Coyote Blog

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.

My son is at the age in high school that he needs to find a job, either during the summer or after school or both.  But this is not an easy chore.  The economy certainly has a lot to do with this, but Congress has been doing its share to keep teenagers unemployed as well:

Thanks to an ill-advised law enacted with bipartisan support in 2007, the cost of providing an entry-level job to individuals with few skills or minimal experience will be going up by more than 10 percent. Those who cannot find a job paying at least $7.25 an hour will not be permitted to work. Welcome to the latest chapter of America’s minimum-wage folly.

Those who press for a higher minimum wage often claim that making entry-level jobs more expensive won’t reduce the number of entry-level jobs. Were the government to compel a 41 percent increase (see graph above showing the 41% increase in the minimum wage from $5.15 in 2006 to $7.25 this year) in the price of gasoline or movie tickets or steel, every rational observer would expect a drop in the demand for gasoline, movie tickets, or steel. Yet when it comes to the minimum wage, politicians and journalists somehow persuade themselves that making workers more expensive won’t reduce the demand for workers.

But that’s exactly what it does. Artificial price floors – mandatory minimum prices set higher than what the market will bear – generate surpluses. Minimum-wage laws are no exception. The price floor imposed by the government on the supply of low-skilled labor results in a labor surplus, which is just another way of saying higher unemployment.

The laws of supply and demand are not optional. They weren’t enacted by Congress and Congress can’t override them. Minimum-wage laws don’t make low- and unskilled Americans more productive, more experienced, or more desirable. They merely make them more expensive – and more likely, therefore, to be unemployed.

People often think of the minimum wage as a restriction on employers — that they cannot pay less than a certain number for a job.  But it is also equally a restriction on job seekers — my son cannot legally offer to take a job for less than $7.25, even though he would probably gladly do so.  For teenagers, just gaining the experience of working and building basic skills (like showing up on time, following procedures, interacting with customers and fellow employees) has enormous value, such that even a nominal payment of a few dollars an hour would more than compensate him for his labor.

But I think there is another factor that increasingly limits teenage jobs that is not often discussed – liability.  I never really thought about this until I was running a business and found that my company and I may be personally liable for bone-headed decisions made by far off employees I have never met.  In our super-ligious society, does a company really want 15-year-old boys interacting with the public, no matter how much or little they are paid, when even one teenage-boy-style flip comment or sexual joke might result in a lawsuit?

Previously, I have written a number of articles on the minimum wage focused on the other end of the age scale.  My company hires folks in the seventies and eighties, a practice that is increasingly difficult to maintain with the minimum wage increasing.

The entire Pacific coast is vying to become the next rust belt.  Only the nice climate and beautiful scenery will keep anyone there.

The Labor Department reported yesterday that Oregon’s unemployment rate soared to 12.4% in May, the nation’s second highest after Michigan’s 14.1%. What to do? If you’re the geniuses in the state legislature in Salem, you naturally raise taxes.

Last week the legislature approved a $2 billion tax hike on personal income and small businesses that haven’t already left the state. The highest tax rate on income above $500,000 would climb to 11% — up from an already high 9%. Oregon will soon boast the second highest income tax rate in the nation, moving ahead of California (10.55%), and only slightly behind New York City (12.6%). Corporations will pay a 7.9% tax on gross receipts, up from 6.6%.

To be fair, Oregon does not really have a sales tax, so it is hard to compare apples and oranges on taxes.  But missing from the article is another factor in their unemployment, and the reason our company ultimately had to leave the state:  Oregon has the second highest minimum wage in the country (just behind Washington State and just ahead of California), and it is getting higher every year as it is automatically indexed to something or other that seems to be rising faster than inflation.

The Arizona minimum wage is going up again:

The annual increase is the third since voters approved the minimum-wage initiative by a 2-1 ratio in 2006. This year’s increase is 5 percent. At $7.25 an hour, the wage is up nearly 41 percent from December 2006 but still only about half of the state’s median wage of $14.25, according to the Arizona Department of Commerce.

Oh my God!  You mean the minimum is still below the median?  (Sorry, that is a bit off-topic, but I just can never resist making fun of journalist’s understanding of math and statistics).

In just over two years, the minimum wage is up over 41%.  As a company that employs a lot of minimum wage workers in Arizona, I thought I would report on the impact to date.  As a quick background, my company runs campgrounds (and other recreation facilities) all across the country.  We typically employ retired couples who live in their RV onsite and work both for the free camp site as well as a wage, usually minimum wage.  In a good year, our business makes between 6-8% pre-tax profit on sales, which I can tell you is a thin, thin cushion given all of my life’s savings are locked up in this one investment.

I don’t know where minimum wage supporters think the extra money comes from to pay higher wages.  If they think at all, I suppose they would say that the government is in effect collective bargaining for these workers and getting businesses to cough up some of their immense profits to pay a bit better wage.

Well, our labor costs are about 50% of revenues  (we are a service business).  This 50% is not just wages, but other costs calculated as a percent of wages, such as FICA, medicare, and unemployment taxes and workers comp premiums.  So, if I still want to earn a living for myself, and the state says half my costs must go up by 41%, then it means that prices are going up 20+%.  And that is what has happened.   Remember, at the same time, fuel prices, electricity prices, insurance prices, and everything else has gone up, so that camping prices have risen by 20% or more.  But there is a limit to how far we can push prices, particularly since our typical customer tends to be relatively low-income.  So we are pursuing two other longer term responses:

• We are increasingly turning to automation solutions, like automatic pay systems and gates, to replace people.  While we like to have someone actually there to answer questions and to help visitors, fee collection machines work 24 hours, are not subject to overtime rules, they never get hurt, they never sue us, and the government never passes laws to increase their price.
• We are changing our operating strategy from hiring retired couples who live on-site to hiring younger workers.  This is a change I really hate.  The business model of hiring retired folks who live on-site at a campground is an old and successful one.  Folks in their seventies (and I even have workers in their eighties and nineties) don’t work very fast, and they have more workers comp claims, but they had the ability to live on-site and life experience that helped them with customer service.  But trade-offs that worked at $5.15 an hour don’t work as well at $7.25 and higher.  So far only selectively, but we are hiring younger folks from the local community to come in and do some of the janitorial and maintenance work.  Even if I pay them $8 or $10 an hour, they make sense if they can be twice as productive.