economy will look like we are in a new period of permanently high unemployment. This “permanency” will continue until Federal Reserve money printing creates such price inflation that the minimum wage becomes irrelevant and the purchasing power of unemployment payments becomes so meager that those receiving unemployment payments seek more income. If, however, minimum wage laws and unemployment payments are adjusted for price inflation, it is possible to prolong high unemployment in an unnatural high state into infinity. Bottom line, high unemployment is caused by government regulators. It can last a very long time, but with almost a snap of the fingers, it could be ended.
Babysitting bill in Calif. Legislature →
How will parents react when they find out they will be expected to provide workers’ compensation benefits, rest and meal breaks and paid vacation time for…babysitters? Dinner and a movie night may soon become much more complicated.
Assembly Bill 889 (authored by Assemblyman Tom Ammiano, D-San Francisco), will require these protections for all “domestic employees,” including nannies, housekeepers and caregivers.
The bill has already passed the Assembly and is quickly moving through the Senate with blanket support from the Democrat members that control both houses of the Legislature – and without the support of a single Republican member. Assuming the bill will easily clear its last couple of legislative hurdles, AB 889 will soon be on its way to the Governor’s desk.
Under AB 889, household “employers” (aka “parents”) who hire a babysitter on a Friday night will be legally obligated to pay at least minimum wage to any sitter over the age of 18 (unless it is a family member), provide a substitute caregiver every two hours to cover rest and meal breaks, in addition to workers’ compensation coverage, overtime pay, and a meticulously calculated timecard/paycheck.
Failure to abide by any of these provisions may result in a legal cause of action against the employer including cumulative penalties, attorneys’ fees, legal costs and expenses associated with hiring expert witnesses, an unprecedented measure of legal recourse provided no other class of workers – from agricultural laborers to garment manufacturers. (On the bright side, language requiring an hour of paid vacation time for every 30 hours worked was amended out of the bill in the Senate.)
Unfortunately, the unreasonable costs and risks contained in this bill will discourage folks from hiring housekeepers, nannies and babysitters and increase the use of institutionalized care rather than allowing children, the sick or elderly to be cared for in their homes. I can’t help but wonder if that is the goal of AB 889 – a terrible bill that needs to be stopped.
This state is filled with leftist totalitarian morons.
How about - and I know this is radical to statists everywhere - people come to mutually beneficial, voluntarily-agreed-upon decisions? Parents offer what they are willing to pay, babysitters accept only what they feel is just. Those babysitters who can earn more money doing something else, can choose to do that. Those parents who can’t afford to pay above a certain amount, can still have an opportunity to enjoy a night out by finding a cheaper babysitter.
We pay our babysitter well above minimum wage. I know other families who use cheaper sitters, but ours is punctual, responsible, good with my girls, and we trust her. She didn’t need a law to make more money, she just needed to be better qualified at what she does.
Related: See my post on repealing the minimum wage.
npr:
Experts say the Great Recession is erasing slow but steady economic gains made by blacks in recent decades. The foreclosure crisis is having a particularly devastating impact, they say, erasing years of racial progress. (via Racial Gap In Homeownership Widens In U.S. Slump : NPR)
Graphic Source: U.S. Census Bureau
Graphic Credit: Alyson Hurt/NPR
Why is there any confusion?
Let’s review what has happened:
- The federal government, through Fannie Mae and Freddie Mac, incentivizes banks to make housing loans to lower-income individuals whose credit-worthiness is too risky due to their general inability to afford to pay off said loans.
- The federal government further incentivizes such sub-prime loans for minorities.
- Lower-income individuals, particularly minorities, are incentivized to squander wealth into homes they cannot afford instead of more productive means.
- This malinvestment bubble bursts, hitting those less able to pay hardest and destroying the wealth individuals had in homes - particularly lower-income minorities.
If that chart is expanded leftward to show the home ownership gap prior to such aforementioned incentives, you will find the gap is surely wider. There is no mystery here. Not only is the gap returning to what it was before government incentives artificially narrowed it, but many of these individuals are worse off because of the squandered investments. In other words: market manipulations that were put in place to ostensibly help lower income individuals and minorities have turned out to merely cause more harm.
And what lesson is learned here? No doubt the compassionate leftists who called for these policies in the first place will probably want to do it again!
If these statists truly wanted the homeownership gap to narrow, the solution is simple: less government. Less government waging its so-called War on Drugs that imprisons - or worse - peaceful and otherwise productive individuals while ripping families apart, costs born particularly heavily by minorities. Less government providing deplorable and unaccountable education, particularly in minority neighborhoods, that limits choices by parents and children alike. Less government setting minimum wages that remove the lower rungs from career ladders and put up barriers to entry, particularly for minorities. Less government exercising its eminent domain, asset forfeiture, and blight laws that confiscate private property, actions particularly worse against minorities and in minority neighborhoods, to fill the coffers of local governments, police departments, and corporate cronies. Less government fostering dependency, punishing wealth creation, complicating entrepreneurship, and crushing self-reliance.
But the statists will never concede this reality for it will mean acknowledging that the state - their solution to their every concern - is the ultimate problem.
Anonymous asked: "Median household wealth among Hispanics fell from $18,359 in 2005 to $6,325 in 2009. The percentage drop--66%-- was the largest for any racial or ethnic group, according to a new report by the Pew Research Center's Social & Demographic Trends project. During the same period median household wealth declined 53% among black households and 16% among white households."
What do you think about this?
Horrible. Of course, blacks and hispanics didn’t suddenly become less productive. The nation didn’t suddenly become more racist. But there is clearly something that had a dramatic, disproportionate affect on household wealth in that four-year window. For those willing to see it, the answer is obvious. Right smack in the middle of that time period the Fair Minimum Wage Act of 2007 was passed, which continued to increase the minimum wage through 2009.
Update: And let’s not forget the impact of foreclosed homes during the housing bubble burst in 2008 - which hit hardest minorities hardest. Certain individuals and families had no business owning a home but were incentivized to do so courtesy of government policies. If these people had used their wealth intelligently, instead of putting it toward owning a home they could not afford, their wealth would not have been destroyed. (h/t jmarsshit)
