Coyote Blog

This whole notion that  501(c)4 groups are receiving some kind of huge implicit tax subsidy whose use needs to be policed is simply absurd.  I am a board member of several 501(c)6 trade associations, which have roughly the same taxation rules as 501(c)4.

The largest tax subsidy, by far, available to some non-profits is the deductibility of donations to the group.  This is available to 501(c)3 groups (traditional charitable organizations) but NOT to  501(c)4 or  501(c)6 groups.  Whether the Tea Party of Cincinnati is a  501(c)4 or not, you cannot deduct your donations to them.

The one tax break that  501(c)4 corporations get is that they do not pay taxes on any surplus they accumulate in a year.  In general, non profit groups like this collect donations and spend them.  So in general, their outlays match their revenues, such that they tend to show very little income anyway, even if it were taxable.  The only thing the non-profit status brings to  501(c)4 organizations is that they don't have to spend a lot of time and effort trying to make sure, at the end of the fiscal year, that expenditures and revenues exactly match.  Basically, the one benefit granted is that these groups can collect money in November for expenditure in January without paying taxes on this money.  This is hardly much of a subsidy, just a common sense provision.  (By the way, at least in a  501(c)6, there is no break from the paperwork.  We will have to pay an accountant to file a tax return for the Feds and the state of California.

This actually comes up from time to time in my industry.  A couple of my competitors are actually non-profits.  My for profit competitors always complain that these non-profits have an advantage, arguing that they are really for-profit, but just paying their "owners" large salaries rather than dividends.  My general answer is, so what?  My company is a subchapter S corporation, and it does not pay taxes either -- I pay taxes on the profits as regular income in my personal tax return, exactly as if I had paid out all the profits as salary.  Sure, it would be nice to accumulate profits in the company tax free, but seeing the shoe-string way my non-profits competitors run, I don't think that is what they are doing.  It used to be that as non-profits, they considered themselves immune to certain laws, like the Fair Labor Standards Act and minimum wage, but the courts have disabused them of that notion.  So it is hard to see what advantage they enjoy, but folks love to complain none-the-less.

The only real business advantage I have ever found these non-profits have is in perception among leftish politicians -- they are considered "clean" while as a for-profit company I am considered "dirty".  Which is why in California, early laws allowing outside companies to operate public parks allowed non-profits but not for-profits, and almost every state who goes this route tries non-profits first for the same reason.  This no longer bothers me -- anyone who had ever been part of a non-profit can probably guess the reason.  They really are not set up to operate a 24/7/265 service business, and within a year typically fall short, and I, with a bit of patience, then get my chance.

I got an email today from some group telling me that the majority of small business owners support annual increases to the minimum wage.  I found that odd, so I clicked through to the study.   I will save you the time looking for it, the study had no discussion of how it identified a representative group of small business owners, or even how it validated the respondents were business owners in the first place.  All it says is that it was an "internet survey".

It turns out the second question of the poll answers the first.  The people in the poll overwhelmingly supported raising the minimum wage because the businesses polled overwhelmingly did not hire minimum wage workers.

In fact, the most lost fact in the minimum wage debate is the percentage of the work force that actually earns the minimum wage.  According to the Department of Labor, in 2011 only about 3% of all employed wage and salary workers were making minimum wage or less.  However, about half of these folks are people who mainly work for tips (which are not included in the base wage number).  When you exclude the folks whose tips presumably take them over the minimum wage, just 1.5% of American workers make minimum wage.

Minimum wage work is a niche, generally confined to special situations and to low-skilled young people entering the work force.

Sure, a minimum wage hike would help many of those 1.5%  (at least those who did not lose their jobs when the higher wage rates priced out their work).  But what about the group five times larger than this, the unemployed?  Are they really better off when the bar they have to clear to find their first work keeps getting raised?  If no one will currently hire 30% of teens at $7.25 an hour, how many will get hired at $10 an hour?

Here is the question the group should have asked:  For those of you who currently pay some workers minimum wage, would you expect to employ more, the less, or about the same after an increase in the minimum wage?

I don't know how I got onto blogging all Steven Rattner, all the time, but here I go again.  Mr. Rattner is complaining that the sequester is costing his son a chance at a government internship for which he had wanted to apply.

So perhaps Mr. Rattner's son could go work in a productive field instead?  Oops, probably not, because rising minimum wages and Obama Administration crack-downs on unpaid private internships have made it harder for all the rest of us to get our little preciouses an internship.  I will bet any amount of money that the number of internships killed by minimum wage laws is at least two orders of magnitude larger than the number of internships killed by the sequester.

And besides, we should be thrilled that  one less young person is having their formative organizational experiences (from conflict resolution to productivity expectations) in government.

Oh, and by the way, that bit about the Obama Administration cracking down on unpaid internships?  Well, that only applies to you private employers who are teaching useless skills like innovation and wealth creation.  Jobs that teach Congress's organizational and productivity secrets don't have to be paid because of all the valuable lessons taught.

Bryan Caplan asks:

So I propose a simple challenge to pave the way to my refutation: Tell me how to sell the abolition of the minimum wage to the typical Feeling American.

Please don't give me any "hard heads, soft hearts" answers.  Give me "soft heads, soft hearts" answers.  You're trying to persuade Oprah Winfrey, not Data from Star Trek after he gets his emotion chip.

I am not sure what makes for a soft head argument, but lots of talk about oppressors and racism combined with argument by anecdote rather than facts felt right, so this was my shot at it:

Bobby is a black teen in Chicago. Since he has just 9 years old, the only way he could support his family and survive in his neighborhood was to join a gang and deal drugs.

After his recent arrest, Bobby wants to go straight, to escape the cycle of crime and violence into which he has become trapped. But no one will hire him without experience. He needs a history showing he can do simple things, like show up reliably to work on time, cooperate with other employees, and interact well with customers.

Bobby would be willing to work for free to gain this experience, to get a toe-hold on the simple skills many of us take for granted. Be he can't. he is barred by law. He cannot legally be offered a job for less than $8.25 an hour, a wage he could one day earn but right now lacks the basic skills to justify.

The minimum wage raises the first rung on the ladder of success higher than Bobby can possibly reach. This is not an accident. Early proponents of the minimum wage in the early 20th century supported it precisely because it protected white workers from competition from blacks attempting to enter the work force. The minimum wage began as, and still is, a tool of oppression,preventing young men like Bobby from gaining access to good employment.

Today, the unemployment among black teens has risen to nearly 40%. This is because the government has been working for years to help older white workers with political clout keep men like Bobby out of the workforce, and the minimum wage is their most powerful tool for doing so.

Apparently, he things "moocher" is unfair.  So I will remind you what he wrote a while back:

...for the first time that I can remember, this means that I have a personal stake in the election. It's not just that I find one side's policies more congenial in the abstract, but that one policy in particular could have a substantial impact on my life.

You see, I've never really intended to keep blogging until I'm 65. I might, of course. Blogging is a pretty nice job. But I'd really like to have a choice, and without Obamacare I probably won't. That's because I'm normal: I'm in my mid-50s, I have high blood pressure and high cholesterol, a family history of heart trouble, and a variety of other smallish ailments. Nothing serious, but serious enough that it's unlikely any insurance company would ever take me on. So if I decided to quit blogging when I turned 60, I'd be out of luck. I couldn't afford to be entirely without health insurance (the 4x multiplier that hospitals charge the uninsured would doom me all by itself), and no one would sell me an individual policy. I could try navigating the high-risk pool labyrinth, but that's a crapshoot. Maybe it would work, maybe it wouldn't.

But if Obamacare stays on the books, I have all the flexibility in the world. If I want to keep working, I keep working. If I don't, I head off to the exchange and buy a policy that suits me. No muss, no fuss.

Attempting to remind him of these comments, I commented today:

I'm confused here.  A few weeks ago, didn't you say you support Obamacare because it let you retire early?  You said you could not afford to quit working early without Obamacare, because you would need your work and income to pay for, what to you, is a vital good.   Obamacare allows you to quit working earlier, presumably because other people, rather than you, will pay for at least a part of your health care with their labor.

I understand no one likes the word "moocher."  But you came on these pages really proudly announcing that Obamacare allowed you to retire early while others labored to support your needs.  What word would you suggest as an alternative, then, to describe this behavior?

(Yeah, I can predict the response.  It's not the subsidy you want, just the community rating.  Well, high premiums for 55-year-olds with pre-existing conditions are not some evil conspiracy, they reflect true cost to serve.  Having a government mandate that you pay the premiums of a healthy 25-year-old when you are 60 and sick is still a subsidy, paid for with someone else's labor.  As a minimum, 25-year-old minimum wage workers just entering the work force pay more when they are healthy so you can lead a life of indolence).

When a country

• Increases the minimum wage, and therefore the minimum skill / productivity needed for a job
• Adds substantially to the costs of labor through required taxes, insurance premiums, pensions, etc
• Makes employees virtually un-fireable, thus forcing companies to think twice about hiring young, unproven employees they may be saddled with, good or bad, for decades
• Puts labor policy in the hands of people who already have jobs (ie unions)
• Shift wealth via social security and medical programs from the young to the old

It gets this

The bitterly ironic part is that when these folks hit the streets in mass protests, it will likely be for more of the same that put them there in the first place.

 
Want to argue that such policies are hurting workers rather than helping?  Good luck, at least in Italy

Pietro Ichino, a professor of labor law at the University of Milan and a senator in the Italian legislature, is known as the author of several “neoliberal” books and studies recommending that the Italian government relax its extraordinarily stringent regulation of employers’ hiring and firing decisions. As Bloomberg Business Week reports, that means that Prof. Ichino must fear for his life: “For the past 10 years, the academic and parliamentarian has lived under armed escort, traveling exclusively by armored car, and almost never without the company of two plainclothes policemen. The protection is provided by the Italian government, which has reason to believe that people want to murder Ichino for his views.”

Memo to US:  Don't get cocky, you are going down the same path

 Update:  Interesting and sort of related from Megan McArdle

An apparent paradox that frequently puzzles journalists is that Europeans work fewer hours than workers in the United States, while in some countries, hourly productivity appears to be the same, or even higher, than that of American workers.
This is not actually a paradox at all.  Much of the decline in European hours worked per-capita came in the form of unemployment.  Rigid labor laws which make it hard to fire (and thus, risky to hire) shut less productive workers out of the market, particularly the young, and those who had been displaced due to disruptive industry change.  So does anything that raises the cost of labor, like, er, loads of mandatory vacation and leave.  When you exclude your least productive workers from the labor force, your measured hourly productivity will be higher, particularly if you use metrics like GDP per hours worked.

Looks like I will be on Fox & Friends at 8:15 EST tomorrow (Wed) to discuss the State of the Union, and specifically the Obama administration and public vs. private investment.  That will make four national TV appearances and 4 entirely different topics (parks, minimum wage, electric car efficiency, and infrastructure investments).  I'm really honing a razor-sharp personal brand.

I will be on the Fox and Friends morning show tomorrow morning at about 8:50ET  (though of course these things are always subject to change right up to the last minute).  I will be talking Fisker Karma.

This will make the third time I have been on national TV -- one talking about park management, one talking about the minimum wage and this one talking about MPG calculations for electric cars.  At least I am not in a rut, though I think my pundit brand identification is probably confusing.

Via Carpe Diem and a whole string of other sites:

"How will California 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.

California Assembly Bill 889 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 ("parents") 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."

I know this is exactly the kind of thing you would expect me to oppose, but I have decided this is exactly the kind of thing California needs.  I am tired of average citizens passing crazy requirements on business without any concept of the costs and injustices they are proposing, and then scratch their head later wonder why job creation is stagnant.
I want to propose that California do MORE in this same vein.  Here are some suggestions:

• Every household will have to register for a license to conduct any type of commerce, a license to occupy their house, and a license to hire any employees.  Homeowner will as a minimum have to register to withhold income taxes, pay social security taxes, pay unemployment insurance, pay disability insurance, and pay workers comp insurance.
• Households should have to file a 1099 for every payment they make to contractors
• All requirements of Obamacare must be followed for any household labor, including payment of penalties for even part-time labor for which the homeowner does not provide medical insurance
• No alcohol may be purchased by any individual without first applying for and receiving a state liquor license
• No cigarettes may be purchased by any individual without first applying for and receiving a state cigarette license
• No over the counter drugs may be purchased by any individual without first applying for and receiving a state over the counter drug license
• No eggs may be purchased by any individual without first applying for and receiving a state egg license
• Any injuries of any type in the household must be reported to OSHA
• Form EEO-1 must be filed once a year to catalog the race and gender of anyone who did any work in the home
• Any time one has a dispute in court with another citizen or an employee, they will now be treated the same as businesses in California, which means that the presumption, irregardless of facts, will be strongly in favor of any employee and against the homeowner, and in favor of any other party in any dispute whose net worth is perceived by the jury as less than the homeowner's.
• At least once a year the home's kitchen must be inspected and certified by both the fire marshal and the health department.  Any deficiencies must be immediately repaired before the kitchen can be used.  All code requirements for commercial kitchens will apply to household kitchens, including requirements for a three-basin washup sink, separate mop sink, and fire extinguishers
• All homes will be inspected once per year for ADA compliance.  All parts of the home must be wheelchair accessible, even if there are currently no handicapped residents in residence.  Homes more than one-story tall will require an elevator.  All counters must be of the proper height, and all bathrooms must have ADA fixtures.
• Each home will be required to prominently display all its required licenses as well as state and federal information posters for workers.
• All homes will be audited at least once every three years to ensure that use taxes have been filed and paid on all out of state Internet purchases
• Material Safety Data Sheets must be on file for all household cleaning products and other chemicals and available for inspection by the fire marshal
• All gas tanks (car, lawnmower, portable 5-gallon) will be treated just like commercial gasoline storage tanks, and require monthly leak / loss reporting.  Annually, a complete spill prevention plan must be filed with the state.
• A stormwater discharge plan must be filed annually with the state
• Any dropped thermometer or CFL bulb will require homeholder to call out (and pay disposal costs) of a state hazmat team
• Lifeguards are required at all home pools during daylight hours
• Households should file property tax returns in the same way that businesses must, listing individually every single piece of personal property they own, from their car to their lawnmower to the pink flamingo in the front yard.
• Homeowner must track the number of days any guests stay in their house so they can file and pay lodging taxes on a monthly basis
• Any homeowner who hauls a boat or trailer on US highways must register with the Department of Transportation and receive a DOT number.  They must keep full driver logs and maintenance records available for DOT audit and inspection, and every driver must be drug-tested at least once per year.
• All food on pantry shelves must meet all state labeling laws
• At each entrance to the house, a sign warming those entering must be posted warning that certain cancer causing chemicals may be present

Finally, after spending the entire day complying with these rules, the homeowner must read at least 3 posts each day from progressive blogs explaining why anyone who complains about such rules as unreasonable is just a reactionary who doesn't really know how to run his business very well, and they could certainly do better.

Postscript:  Every single item on this list is something my company has been required to do.  I am sure I left a bunch out.

Yet more crap to keep up with as an employer

Today the NLRB released its final rule mandating all private sector employers subject to the National Labor Relations Act to post notices informing employees of their rights under the Act. The final rule is scheduled to be published in the Federal Register on August 30, 2011. Posting of the Employee Rights Notice becomes effective November 14, 2011. Failure to post will be an unfair labor practice....

Failure to post the Notice will constitute an unfair labor practice which may be filed with the NLRB by any person. Further, the failure to post the Notice will be deemed evidence of anti-union animus or motivation where employers are alleged to have interfered, restrained, or coerced or otherwise discriminated against employees to encourage or discourage union membership or activity.

We already spend a thousand bucks a year or so with printing companies that keep us supplied with updated signs for all of our locations.  At some point we are going to have to buy billboards to fit all the stuff we are required to post -- minimum wage notices, NLRB notices, civil rights policies, occupancy permits, sales tax licenses, liquor licenses, egg licenses, cigarette licences, fire inspections, health inspections. Soon I am sure we will have a couple of square feet of Obamacare notices.

Via Carpe Diem, from William Even and David Macpherson:

"Each 10% increase in the minimum wage [since 2007] was accompanied by a decrease in employment of 1.2% for Hispanic males, 2.5% for white males and 6.5% for black males. When looking at hours worked, we saw a similar effect: Each 10% increase in the minimum wage reduced hours worked by 1.7% for Hispanic males, 3% for white males and 6.6% for black males.

The data clearly show a disproportionate loss of hours and employment for black young adults. Let's put these lost opportunities into context. Between 2007 and 2010, employment for 16- to 24-year-old black males fell by approximately 34,300 as a result of the recession; over the same time period, approximately 26,400 lost their jobs as a result of increases in the minimum wage across the 50 states and at the federal level.

Here is a portion of Kevin Drum's argument against lowering the minimum wage to stimulate employment

Is this really what we've come to? That we should provide a (probably very small) boost to the job market by allowing businesses to hire people for $9,500 per year instead of $14,500? Seriously? I mean, this is the ultimate safety net program, aimed squarely at working people at the very bottom of the income ladder. If we're willing to throw them under the bus, who aren't we willing to throw under the bus?

Part of the problem is that Drum is absolutely convinced that our intuition (and, oh, 200 years of experience) that demand curves slope downward is flawed in the case of low-skill labor.  He has read the two studies out of a zillion that, contrary to all the others, suggests that minimum wage increases may not affect employment and has convinced himself that these are the last word in the science.    As an employer who has laid people off and made larger and larger investments in automation with each successive minimum wage increase, I will continue to trust my intuition that higher minimum wages makes hiring less desirable.

I will say, though, that there are a number of reasons why a change in the minimum wage may have a smaller overall effect nowadays than one might expect.  That is because the minimum wage vastly understates the cost of taking on an unskilled worker.  Even with a lower minimum wage, these government costs will remain:

• Soon, the employer will have to pay for the employees health care, a very expensive proposition
• Workers comp and other labor taxes add as much as 20% to the cost of labor
• In states like California, bad employees have an increasing number of avenues to prevent employers from firing them, from appeal to an ADA law stretched out of recognition to any number of other legal presumptions that employers have to just live with hiring mistakes

Hiring employees used to be a joyous occasion.  Now I cringe and wonder what kind of liabilities I am taking on.

But back to Drum's statement, how sick is it that allowing people off the dole to actually get a job is called "throwing them under the bus?" Drum, for someone so fired up to make decisions based on academic work, sure is willing to put on blinders to all the academic work that actually characterizes who works for minimum wage and how long they stay on it.  He who argues against making policy based on flawed intuition is operating here entirely from a flawed perception of who minimum wage workers are.  He seems to want to picture families of eight supported for decades by someone trapped in the same minimum wage job, for whom a raise only comes when Congress grants it, but that is simply not the reality.

Just as one metric, for example, the percentage of all wage and salaried workers making minimum wage or less fell from 8.8% in 1980 to 1.7% in 2008.  In fact, the actual absolute number of people making the minimum wage fell by over 2/3 during these years.    I would argue that this number is probably too low.  A dynamic labor market needs to bring people in at the bottom, and raising the minimum wage makes this harder, and so traps people into unemployment.  In fact, the number of unemployed in this country is at least 6 times larger than the number of minimum wage workers.

If we dropped the minimum wage, only a fraction of the 2 million or so who make the minimum wage would see their wages go down, but lets assume a quarter of them would.  We are therefore trying to prop up wages for 500,000 but at the same time creating barriers for 13.9 million people who are unemployed and are looking for work.  And it is low-skilled workers who we are most particularly throwing under the bus by keeping minimum wages high.

Other than the demand among the status-conscious for Chanel handbags, the demand for a product or service generally decreases as its price decreases.  This is an observation so trivial it is almost stupid to write down. But I guess the point is still not understood in Washington.

"The Center for American Progress, often called the think tank for the Obama White House, recentlyrecommended another increase in the minimum wage to $8.25 an hour. Though the U.S. unemployment rate is 9.1%, the thinkers assert that a rising wage would "stimulate economic growth to the tune of 50,000 new jobs." So if the government orders employers to pay more to hire workers when they're already not hiring, they'll somehow hire more workers. By this logic, if we raised the minimum wage to $25 an hour we'd have full employment."

Coyote, Jan 2011

For many, low wage jobs are the first rung on the ladder to success and prosperity.  Raising the minimum wage is putting the first rung of the ladder out of reach of many low-skilled Americans.

My classmate Henry Payne, saying it better in pictures (via Carpe Diem)

From the folks who exempt themselves from minimum wage, OSHA, and much of environmental law, comes the news that while shutting down online poker for most Americans, the District of Columbia is starting up its own online poker site for federal officials and other DC residents.

So a bunch of bloggers agree to write for the HuffPo, a profit-seeking venture, for free.  The HuffPo gets bought by another profit-seeking company, though this one is less successful in shrouding its financial goals in a cloud of feel-good progressivism.  So the bloggers get mad.  But instead of just quitting, they are actually suing the HuffPo for back wages under the Fair Labor Standards Act.

A few observations:

• I blog for free at Forbes.  It's not like the arrangement was hard to figure out.  They get some free content, I get some exposure and a bit of cache from being associated with Forbes.   Seemed like a good deal to me.  When it ceases to be so, I will quit.
• The fact that everyone agreed to the deal in advance and it was completed by both parties to their mutual self-interest is NOT a defense under the Fair Labor Standards Act (FLSA).  I have employees who beg to work for free all the time (e.g. they have a disability arrangement that allows no outside income).  I have to tell them no.  Any defense from the HuffPo will come through convincing a court that the writers were somehow exempt or not actually employees.
• This same problem arises with internships as well as in my work.  In short, people sometimes value non-monetary aspects of jobs that are not given any credit in the FLSA.  My son would love to have a good summer job and for the right one would work under minimum wage for the experience.   Even the experience of showing up on time, functioning in an organization, working in a hierarchy, etc.  are important skills those outside of the work force gain from obtaining.  (In an interesting parallel to this, probably the most important skill I am gaining at Forbes is simply writing to a regular weekly deadline.  It's harder than it seems from the outside).

In short, I would say that these folks are utterly without personal honor for filing the suit, but in the current state of labor law they potentially have a case.  How sad that would be.  And what would be next?  A class action suit by product reviewers at Amazon for back wages?

My Forbes column is up on the minimum wage.  It covers some of the ground I could not get to on TV the other night.

For many, low wage jobs are the first rung on the ladder to success and prosperity.  Raising the minimum wage is putting the first rung of the ladder out of reach of many low-skilled Americans.

File this under "why I blog rather than do a lot of talking head cable shows."

I flew to New York to go in studio on the Stossel show today.  I did a brief bit on the minimum wage, a reprise from my earlier cameo on Stossel special.  It will be on tomorrow, Thursday at 9PM Eastern on Fox Business  (not Fox News, Fox Business).

The whole experience was new to me, which made me virtually unique as I was surrounded by policy wonks who do this kind of talking head thing all the time.   By the way, there was no sharing of questions or his plan in advance -- I think they want you cold.  So answers are all in real time.

Please, please, please do not write me or post comments such as "you should have said ____."  It will just depress me.  Believe me, 5 minutes after walking out I thought of 9 things I should have said.  Which is in fact why I blog rather than engage much any more in real time argument.

Anyway, I think his show will be pretty good -- he has Michael Cannon on health care and segments after mine on cash for clunkers and alpaca subsidies.  I shared the green room with an alpaca, which will probably just go to prove the old saying about always getting upstaged by kids and animals.

By the way, I think Stossel must set a different tone for his staff than is normal on TV.  I was talking to one of his producers, a guy that had come with Stossel from ABC, and I asked him if he had studied something relevant to this job in college.  I expected him to say "yes, theater" or "yes, television production."  But he said "yes, economics at George Mason."  I loved that answer.

I hear rumor that a few snippets from a series of interviews I did on the minimum wage with John Stossel's crew may have appeared on his "Politicians' Top 10 Promises Gone Wrong" show tonight.  I have it TIVO'd but have not been able to watch it yet.  It is being replayed (in Hannity's usual time slot) at 9pm and Midnight on Sunday (EST).  Even if I am not in it, it still looks like a great show and I can't imagine that readers of this blog would not enjoy it.   More here.

As Obama pushes the US into a corporate state model like those in Europe, here is one cost we will face: increases in long-term unemployment.  Already we see higher structural barriers being created to employment (preference for preferred unions, higher minimum wage, reduced internships) combined with increasing incentives to remain unemployed (extension of unemployment benefits, subsidized medical services).

Most countries who move to this model experience very high long-term structural unemployment.   The costs to add an employee in Europe are really, really high, meaning that it is only done reluctantly and the preference is for highly skilled workers  (who is going to give a job for life to an untested, unskilled young worker?)  Further, these states are run by a troika of large corporations, unions, and government insiders who protect each other from competition.  Young unskilled workers are a competitive threat to established unions.  Since these unions workers get above-market wages, they are protected from younger workers who are willing to offer their admittedly less skilled labor much cheaper.

I was playing around with data released from the World Bank, and compared the US to a number of other industrialized countries on this metric.  Even in past recessions, long-term unemployment has remained low in the US (click to enlarge).  The metric is percent of total unemployed that are unemployed for longer than 1 year.

I get tired of the perception that labor law is universally beneficial to people selling their labor, and that these laws are solely intended to reduce the ability of rapacious employers to exploit powerless workers.  It confuses people to no end when I say that minimum wage laws prevent workers from selling their labor for less than the minimum wage, and is therefore a restriction on every worker's freedom.  Supporters of the law say, that's can't be right, it simply must be helping all workers.

But I think anyone who has gone through the experience lately of trying to help their teen get a summer job knows this is not the case.  My son would gladly work for free or below minimum wage at any number of jobs to get experience.  Unfortunately, he must be paid the same minimum wage as someone with years of experience, and many large corporate chains have simply banned hiring of kids under 18 to avoid liability and labor law hassles associated with hiring teens.  The result is an astronomical unemployment rate for teens.

So here is another example, with the Feds cracking down on unpaid internships.  This is simply crazy.  The government has got to realize that there are useful and valuable things one can trade his labor for (e.g. experience, training) that can't be measured in money.

Of course, you know who is the greatest violator of these internship rules?  The organization that requires the longest hours for the least pay (well under minimum wage) for a huge portion of its staff?  Why, its the US Congress, but of course they exempt themselves from these laws.

Update:  From a commenter on Stossel's blog:

Maggie Hanson:

I have an unemployed friend trying to land work in a new field where she has no experience. She's up against experienced applicants. I suggested she offer her services for free as an intern for 3 months in exchange for learning on the job and a letter of recommendation. She told me she didn't think that was legal. I'm appalled to learn she is right! Yet how else is she going to get experience? She can't afford school. Internships are a free education.

Michigan has  a huge problem with jobs and capital leaving the state for more favorable climates.  Which makes it incredible that the ruling Democrats in the state have this plan to improve things:

• Hiking the minimum wage to $10 an hour for all workers.
• Imposing a blanket moratorium on home foreclosures for 12 months.
• Cutting utility rates 20% across the board.
• Requiring all employers to provide health care to their employees.
• Hiking, by $100 a week, and extending, for six months, unemployment benefits.

Wow, that should really bring companies running to the state to invest their capital.  This is always a powerfully attractive package:

• Raise the price of unskilled labor and entry-level employees
• Reduce protections for lenders investing capital in the state
• Set the state up for power shortages
• Increase the price of labor by $12,000 or more per year
• Increase employment-related taxes  ( a sure outcome of raising unemplyment benefits)

If you want to really confuse someone, restate the minimum wage laws this way:

It is generally illegal in the US to accept a job for less than $7.25 an hour.  The minimum wage laws are therefore a substantial constraint on individual liberties

When I say this to most folks, they get confused because laws like minimum wages are usually stated in terms of empowerment of the common man.  The theory is that individuals don't have enough bargaining power to really get what the true clearing price should be for their labor, so the government steps in to prevent evil corporations (ie "the man") from exploiting this power imbalance and paying wages that are too low.

Tell that to my 15-year-old son who is looking for a job.  Sure, he would like to earn some good cash, but the wage scale of a job is way down the list of priorities.  What he really needs is a chance to build basic work skills and knowledge of how organizations function that you and I take for granted.  Further, he would like to get some direct experience with customer contact.  And finally, he wants to demonstrate to future college choices that he can function successfully in a work environment, and that he is motivated enough to keep and hold a job.

As a result, my son would likely gladly take the right job for, say, $3 an hour.  And an employer might jump at this deal, understanding the lower wage helps compensate for the costs of dealing with an inexperienced new employee and the risk of hiring a teenaged boy with distracting amounts of hormones running through his system.  This would be a perfectly rational, consensual, everybody-wins arrangement that is absolutely illegal.  So don't tell me or my family that minimum wage laws are empowering.

The health care analog

Many very similar liberty-reducing regulations exist in the health care world, and more appear to be on the way.  One great example that is entirely similar to the minimum wage issue is minimum coverage rules.  Many states have lengthy lists of conditions that must be covered in any health insurance plan sold in that state.  From acupuncture to mental health to massages to homeopathic treatments, you can find just about every care specialty with a lobbying organization getting its services embodied in state laws as minimum requirements.

Again, supporters of such laws argue that this is empowering for consumers.  Every health care plan you can buy will have a wide array of covered services.  But, they will also all be expensive.  What if I don't want mental health coverage or acupuncture?  Why do I have to pay extra for this stuff to be covered by my policy?  I go to the doctor very, very infrequently - basically only if the condition is critical - so why is it illegal to purchase a health insurance plan that matches my health care use preferences?

Currently I pay for my own health care plan and have insurance that I consider true insurance.  It has a high deductible, and does not cover a bunch of non-critical stuff.  I have no dental coverage, and pay dental all out of pocket, as I do most routine medical expenses   I have medical insurance solely to cover catastrophic medical events that would likely be financially disastrous for me  (I do the same thing with my house and car, paying for routine maintenance with insurance reserved for catastrophes).   Fortunately, Arizona allows me to buy such a policy, though it does have minimum coverage rules that make the policy more expensive than it might be.  In other states, like Massachusetts, my health plan with a high deductible is illegal.  It would also be illegal under the current House and Senate versions of Obamacare.

Medical Insurance and Windshields

I do a lot of back road and highway driving, so windshield repair and replacement are things I deal with fairly frequently.  I've generally always just paid for these repairs out of pocket.   It is a field where if one shops around, there are a lot of good deals.  However, for a while I lived in a state that had a law that said all auto insurance must have windshield replacement coverage.

The effect on my behavior was dramatic.  When living there, I didn't even think about shopping around for a windshield repair.  I just had the dealer do it (surely the high cost supplier) when I had the car in for regular service.  I didn't care what the cost was, it was covered in my policy.  (Ironically, it turns out in retrospect that I should have shopped around -- because no one else in the sate cared about cost, all the windshield suppliers jacked up their prices and then competed by offering kickbacks in various forms to consumers, basically competing on how much of the insurance money they would share with the car owner.  Truly dysfunctional).

I have seen the exact same change in my behavior, but in reverse, in switching to a high deductible medical policy.  Until about 3 years ago, like most Americans, we never even thought about the cost of our medical care.  We weren't paying for it.  But now, as I pay most of our routine expenses, I am amazed at the difference.  When my son needed a CT scan, three phone calls gave us a huge variation in quoted prices.  It turns out, shopping works, even in medical care.

Postscript: I have always wondered why insurance companies didn't create some incentive for shopping.  If I were running such a company, I would be tempted to tell customers - "our reimbursement rate for CT scans in your area is X.  If you get it done for less than X, we will split the savings with you 50/50."  Though I suppose the danger is tht this could morph into a variation of the windshield kickback system.

...that this sort of article is absolutely inevitable only AFTER bad legislation is passed.

A federal minimum wage increase that takes effect Friday could prolong the recession, some economists say, by forcing small businesses to lay off the same workers that the pay hike passed in better times was meant to help.

The increase to $7.25 means 70 cents more an hour for the lowest-paid workers in the 30 states that don't have a higher minimum. It also means higher costs for employers who feel they've already trimmed all their operating fat.

"How will they absorb the increase?" said Rajeev Dhawan, director of Georgia State University's Economic Forecasting Center. "They will either hire less people or they will do less business."

More than in any period before, businesses are likely to lay off employees and reduce hours, further fueling the economic slump in states seeing double-digit unemployment rates, fiscal conservatives and some economists say.

In the run up to actually passing this legislation, the Arizona Republic did nothing but cheer-lead the effort, and would never have published such a story, or would have mentioned it only in graph 36 with some perfunctory balance-quote from the dreaded "industry representative."

We saw this exact same thing occur with ethanol legislation.