Posts tagged ‘minimum wage’

Why the Minimum Wage is A Bad Anti-Poverty Policy in One Chart

This is a regular chart used by Mark Perry, updated for the most recent data.  It is one of my favorites.

click to enlarge

Mark has a lot of great analysis of this data, too long to excerpt, so I refer you back to the link to see his comments.  But I want to add one of my own.

Let me restate the numbers in this chart one other way to give a pretty stark view of utility of raising the minimum wage as a poverty program. Let's look at the first lowest vs. the second lowest quintile.

Raising current workers in the poorest quintile to second quintile earnings ($28,970 to $35,858) would increase the first quintile's average income by $2,962. On the other hand, keeping first income wages flat but raising first quintile household's average earners to second quintile number of earners (0.43 to 0.91) increases the first quintile's average income by $13,905.

By this analysis, increasing first quintile hours worked (and % employment) has 4.7 times more leverage than fiddling with wage rates.

So now consider raising the minimum wage, which will raise some wages but reduce unskilled employment -- it is exactly the wrong thing to do, even before we consider that the majority of minimum wage earners who benefit from such an increase and keep their jobs are not in the lowest quintile but are 2nd and third earners in rich and middle class households.

BLM: OK, You Have Our Attention -- and Many of Us Are Sympathetic -- What in the Hell Do You Want Done?

Well, it appears that Black Lives Matters has moved on to climate activism, or whatever, but has mostly fallen off message on police accountability.  Protests in the vague hope of ending racism by closing busy highways and airports and kneeling during the National Anthem are going to get nothing done -- the solution to the problems that sparked the BLM movement are to be found in legislative efforts to create better police accountability measures and to roll back a number of egregious protections from accountability that exist in many union contracts.  The solution is not to throw blanket hate on police officers, many or most of whom are doing a good job, but to recognize that when we give officers unique powers to use force, they need extra accountability to go with those powers.  Today, most police have less accountability for their use of force than you and I do.

Unfortunately, doing that is hard.  It is a tough legislative slog that has to go local city by local city, with few national-level shortcuts available.  It faces opposition from Conservatives who tend to fetishize police, and from Liberals who are reluctant to challenge a public employees union.  And it requires that BLM translate their energy from disruption and attention-grabbing (which they are very good at) to policy and legislation, which they have shown no facility for.  They need to be working on model legislation and pushing that down to the local level.  This original plan actually looked pretty good, but apparently it has been rejected and gets little or no attention.

As a result, BLM seems to be stuck in a pointless do-loop of disruption and virtue-signalling.  I just want to scream at them, "OK, you have our attention -- and many of us are sympathetic -- what in the hell do you want done?"  Unfortunately, their current lists of goals have almost nothing to do with police accountability and appear to be a laundry list of progressive talking points.  It appears to be another radical organization that has been jacked by the Democratic establishment to push mainstream Democratic talking points.

Here is a good example, for a number of reasons.  In the past, the officer likely would have been believed and the woman might have been convicted of something.  I think this happens to people across the racial spectrum, but African-Americans have had a particularly hard time -- given both racist perceptions and lack of good counsel -- in these he-said-she-said cases with police.  Not to mention that African-Americans -- for a variety of reasons including racial profiling in things like New York's stop and frisk program to the tendency of poor black municipalities to fine the crap out of their citizens to generate revenue -- come in contact with police disproportionately more often.

I offered my plan to help African-Americans a number of times in the past:

  • Legalize drugs.  This would reduce the rents that attract the poor into dealing, would keep people out of jail, and reduce a lot of violent crime associated with narcotics traffic that kills investment and business creation in black neighborhoods.  It would also reduce the main excuse for petty harassment by police that falls disproportionately on young black men.  No it's not a good thing to have people addicted to strong narcotics but it is worse to be putting them in jail and having them shooting at each other.
  • Bring real accountability to police forces.  When I see stories of folks absurdly abused by police forces, I can almost always guess the race of the victim in advance.  I used to be a law-and-order Conservative that blindly trusted police statements about every encounter.  The advent of cell-phone video has proven this to be supremely naive.  No matter how trusted, you can't give any group a pass on accountability.
  • Eliminate the minimum wage   (compromise: eliminate the minimum wage before 25).  Originally passed for racist reasons, it still (if unintentionally) keeps young blacks from entering the work force.  Dropping out of high school does not hurt employment because kids learn job skills in high school (they don't); it hurts because finishing high school is a marker of responsibility and other desirable job traits.  Kids who drop out can overcome this, but only if they get a job where they can demonstrate these traits.  No one is going to take that chance at $10 or $15 an hour
  • Voucherize education.  It's not the middle class that is primarily the victim of awful public schools, it is poor blacks.  Middle and upper class parents have the political pull to get accountability.   It is no coincidence the best public schools are generally in middle and upper class neighborhoods.  Programs such as the one in DC that used to allow urban poor to escape failing schools need to be promoted.

China Doesn't Kill American Jobs, Politicians Do

I am simply exhausted with the notion that seems to have taken over both political parties that trade with China is somehow the source of US economic woes.

Remember that voluntary trade can't happen unless both parties are benefiting from each trade.  Remember the masses of academic evidence that the (largely hard to see) benefits of trade in terms of lower costs and more choice tend to be greater than the (easier to see) job losses in a few trade-affected industries.  But even if none of that is compelling to you, consider that our trade deficit with China is just 2% of GDP.  It's almost a rounding error.

If politicians want to know why lower-skilled laborers struggle to find employment, they need to look past imports from China and Mexican immigration and look at their own policies that are making it more and more expensive for businesses to hire people in this country.   I have written about this many times before, but some of the most prominent include:

  • minimum wage laws, rising to $15 an hour in many parts of the country, and increasingly draconian overtime rules, both of which substantially raise the cost of hiring someone.
  • minimum benefit laws, including expensive health care requirements in Obamacare and a myriad of other state-level requirements such as mandatory paid sick leave or family leave
  • payroll taxes that act as sales taxes on labor  -- we understand that cigarette taxes are supposed to reduce cigarette purchases but don't understand that payroll taxes reduce purchases of labor?
  • employment regulations, such as chair laws and break laws in California, that make employing people more expensive and risky
  • employer liability laws, that make employers financially responsible for any knuckleheaded thing their employees do, even when these actions violate company policy (e.g. making racist or sexist statements)**
  • laws that make hiring far more risk, including those that limit the ability to do due diligence on potential employees (e.g. ban the box) and those that limit the ability of employers to fire poor performing employees.

And this is just employment law -- we could go on all day with regulations that make life difficult for lower income workers, such as the numerous laws that restrict the housing stock and drive up housing prices and rents for these same folks who are struggling to find a job.

Let's say you live in California.  Who has killed more jobs in your state -- China or the California legislature?  The answer is no contest.   The California legislature wins the job destruction race in a landslide.   While California's high-tech community enjoys a symbiotic relationship with China that has created immense wealth, the California legislature works overtime to make sure low-skilled workers in the state don't benefit.

 

**Postscript:  Of all the factors here, I won't say that this is the largest but I think it is the most underrated and least discussed.  But think about it.  If you are going to be personally financially libel for ignorant, insensitive, or uncouth remarks made by your employees, even when you have explicitly banned such behavior in company rules and don't personally tolerate it, how likely are you going to be to hire a high school dropout without a good work history to interact with customers?

Another Problem With the National Minimum Wage

Beyond the basic lunacy of attempting to help the poor by mandating that they sell their labor for more than most businesses are willing to pay, I am reminded of another problem with proposals for a higher national minimum wage.

This problem is related to one that is seldom discussed in the context of most economic statistics, and that is the differences in the cost of living in different parts of the country.   The Tax Foundation looks at the cost of living by state, showing the value of $100 ($100 is worth more in states with lower prices and cost of living, since one's money will go further).  Magenta states are lower cost of living, yellow states are higher.

$100 Map-state-01

I have written before that not taking this into account messes up our view of things like poverty and income by state.  Well-being of folks in high cost states like California and New York are often exaggerated, as is poverty in states like those in the deep south.

But another issue is that this large variation in cost of living changes the effective value of a minimum wage.  Based on these numbers, a $15 minimum wage in Washington DC becomes, effectively, a $20.43 minimum wage in Mississippi.  Employment effects are likely to be much worse in these lower costs states.  Since the higher cost states all vote Democrat in Presidential elections, and the lower cost states all vote Republican, one wonders if this is a bug or a feature of Democrat-proposed $15 minimum wage plans.

Progressivism is Not Caring. It is Authoritarianism

The city of Seatac (a small area of land around the Seattle-Tacoma Airport) gained national attention a while back for passing a $15 minimum wage.  Many other groups, including the city of Seattle itself, as well as this year's Democratic platform committee, cited the Seatac example as an impetus for higher minimum wages everywhere.

In today's politics, there is no better way for a Leftish politician to virtue-signal than to advocate for a $15 minimum wage.  It is a classic case of a government law that helps a few easy to identify people and hurts a whole bunch of people in ways that are hard to attribute to the law, such as reduced employment for low-skill workers and higher prices for consumers.

So the City of Seatac has been taking a victory lap over the last year, patting itself on its back for how caring it is of its citizens.  Oh, and it has also been doing this:

A three-month-long civil trial revealed the shadowy subterfuge behind a secret land grab that was orchestrated by the city of SeaTac, replete with backroom deals, baldfaced deceptions, and a mayor intent on driving Somali refugees from the neighborhood.

The aim of it all: to wrestle 4.23 acres of prime real estate from entrepreneurs Gerry and Kathy Kingen, according to the judge and jury who heard the case.

The West Seattle couple sued the city and won, proving in court that SeaTac officials intentionally sabotaged their development plans, strong-armed them into giving up their property and then violated the state’s Public Records Act by withholding city emails and documents proving the deception.

The trial judge also concluded the former SeaTac mayor wanted condos built on the site, believing they would price out Somalis who had moved into “his neighborhood.”...

In March 2004, K&S Developments [the Kingen's investment vehicle] began working with SeaTac’s planning department to get approval for [a] park-and-fly, and city officials “voiced support and encouragement” for the proposal. The judge noted there “was never any public opposition” to the plan.

But unbeknown to the Kingens, SeaTac’s planning director, city manager and other staff decided in late 2005 they didn’t want K&S to build the park-and-fly because it would create competition for a park-and-fly the city wanted to build about a mile south at South 176th Street.

So in February 2006, city staff “devised a secret plan” to get the City Council to pass a moratorium designed to kill the Kingens’ park-and-fly project, the judge wrote. After learning of the permanent ban, Gerry Kingen met with members of the City Council and then-Mayor Gene Fisher, who “promised to make things right.”

 

The Corporate State, In One Chart

James Bessen has a terrific article in the Harvard Business Review on the estimated contribution to corporate profits of rent-seeking, or the acquisition of special favors, subsidies, and protections from the government that shelter a company from the normal competition of a free market.  Bessen argues that such rent-seeking is major explanatory factor for recent rises in corporate profits.

W160518_BESSEN_WHATSDRIVING-1200x805

This topic will be a familiar one to Coyoteblog readers.   Show me a regulation and I will show you the large corporation that is able to use it to throttle competition.  I remember when everyone claimed the retail minimum wage was going to hurt Wal-Mart, but in fact Wal-Mart actually supported it because it was paying a higher wage than its smaller upstart competitors and thus the minimum wage would tend to hurt Wal-Mart's competition worse than it would be hurt.  Taxi service is one of the most regulated businesses in the country (at least in relation to the complexity of the business) and we are seeing just how much these regulations have supported taxi profits as we watch the taxi companies use the regulations to try to hammer Uber and Lyft.

According to Bessen, the effect is both large and on the rise:

I find that investments in conventional capital assets like machinery and spending on R&D together account for a substantial part of the rise in valuations and profits, especially during the 1990s. However, since 2000, political activity and regulation account for a surprisingly large share of the increase....

The pattern around the 1992 Cable Act is representative: I find that firms experiencing major regulatory change see their valuations rise 12% compared to closely matched control groups. Smaller regulatory changes are also associated with a subsequent rise in firm market values and profits.

This research supports the view that political rent seeking is responsible for a significant portion of the rise in profits. Firms influence the legislative and regulatory process and they engage in a wide range of activity to profit from regulatory changes, with significant success. Without further research, we cannot say for sure whether this activity is making the economy less dynamic and more unequal, but the magnitude of this effect certainly heightens those concerns.

Two characteristics make these changes particularly worrisome. First, the link between regulation and profits is highly concentrated in a small number of politically influential industries. Among non-financial corporations, most of the effect is accounted for by just five industries: pharmaceuticals/chemicals, petroleum refining, transportation equipment/defense, utilities, and communications. These industries comprise, in effect, a “rent seeking sector.” Concentration of political influence among a narrow group of firms means that those firms may skew policy for the entire economy. For example, the pharmaceutical industry has actively stymied efforts to address problems of patent trolls that affect many other industries.

I would add two other industries to this list -- medicine and legal.  The reason it likely does not show up in his study is that the returns in these businesses show up to individuals or small private firms.  But heavy regulation, and in particular a licensing process wherein one must get permission from the incumbents in order to compete with them, has always kept prices and returns in these businesses artificially high.

Note by the way that the breakpoint year of 2000 makes this a bipartisan issue, occurring in equal measure in Republican and Democratic Congresses and Presidencies.

And I don't think I need to remind folks, but both of our Presidential candidates are absolutely steeped in and committed to this cronyist, corporatist system

Job Turnover and the Minimum Wage

Don Boudreaux criticizes an academic article that puports to tell business people that they should be able to easily absorb minimum wage hikes without consequence:

The authors are above not doing economics, properly speaking.  Instead, they offer business advice – or, rather, present themselves as possessing knowledge and information that is salable as business advice.  The authors write as if they are management or business-operations consultants rather than economists.  Pollin and Wicks-Lim here implicitly assert that their information on the details the state of the market and their knowledge of the particulars of how to run actual, real-world businesses are so real, full, and trustworthy that we should accept their conclusion that higher minimum wages will not cause businesses to change their operations in ways that result in fewer hours of paid work for low-skilled workers.

Indeed, the trust that we are asked to put in Pollin’s and Wicks-Lim’s alleged business acumen is so high that we are supposed to accept their conclusions as justification to unleash the force of the state to alter the actual, real-world business decisions of actual, real-world people who are actually operating – with their own actual money – in actual, real-world markets.

In his comments, I focused on one issue in the academic analysis -- that pro minimum wage folks in such analyses always give businesses a big profitability boost from reduced turnover due to higher wages, and it is reduced turnover and resulting increased productivity which provides the resources to "pay" for the wage increase.  I think there is something inconsistent in this thinking:

I can't see how the assumption of turnover reduction is consistent with the assumptions made by pro-minimum wage folks. There are two possibilities. First, assume the turnover is due to employees moving on at their own choice, presumably for a better deal. But how is this consistent with the frequent assumption of monopsony and that employees have no bargaining power? If employees are imposing high turnover costs on employers and frequently shifting jobs for better deals, there can't be a monopsony. It would mean that folks are taking these jobs for a short period of time to gain job skills and experience, and then moving to higher-skilled, better paying jobs, exactly how things should work in a free market without an absurdly high price floor on wages (I remember the old stat form the 80's that 10% of all Fortune 500 CEOs had their first job at McDonald's).

OK, assume the other possibility that the turnover is due to the employer choices, that all the employees they hire are unacceptable because their skills or demeanor or productivity is insufficient in some way. Well if they were unacceptable at $7, how are they suddenly going to be acceptable at $15? Proponents seem to assume some magic occurs when one raises wages, that unskilled employees who can't show up on time will suddenly become attentive and skilled. In my experience, it never happens.

For the record, given our 50% wage costs (and costs tied to wages like payroll taxes), we have had to increase prices 10% for every 20% increase in the minimum wage, and even then we have seen our profits fall, as we never see the magic productivity increase that is supposed to come with suddenly paying the same people higher wages and at the same time we do see a drop in customer demand due to the higher prices, which reduces our fixed cost coverage.

Minimum Wage Pits Employees vs. Customers, Not Employees vs. Management

This post earlier on the customer service downsides of the new salaried overtime rules got me thinking more broadly about the impact of minimum wage type laws.  Progressives justify such laws by saying that there is a power imbalance between management and employees, and that the government needs to have minimum wage laws to make up for the fact that employees lack power.

But from my experience in the service world, it is wrong to look at the situation as a power struggle between managers and employees.  It is much more correct to look at this as a power struggle between employees and customers.  Let me explain.

Service and retail firms tend to live on razor-thin margins.  Retailers typically live on single-digit profit margins, and those of companies like Wal-Mart are as low as 2% of revenues.  Our company in the service business has a similar experience, averaging profit margins of 3-5% of revenues over the last 10 years.

This is not an accident.  Most service and retail businesses depend on simple service-delivery models using relatively low-skilled workers.  There are many low-skilled workers in the world.  If a company were to start making huge profits with a service model using such workers, it would be easy for others to copy it and hire the same types of workers and undercut them on price.  Margins tend to get competed down to the bare minimum.

No matter how much progressives would like it to be so, when California raises its minimum wage, it probably is not going to come out of company margins, at least in the near term.  Over the 10 years from about 2013 to 2022, California will have raised its minimum wage over 87% from $8 an hour to $15.  Wages and costs like workers comp premiums that are tied to wages are about half my costs.  This means an 87% labor cost increase will increase my total costs 44%.  How is that going to come out of a 4% margin?  It is not.

There are really only two things we can do, individually or in combination.  First, we can raise prices 44%, just to try to stay even.  Of course, some customers will balk and stop buying, and then we will lose business and perhaps have to close (we have already closed over half our businesses in California for just this reason).  Or second, we could cut staff in half to keep wages under control.  Of course, this means customers get served much more poorly, which also may drive customers away.  Other companies like fast food restaurants have a third option of automation, replacing people with machines -- I wish we could do this but right now we have run out of ideas for automating bathroom cleaning and landscape work.

Hopefully, you can see what is going on here.  The real tension here is between employees and customers.  When the state mandates a minimum wage in low margin service businesses (such laws are largely irrelevant to high-margin technology companies and such), compliance is paid for by the customer, either in the form of higher prices or worse service or both.

The Customer Service Downside to the New Federal Overtime Rules

I and others have written a number of times about the many downsides to new Federal rules that will force most junior salaried managers to start punching a timeclock.

I run a service business and these rules affect us substantially.  Like many retail operations, we have hourly employees who work for a local manager who is salaried and generally earns less than the new $47,476 annual cutoff.   We are not entirely sure how we are going to comply, but in the near-term compliance will likely involve a combination of hard hour limits for managers, some devolution of manager tasks to minimum wage workers, and price increases to customers.  In the long-term, we may have to consolidate manager positions.

But there is one additional change that is almost certainly going to occur -- a reduction in customer service.  To understand why that is, you need to understand the retail and services world.

In the service world, sh*t happens.  The ice machine suddenly breaks.  An important worker just does not show up.  A customer complains that no one is cleaning the bathroom.  Because of razor thin margins, service work loads are carefully scheduled.  There simply is not a lot of slack.  So when something unusual happens, it is usually the local manager who takes up the slack.  They fix the problem, somehow, even if it means they have to clean the bathroom themselves.  Not one of my managers has bathroom cleaning as part of their duties, but every single one of them likely cleans bathrooms every month, because they are covering the performance gaps left by other employees.

When managers are subject to overtime, this changes.  We only get 40 hours a week of that person's time (at least at a reasonable rate) and so every hour must count.  Every hour must suddenly be carefully husbanded and spent only on value-added tasks, like balancing the register and merchandising the shelves.  We can't waste them on the manager covering for employee shortcomings.

So who will clean the bathroom when the employee assigned to do so fails?  Who will cover the second register when an employee just does not show up for work?  Who will expedite the ice machine replacement so customers don't have to go long without ice?  I don't know.  Maybe nobody.  Or at least nobody as long as prices charged to customers aren't raised substantially.

Postscript:  If you are not in retail or a service business, you may read this and say, "well, if you hired better workers, they would be more reliable and you wouldn't have to cover for them."  I have two responses.  First, only someone who never worked retail could say that.  People are individuals and have their own needs and lives, and those sometimes conflict with getting the job done, no matter how well we screen.

Second, let me tell a story from this last weekend when I was at the graduation ceremony for Amherst College.  Amherst could reasonably be considered among the 10 most selective schools in the nation.   It is consistently ranked as the #1 or #2 small liberal arts college in the nation.  This weekend they selected an outstanding student from this outstanding bunch to make a presentation at graduation.  In it, she told a story of never, ever being able to get to a certain class, that is held at 12:30 in the afternoon, on time.  She said she was late every single time.   This is supposedly one of the elite young people in the country who would never even consider accepting a "menial" service job with my company, but never-the-less can't get to a class on time.

Yes the Middle Class is Shrinking. And the Ranks of the Poor Are Shrinking. Because Americans are Getting Wealthier

Mark Perry has a number of good graphs that show that the shrinking of the middle class is real, but only because they are moving to "rich" -- hardly the implication of those on the Left who are trying to demagogue the issue.  Check them out if you have not seen them but this animated graph was new to me:

econ

Note the general movement to the right.

Interestingly, the only block on the low side getting larger is the percent of people at "zero".    In my mind, this just reinforces my point that the poverty issue is primarily one of having a job, not the rate paid at the job.  For that growing cohort at zero, raising the minimum wage only makes it more likely they stay at zero.

Raising the Cost of Hiring Unskilled Workers by 50% is A Bad Way to Fight Poverty

After my prior post, I have summarized the chart I included from Mark Perry to the key data that I think really makes the point.  Household income is obviously a product of hours worked and hourly wages.  Looking at the chart below, poverty seems to be much more a function of not working than it is of low wages.  Which makes California's decision to raise the price of hiring unskilled workers by 50% (by raising their minimum wage from $10 to $15) all the more misguided.

click to enlarge

Note the calculations in the last two lines, which look at two approaches to fighting poverty.  If we took the poorest 20% and kept their current number of hours worked the same, but magically raised their hourly earnings to that of the second quintile (ie from $14.21 to $17.33), it would increase their annual household income by $2,558, a 22% increase (I say magically because clearly if wages are raised via a minimum wage mandate, employment in this groups would drop even further, likely offsetting most of the gains).  However, if instead we did nothing to their wages but encouraged more employment such that their number of workers rose to that of the second quintile, this would increase household income by a whopping $13,357, a 115% percent increase.

From this, would you logically try to fight poverty by forcing wages higher (which will almost surely reduce employment) or by trying to increase employment?

Why The Minimum Wage Does Not Make Moral Sense: Unemployment, Not Low Wage Rate, Causes Most Poverty

In response to his new $15 minimum wage in California, Governor Jerry Brown said:

Economically, minimum wages may not make sense. But morally, socially, and politically they make every sense because it binds the community together to make sure parents can take care of their kids.

Let me explain as briefly as I can why this minimum wage increase is immoral.  We will use data from the chart below which was cribbed from Mark Perry in this post.

click to enlarge

The average wage of people who work  in the poorest 20% in the US is already near $15 ($28,417 divided by 2000 full time hours - $14.20 per hour).    This is not that much lower than the hourly earnings of those in the second poorest or even the middle quintiles.  So why are they poor?  The biggest different is that while only 16% of the middle quintile households had no one who worked, and 31.5% of the second poorest quintile had no one who worked, of the poorest 20% of households a whopping 63% had no one who worked.  Only 16.1% of poor adults had a full time job.

The reason for poverty, then, is not primarily one of rate, it is one of achieving full time employment.  Many of these folks have limited education, few job skills, little or no work experience, and can have poor language skills. And California has just increased the cost of giving these folks a job by 50%.  The poor will be worse off, as not only will more of them miss out on the monetary benefits of employment, but also the non-monetary ones (building a work history, learning basic skills, etc.)

Past studies have shown that most of the benefit of the minimum wage goes to non-poor households (ie second and third earners in middle class homes).  The targets Jerry Brown speaks of, parents earning the minimum wage to take care of families, are perhaps only 1/8 of minimum wage earners.

MaCurdy found that less than 40% of wage increases [from a minimum wage hike] went to people earning less than twice the poverty line, and among that group, about third of them are trying to raise a family on the minimum wage.

Of course, the price of a lot of stuff poor people have to buy in California is about to go up.  We are going to have to raise our campground rates by 20-25% to offset the labor cost increase.  But that is another story.

California Creates Another Setback of Unskilled Workers -- And Possibly A Setback for Immigrant Integation

It appears that California is going to increase its state minimum wage to $15 in steps over the next five or six years.  This is yet another body blow for unskilled workers in the state.  As I wrote a while back, it is already overly difficult to build a business based on unskilled labor in that state, and increasing the price people have to pay for that labor by 50% is only going to make things worse.  It is possible low-skill workers in large wealthy cities like San Francisco will be OK, as service businesses are still going to want to be there to access all that wealth, and will just raise their prices even higher to account for the higher wages.   For laborers in rural areas that are already suffering from high unemployment, the prospects are not very bright.

As most readers know, we run a service business operating campgrounds across the country, including a number in California.  Over the last  years, due to past regulation and minimum wage increases, and in anticipation of further goofiness of this sort, we exited about 2/3 of our business in California.

Our problem going forward is that in rural locations, sometimes without even electricity or cell phone service on site, we have simply exhausted all the productivity measures I can think of.  There appears to be a minimum amount of labor required to clean a bathroom and do landscaping.  Which leaves us the options of exiting more businesses or raising prices.  Most of our customers in California are blue collar rural folks whose lot is only going to be worse as a result of these minimum wage increases, and so I am not sure how far they will be able to bear the price increases we will need to cover our higher costs.   Likely we will keep raising prices until customers can bear no more, and then exit.

By the way, the 5-6 year implementation time is a frank admission by the authors of the law, not matter what they say in pubic to the contrary, that they know there will be substantial negative employment effects from the minimum wage increase.   They are hoping that by spreading it out over several years, those negative effects will lost in the noise of economic fluctuations.  The Leftist playbook is to do something like this that trashes the earnings of the most vulnerable low-skilled workers, and then later point to the income inequality of those low-skilled workers as a failure of free markets.

On a related note, one of the more interesting things I have read lately is this comparison of successful integration of Muslim immigrants in the US vs. poor integration in Europe.  Alex Tabarrok raises the hypothesis that high minimum wages and labor market rigidity in Europe may be an important factor in reducing immigrant integration.  He quotes from the OECD:

Belgian labour market settings are generally unfavourable to the employment outcomes of low-skilled workers. Reduced employment rates stem from high labour costs, which deter demand for low-productivity workers…Furthermore, labour market segmentation and rigidity weigh on the wages and progression prospects of outsiders. With immigrants over-represented among low-wage, vulnerable workers, labour market settings likely hurt the foreign-born disproportionately.

…Minimum wages can create a barrier to employment of low-skilled immigrants, especially for youth. As a proportion of the median wage, the Belgian statutory minimum wage is on the high side in international comparison and sectoral agreements generally provide for even higher minima. This helps to prevent in-work poverty…but risks pricing low-skilled workers out of the labour market (Neumark and Wascher, 2006). Groups with further real or perceived productivity handicaps, such as youth or immigrants, will be among the most affected.

In 2012, the overall unemployment rate in Belgium was 7.6% (15-64 age group), rising to 19.8% for those in the labour force aged under 25, and, among these, reaching 29.3% and 27.9% for immigrants and their native-born offspring, respectively.

Wow, I guess it is sure lucky California does not have a very large immigrant population.  Oh, wait....

I Get This Same Comment All the Time -- Here is My Blanket Advice

Don Boudreaux writes:

This note is to an angry young man who describes Bernie Sanders as his and his girlfriend’s “hero” and as “the only candidate following humane economics.”  Sigh.

Mr. Claudio Morello

Mr. Morello:

Thanks for your e-mail.

You find my arguments against a $15 per hour minimum wage to be “totally uncompelling” because “labor is not a commodity like bread and electronics.”  In your view, “labor should not be subject to the bloodless laws of economics.”

I get this sort of comment all the time about it being wrong, even inhuman, to treat labor as a commodity subject to the laws of supply and demand.  I generally have two responses:

  1. For the guy who was just pushed out of a 10th story window, I am sure a more "humane" law of gravity would see him wafted gently to earth -- but all his wishing for such an alternate reality is not going to have it happen.
  2. Forgetting public policy for a moment, to the extent that you (the commenter) relies on other people hiring you to stay alive in this world, I can think of few things that would improve your well-being more than attempting to develop a basic understanding of why your labor might have more or less value to someone else.  Refusing to do so, or even refusing to acknowledge that your labor has some sort of economic value at all, would be like trying to launch rockets to mars while refusing to acknowledge the rules of celestial mechanics. .  Refusing to even think about why labor (and skills) might or might not have value in different situations seems to be a recipe for pretty low earnings over time.

Looking for Advice: Ethics of Prisoner Labor

This is sort of an odd topic to have on my mind, but I was thinking about it today in the context of a bid package I have in my hands for concession management of a park in Georgia.

The RFP kept referring to "community workers" who do 60% of the labor in the park, and part of our responsibilities included managing these workers.  In my naivete, I thought these were volunteers, and sent a note telling them that while the government could legally use volunteers, it was very problematic under labor laws for a private company to benefit in any way from volunteer labor.

I was quickly informed that I had it all wrong, that this was a euphemism for "prisoners," and that I could take advantage of their close to fee labor to do much of the heavy lifting in the park maintenance.

I must confess this is a new one for me but my initial reaction is queasiness about it.  On the one hand, we are talking about unpaid labor from men in involuntary servitude -- do I really feel good about benefiting economically from this work?  On the other hand, I do understand that work programs can be beneficial for prisoners, though I am not sure the work we need is really going to be teaching many skills.  On the gripping hand, there is "Cool Hand Luke", which is impossible to get out of my head when considering prison labor in the deep south.

One other aspect of the RFP that struck me cold was the pages and pages of requirements, including an actual oath I have to take, that I will do everything possible not to hire an illegal immigrant.  Now, that sort of thing is likely required of them by state law, and is not that unusual (Arizona has similar provisions, I believe).  But juxtaposed with the prison labor, it leaves me cold.  Essentially, they won't allow me to accept the voluntary labor of a Mexican man paid at minimum wage, but they are encouraging me to accept the involuntary labor for free from a group of prisoners.

I just encountered this about 10 minutes ago so I am still thinking on it -- the basic opportunity is attractive.  But I have walked away from opportunities before over these sorts of ethical issues -- most recently, over a refusal to drug test employees when that was a state requirement.

I welcome thoughts in the comments (I know I mentioned immigration, but in this one post I would be thrilled if we could lay off my supposed naivete on immigration and focus on the ethics of profiting from free prison labor).

Unemployment Insurance Fraud Tricks

Typically, I see a LOT of people with no intention of working or looking for work collecting unemployment insurance payments.  For example, we have summer workers who take the winter off but still collect unemployment in the winter as if they were looking for work.  Most state governments have no desire to hear about this.  In fact, in California (at least a number of years ago) if you call the unemployment fraud number the only kind of complaint they take is reports of employer fraud.  You can't actually report employee fraud, and the one time I tried to do so I was threatened by a California State employee with dire legal consequences for "harassment" and "retaliation".

The new dodge I saw the other day is when Company A goes to an employee of Company B and offers to hire them away for higher pay.  When the employee leaves B for A, A tells them that they should file for unemployment, claiming they were forced out rather than quit (essentially constructive termination).  In most states, if an employee says one thing (I was forced out!) and an employer says another (She quit!), the employee is almost always believed unless the employer can bring an absurd amount of written evidence to the table to prove otherwise.

Anyway, having convinced the state the employee was terminated rather than quit, the employee collects unemployment benefits.   Then, company A pays the employee in cash under the table an amount per hour less than minimum wage but which in combination with the state unemployment payments does indeed add up to more than they were making at B.  They end up paying less than minimum wage and pay no employment taxes (since it is cash under the table) and the state makes up the difference with an unemployment check.  Company B, by the way, sees its unemployment taxes go way up because these rates are experience-based.

My Wish for the Republican Debates: Less Talk on Taxes, More Talk on Regulation

I would be all for reductions in tax levels, but I don't think that current Federal tax rates are particularly a barrier to growth and prosperity.  A much bigger, and ever-growing barrier to growth is regulation.

5-10 years ago, in my small business, I spent my free time, and most of our organization's training time, on new business initiatives (e.g. growth into new businesses, new out-warding-facing technologies for customers, etc).  Over the last five years, all of my time and the organization's free bandwidth has been spent on regulatory compliance.  Obamacare alone has sucked up endless hours and hassles -- and continues to do so as we work through arcane reporting requirements.  But changing Federal and state OSHA requirements, changing minimum wage and other labor regulations, and numerous changes to state and local legislation have also consumed an inordinate amount of our time.  We spent over a year in trial and error just trying to work out how to comply with California meal break law, with each successive approach we took challenged in some court case, forcing us to start over.  For next year, we are working to figure out how to comply with the 2015 Obama mandate that all of our salaried managers now have to punch a time clock and get paid hourly.

Greg Mankiw points to a nice talk on this topic by Steven Davis.  For years I have been saying that one effect of all this regulation is to essentially increase the minimum viable size of any business, because of the fixed compliance costs.   A corollary to this rising minimum size hypothesis is that the rate of new business formation is likely dropping, since more and more capital is needed just to overcome the compliance costs before one reaches this rising minimum viable size.  The author has a nice chart on this point, which is actually pretty scary.  This is probably the best single chart I have seen to illustrate the rise of the corporate state:

decline of new business employment

 

Postscript:  I had thought that all the difficult years converting all of our employees from full to part time to avoid Obamacare sanctions would be the end of our compliance hassles (no company will write health insurance for us, so our only defense against the mandates and penalties is to make everyone part-time).  But the hassles have not ended.  For every employee, next year we must provide a statement that has a series of codes, by month, for that employee's health care status.  It is so complicated that knowledgeable people are still arguing about what codes we should be using.  Here is a mere taste of the rules:

  A code must be entered for each calendar month January through December, even if the employee was not a full-time employee for one or more of the calendar months. Enter the code identifying the type of health coverage actually offered by the employer (or on behalf of the employer) to the employee, if any. Do not enter a code for any other type of health coverage the employer is treated as having offered (but the employee was not actually offered coverage). For example, do not enter a code for health coverage the employer is treated as having offered (but did not actually offer) under the dependent coverage transition relief, or non-calendar year transition relief, even if the employee is included in the count of full-time employees offered minimum essential coverage for purposes of Form 1094-C, Part III, column (a). If the employee was not actually offered coverage, enter Code 1H (no offer of coverage) on line 14.  For reporting offers of coverage for 2015, an employer relying on the multiemployer arrangement interim guidance should enter code 1H on line 14 for any month for which the employer enters code 2E on line 16 (indicating that the employer was required to contribute to a multiemployer plan on behalf of the employee for that month and therefore is eligible for multiemployer interim rule relief). For a description of the multiemployer arrangement interim guidance, see Offer of health coverage in the Definitions section. For reporting for 2015, Code 1H may be entered without regard to whether the employee was eligible to enroll or enrolled in coverage under the multiemployer plan. For reporting for 2016 and future years, ALE Members relying on the multiemployer arrangement interim guidance may be required to report offers of coverage made through a multiemployer plan in a different manner.

Here are some of the codes:

  • 1A. Qualifying Offer: Minimum essential coverage providing minimum value offered to full-time employee with employee contribution for self-only coverage equal to or less than 9.5% mainland single federal poverty line and at least minimum essential coverage offered to spouse and dependent(s).

    This code may be used to report for specific months for which a Qualifying Offer was made, even if the employee did not receive a Qualifying Offer for all 12 months of the calendar year. However, an employer may not use the Alternative Furnishing Method for an employee who did not receive a Qualifying Offer for all 12 calendar months (except in cases in which the employer is eligible for and reports using the Alternative Furnishing Method for 2015 Qualifying Offer Method Transition Relief as described in these instructions).

  • 1B. Minimum essential coverage providing minimum value offered to employee only.
  • 1C. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) (not spouse).
  • 1D. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to spouse (not dependent(s)).
  • 1E. Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse.
  • 1F. Minimum essential coverage NOT providing minimum value offered to employee; employee and spouse or dependent(s); or employee, spouse and dependents.
  • 1G. Offer of coverage to employee who was not a full-time employee for any month of the calendar year (which may include one or more months in which the individual was not an employee) and who enrolled in self-insured coverage for one or more months of the calendar year.
  • 1H. No offer of coverage (employee not offered any health coverage or employee offered coverage that is not minimum essential coverage, which may include one or more months in which the individual was not an employee).
  • 1I. Qualifying Offer Transition Relief 2015: Employee (and spouse or dependents) received no offer of coverage; received an offer that is not a qualifying offer; or received a qualifying offer for less than 12 months.

Early Progressive, Race-Based Rational for the Minimum Wage

From the same article, From Eugenics and Economics in the Progressive Era by Thomas C. Leonard, that I quoted in a recent post on immigration comes this bit as well (emphasis added):

Progressive economists, like their neoclassical critics, believed that binding minimum wages would cause job losses. However, the progressive economists also believed that the job loss induced by minimum wages was a social benefit, as it 212 Journal of Economic Perspectives performed the eugenic service ridding the labor force of the “unemployable.” Sidney and Beatrice Webb (1897 [1920], p. 785) put it plainly: “With regard to certain sections of the population [the “unemployable”], this unemployment is not a mark of social disease, but actually of social health.” “[O]f all ways of dealing with these unfortunate parasites,” Sidney Webb (1912, p. 992) opined in the Journal of Political Economy, “the most ruinous to the community is to allow them to unrestrainedly compete as wage earners.” A minimum wage was seen to operate eugenically through two channels: by deterring prospective immigrants (Henderson, 1900) and also by removing from employment the “unemployable,” who, thus identified, could be, for example, segregated in rural communities or sterilized.

The notion that minimum-wage induced disemployment is a social benefit distinguishes its progressive proponents from their neoclassical critics, such as Alfred Marshall (1897), Philip Wicksteed (1913), A. C. Pigou (1913) and John Bates Clark (1913), who regarded job loss as a social cost of minimum wages, not as a putative social benefit (Leonard, 2000).

Columbia’s Henry Rogers Seager, a leading progressive economist who served as president of the AEA in 1922, provides an example. Worthy wage-earners, Seager (1913a, p. 12) argued, need protection from the “wearing competition of the casual worker and the drifter” and from the other “unemployable” who unfairly drag down the wages of more deserving workers (1913b, pp. 82–83). The minimum wage protects deserving workers from the competition of the unfit by making it illegal to work for less. Seager (1913a, p. 9) wrote: “The operation of the minimum wage requirement would merely extend the definition of defectives to embrace all individuals, who even after having received special training, remain incapable of adequate self-support.” Seager (p. 10) made clear what should happen to those who, even after remedial training, could not earn the legal minimum: “If we are to maintain a race that is to be made of up of capable, efficient and independent individuals and family groups we must courageously cut off lines of heredity that have been proved to be undesirable by isolation or sterilization . . . .”

A Fundamental Shift in the Economy, At Least for Entrepreneurs and Small Business

When politicians argue about small business growth, they argue about stuff like taxes and access to capital and, god help me, completely irreverent (to small business) stuff like the ExIm Bank.

I would argue that there has been a fundamental shift in the economy relative to small business over the last four years, but it has nothing to do with any of that stuff.  I would summarize this shift as follows:

Ten years ago, most of my company's free capacity was used to pursue growth opportunities and refine operations.  Over the last four years or so, all of our free capacity has been spent solely on compliance.

Let me step back and define some terms.  What do I mean by "free capacity?"  In a small, privately-held company, almost all the improvement initiatives spring from the head of, or must heavily involve, the owner.  That would be me.  I have some very capable staff, but when we do something new, it generally starts with me.

So OK, our free capacity is somewhat limited by my personal capacity as owner and President.   But actually, I have a head full of ideas for improving the company.  I'd like to do some new things with training that takes advantage of streaming video.  I'd like to add some customer service screening to our application process.  But my time turns out not to be the only limit -- and this is one of those things that HBS definitely did not teach me.

In the real world, there are only so many new things I can introduce and train my line managers to do, and that they can then pass down to their folks.  An organization can only accept a limited amount of new things (while still doing the old things well).  This is what I mean by "free capacity"  -- the ability to digest new things.

Over the last four years or so we have spent all of this capacity on complying with government rules.  No capacity has been left over to do other new things.  Here are just a few of the things we have been spending time on:

  • Because no insurance company has been willing to write coverage for our employees (older people working seasonally) we were forced to try to shift scores of employees from full-time to part-time work to avoid Obamacare penalties that would have been larger than our annual profits.  This took a lot of new processes and retraining and new hiring to make work.  And we are still not done, because we have to get down another 30 or so full-time workers for next year
  • The local minimum wage movement has forced us to rethink our whole labor system to deal with rising minimum wages.  Also, since we must go through a time-consuming process to get the government agencies we work with to approve pricing and fee changes, we have had to spend an inordinate amount of time justifying price increases to cover these mandated increases in our labor costs.  This will just accelerate in the future, as the President's contractor minimum wage order is, in some places, forcing us to raise camping prices by an astounding 20%.
  • Several states have mandated we use e-Verify on all new employees, which is an incredibly time-consuming addition to our hiring process
  • In fact, the proliferation of employee hiring documentation requirements has forced us through two separate iterations of a hiring document tracking and management system
  • The California legislature can be thought of as an incredibly efficient machine for creating huge masses of compliance work.    We have to have a whole system to make sure our employees don't work over their meal breaks.  We have to have detailed processes in place for hot days.  We have to have exactly the right kinds of chairs for our employees.  We have to put together complicated shifts to meet California's much tougher overtime rules.  Just this past year, we had to put in a system for keeping track of paid sick days earned by employees.  We have two employee manuals:  one for most of the country and one just for California and all its requirements (it has something like 27 flavors of mandatory leave employers must grant).  The list goes on and on.  So much so that in addition to all the compliance work, we also spent a lot of work shutting down every operation of ours in California, narrowing down to just 3 contracts today.  There has been one time savings though -- we never look at any new business opportunities in CA because we have no desire to add exposure to that state.

Does any of this add value?  Well, I suppose if you are one who considers it more important that companies make absolutely sure they offer time off to stalking victims in California than focus on productivity, you are going to be very happy with what we have been working on.  Otherwise....

I fully understand the dangers of extrapolating from one data point**, but for folks who are scratching their head over recent plateauing of productivity gains and reduced small business origination numbers, you might look in this direction.

By the way, it strikes me that regulatory compliance issues set a minimum size for business viability.  You have to be large enough to cover those compliance issues and still make money.  What I see happening is that as new compliance issues are layered on, that minimum size rises, like a rising tide slowly drowning companies not large enough to keep their head above water.  We are keeping up, but at times it feels like the water is lapping at our chin.

 

**Unrelated Postscript:  I have found that in the current media/political world, people love to have only one data point.  Why?  Well, with two data points you are are stuck with the line those points define.  With just one, you can draw any line you want in any direction with any slope.

Cargo Cult Regulation -- How Much Effect Did Card and Krueger Have on New York's Fast Food Minimum Wage Ruling?

New York is proposing a $15 minimum wage for any fast-food restaurants that are part of a national chain with 30 or more stores.  How this survives any sort of equal protection test is beyond me -- if I own a restaurant and call it "coyote's place" I don't have to pay $15, but if I own a single restaurant where I pay franchise fees to McDonald's, I do.

Let's leave the inevitable court challenges on fairness aside.  Of all the possible industries, I wonder why the focus on just fast food and on just large franchises.  Some of it is obviously mindless Progressive soak the rich thinking, and some of it is a liberal distaste for any foods that are not kale.  Is it just because the fast food workers have been the most vocal?  If so, that is pretty lame the the government is merely focusing on the squeaky wheel, a real indictment of any pretensions technocratic politicians have to legislating intelligently.

But I wonder if it is something else.  Pick a progressive on the street, and in the unlikely event they can name any economic study, that study will probably be Card and Krueger's study of the effect of a minimum wage increase in New Jersey.   Sixty bazillion studies have confirmed what most of us know in our bones to be true, that raising the price of labor decreases demand for that labor.  Card and Krueger said it did not -- and that a minimum wage increase may have even increased demand for labor -- which pretty much has made it the economic bible of the Progressive Left.

What intrigues me is that Card and Krueger specifically looked at the effect of the minimum wage on large chain fast food stores.  In this study (I will explain the likely reason in a moment) they found that when the minimum wage increased for all businesses in New Jersey, the employment at large chain fast food restaurants went up.

So I wonder if the Progressives making this ruling in New York thought to themselves -- "we want to raise the minimum wage.  Well, the one place where we KNOW it will have no negative effect from Card and Krueger is on large fast food chains, so...."

By the way, there are a lot of critiques of Card & Krueger's study.  The most powerful in my mind is that when a minimum wage is raised, often the largest volume and highest productivity companies in any given business will absorb it the best.  One explanation of the Card & Krueger result is that the minimum wage slammed employment in small ma and pa restaurants, driving business to the larger volume restaurants and chains.  As a whole, in this theory, the industry saw a net loss in employment and a shift in employment from smaller to larger firms.  By measuring only the effect on larger firms, Card and Krueger completely missed what was going on.

Worried about your privilege? Want to be treated like an abused underclass? Start a business!

John Scalzi tries to explain privilege to non-SJW-types by saying that being a white male is like playing life on "easy" difficulty.

I'll grant I benefited from a lot of things growing up others may not have had.  I had parents that set high standards, taught me a work ethic, taught me the value of education, had money, and helped send me to Ivy League schools (though the performance there, I would argue, was all my own).

Well, for those of you concerned about living down a similar life of privilege, I have a solution for you: start a business.  Doing so instantly converted me into a hated abused underclass.  Every government agency I work with treats me with a presumption of guilt -- when I get called by the California Department of Labor, I am suddenly the young black man in St. Louis called out on the street by an angry and unaccountable cop**.  Every movie and TV show and media outlet portrays me as a villain.  Every failing in the economy is somehow my fault.   When politicians make a proposal, it almost always depends on extracting something by force from me -- more wages for certain employees, more health care premiums, more hours of paperwork to comply with arcane laws, and always more taxes.

Postscript:  I will add an alternative for younger readers -- there is also a way to play college on a higher difficulty:  Try to be a vocal male libertarian there.  Write editorials for the paper that never get published.  Sit through hours of mindless sensitivity training explaining all the speech limitations you must live with on campus.  Learn how you can be charged with rape if your sex partner regrets the sex months later.  Wonder every time you honestly answer a question in class from a libertarian point of view if you are killing any chance of getting a good grade in that course.  Live every moment in a stew of intellectual opinion meant mainly to strip you of your individual liberties, while the self-same authoritarians weep and cry that your observation that minimum wage laws hurt low-skilled workers somehow is an aggression against them.

 

** OK, this is an exaggeration.  I won't likely get shot.  I don't want to understate how badly abused a lot of blacks and Hispanics are by the justice system.   I would much rather be in front of the DOL than be a Mexican ziptied by Sheriff Joe.  But it does give one the same feeling of helplessness, of inherent unfairness, of the unreasoning presumption of guilt and built-in bias.

The Uphill Battle to Reduce the Size of Government

Last year, when Congress did a 1-year renewal of legislation governing public recreation and fee policies (FLREA) they left out a tiny provision that discouraged government agencies from taking back tasks they had privatized.  With that gone, parts of the USFS immediately began to move to bring certain operations back in house, even when doing so required that they both spend more tax money AND reduce services levels to the public.  Such is the strength of incentives in any government bureaucracy to expand their scope, staffing, and budget, even when it makes no sense for the public.

This week in an article at PERC, I tell one such story in depth. Here is an excerpt:

Consider one example: The Tahoe National Forest in California recently took the operation of some of their parks out of private hands, ending a nearly 30-year partnership with one of our competitor companies.

Did the Forest Service do it to save money? The private concessionaire operated entirely with the user fees paid by visitors, using no taxpayer money, and even paid rent back to the government. The agency’s in-house operating plan for running these campgrounds requires at least $2 million in taxpayer money over the next five years to supplement user fees.

Did they do it to improve service? The private concessionaire employed more than 60 paid workers living on site, with managers who worked weekends and holidays. The Forest Service plan calls for half this number of paid employees, and none will live on site or work weekends—the busiest time for recreation.

Did they do it to address some egregious for-profit abuse? The agency is actually planning to replace dozens of paid private workers with volunteers. At the same time that the federal government is mandating higher minimum wages for campground concessionaires, the Forest Service is replacing paid workers with unpaid labor.

Did the Forest Service do it to keep user fees low? The original stated reason for kicking out the private operator was the concessionaire’s request to increase user fees in response to recent increases in California’s minimum wage. In the end, however, the Forest Service raised fees even higher than those proposed by the concessionaire.

A Good Roundup on the Minimum Wage

David Brooks has what looks to be a pretty even-handed piece on what academic work shows on the minimum wage.  A few highlights:

Recently, Michael Wither and Jeffrey Clemens of the University of California, San Diego looked at data from the 2007 federal minimum-wage hike and found that it reduced the national employment-to-population ratio by 0.7 percentage points (which is actually a lot), and led to a six percentage point decrease in the likelihood that a low-wage worker would have a job.

Because low-wage workers get less work experience under a higher minimum-wage regime, they are less likely to transition to higher-wage jobs down the road. Wither and Clemens found that two years later, workers’ chances of making $1,500 a month was reduced by five percentage points.

Many economists have pointed out that as a poverty-fighting measure the minimum wage is horribly targeted. A 2010 study by Joseph Sabia and Richard Burkhauser found that only 11.3 percent of workers who would benefit from raising the wage to $9.50 an hour would come from poor households. An earlier study by Sabia found that single mothers’ employment dropped 6 percent for every 10 percent increase in the minimum wage....

What we have, in sum, is a very complicated situation. If we do raise the minimum wage a lot of people will clearly benefit and a lot of people will clearly be hurt. The most objective and broadest bits of evidence provoke ambivalence. One survey of economists by the University of Chicago found that 59 percent believed that a rise to $9 an hour would make it “noticeably harder” for poor people to find work. But a slight majority also thought the hike would be worthwhile for those in jobs. A study by the Congressional Budget Office found that a hike to $10.10 might lift 900,000 out of poverty but cost roughly 500,000 jobs.

So 900,000 would get up to a 25-40% raise while 500,000 would get a 100% cut.

The Arrogance of Regulators: Department of Labor Edition

Well, they did it.  The Obama Administration has proposed a new rule that everyone has to punch a time clock unless they are paid at least $921 a week.  Here is the proposed rule.  Of course, everyone on the Left is patting themselves on the back for giving everyone under that number a raise.  In fact what has happened is that everyone under that number just got a demotion, from trusted junior manager to 40-hour-a-week timeclock puncher.

Here is another way to put it:  The only people who now have the right to work more than the minimum to demonstrate one's readiness for more responsibility are those paid over $48,000 a year.  McKinsey consultants and lawyers and investment bankers can choose to work extra hours in order to gain promotions.  McDonald's shift managers no longer have that same right.  This is a law written by salaried professionals telling younger and lower-paid workers that they have no right to be ... salaried professionals.    This is a law propounded by a President who pays many of the young professional interns in his campaign and non-profit $0.00 an hour.

More here.

Update:  By the DOL's own reckoning, 40% of salaried employees fall below this number and thus are affected.  Some will get a small raise over the bar, but an enormous part of the workforce will find themselves dumped into the ranks of work-just-the-minimum timecard punchers.  This has the potential to hit far more people than any minimum wage increase.

Dear Paul Krugman: Please Explain Labor Demand Elasticity in Puerto Rico

Paul Krugman and a surprisingly large portion of Leftish economists have staked out a position that labor does not act like any other commodity, such that higher minimum wages have no effect on demand.  I have had people on the Left tell me that this absurd, common-sense-offending position is actually "settled".  So explain Puerto Rico:

Another problem is that just 40 percent of the population [of Puerto Rico] has a job—or is even looking for one. That figure has plummeted in recent years. In the United States as a whole, it is 62.9 percent....

The report cites one surprising problem: the federal minimum wage, which is at the same level in Puerto Rico as in the rest of the country, even though the economy there is so much weaker. There are probably some people who would like to work, but because of the sickly economy, businesses can't afford to pay them the minimum wage.

Someone working full time for the minimum wage earns $15,080 a year, which isn't that much less than the median income in Puerto Rico of $19,624.

The report also cites regulations and restrictions that make it difficult to set up new businesses and hire workers, although it's difficult to know just how large an effect these rules might or might not have on the labor market.

By the way, the fact that the author thinks this is "surprising" just goes to show how far this anti-factual meme of a non-sloping labor demand curve has penetrated.

As pointed out in several places today, Puerto Rico has a surprising number of parallels to Greece.   It seems to have zero fiscal restraint, it has structural and regulatory issues in its economy that suppress growth, and has its currency pegged to that of a larger, much richer nation.  It is apparently facing a huge $70+ billion potential debt default.