Posts tagged ‘minimum wage’

Perfect Example of Government Doublespeak

An Obama Administration executive order / regulation (hard to tell the difference any more)

Department of Labor
29 CFR Part 10
Establishing a Minimum Wage for Contractors; Proposed Rule

34568 Federal Register / Vol. 79, No. 116 / Tuesday, June 17, 2014 / Proposed Rules

This document proposes regulations to implement Executive Order13658, Establishing a Minimum Wage for Contractors, which was signed by President Barack Obama on February 12, 2014.

The Executive Order therefore seeks to increase efficiency and cost savings in the work performed by parties that contract with the Federal Government by raising the hourly minimum wage paid by those contractors to workers performing on covered Federal contracts to: $10.10 per hour, beginning January 1, 2015; and beginning January 1, 2016, and annually thereafter, an amount determined by the Secretary of Labor.

Liberal and leftish economists in the audience, please explain the line in bold.

The administration wants to apply this to concessionaires as well.  This will force us to raise a $20 camping rate by $4 a night.

Why Private Companies May Stop Taking Incidental Government Contracts

Bruce McQuain has an article on how McDonald's is closing some contract-operated fast food outlets at military bases.  The article speculates that the closures on new government minimum wage regulations for government contracts.

Frankly, I doubt this explanation.  I know something of the world of government contracting, and contractors in these cases routinely just pass on wage increases to their customers in the form of higher prices.  After all, their contracts give them a monopoly of sorts in these bases.

I would like to offer an alternative explanation.

In March, a new regulation took effect that all contractors with anything larger than a $50,000 a year contract with the government must go through an expensive affirmative action planning process for ALL of their locations, not just for the people involved in that particular contract (41 CFR 60-2.1  and 41 CFR 60-4.1)

We don't do government contracting work.  We lease government facilities, but get paid 100% by customers -- since we don't take government money, we are not a contractor.  But there is one exception.  We have a $52,000 a year contract to clean bathrooms near the campgrounds we operate in California.  Basically, we bid this contract at cost because we want the bathrooms cleaned well -- if they are not, it hurts our nearby businesses.

In this contract, we have government-mandated wage requirements under the Service Contract Act.  When these mandated wages go up, we just raise the price to the government in proportion.  No big deal.

We were informed that having this contract, under the new March Obama regulations, now made us liable to go through an expensive and time consuming affirmative action planning process for every location -- of which we have over 120 -- not just for this one contract.  So this one contract was going to force us to create 120 annual written plans and presumably get them approved by someone in the government.  No way.  I might have done it if I only had to do a plan for the contract, but it is just too much work to do this everywhere merely because I have a $52,000 contract on which I make no profit.  So we told the Feds we were dropping the contract.

I think it is very unlikely that private businesses will be accepting government contracts as 5 or 10% of their business any more.   This new regulation just imposes too much cost on the other 95% of the business.  Many will drop the government contracts.

I wonder if this is what is really going on with McDonalds.  A regulatory requirement that applied just to the base operations, like a minimum wage, strikes me as manageable.  But having these three or four contracts drive an expensive requirement to create some sort of affirmative action plan for every location - essentially every one of their tens of thousands of stores, so tens of thousands of plans - that would drive them out of these contracts VERY fast.

Even an Influential Chart Can Be A Graphics Fail

Presumably most of you have seen this chart frm a study that says that not only do Americans not know where the Ukraine is, but that desire for US intervention there is correlated with such knowledge or lack thereof (the less people understand where it is, the more they support intervention).

click to enlarge

I find the study results both depressing and unsurprising, so I won't comment on them per se.   Though I suppose if you confuse the Ukraine with the Yukon (as a number of respondents seem to), interventionism might make more sense.  My only question is:  where were such studies of domain knowledge vs. policy recommendations in the health care or minimum wage debate?

However much impact this chart has had, though, it is still a graphics fail in my mind.  Why?  Because the author attempts to portray a second variable by the dot color.  But the variable he or she chooses to portray is the distance of the point from the correct location (red being more correct, blue less).  But that is easy to see without the variation in color.  It is redundant information.

A much better chart would have been to color code each dot with that respondent's Ukraine prescription, from blue = intervention to red = non-intervention.  This way the chart would have supported the full findings of the study (link between geographical knowledge and policy prescription) rather than just one aspect (quality of geographic knowledge).

Update:  If so many people got the Ukraine and the Yukon confused, God help us if the next Russian crisis is in Georgia.

Ideological Turing Tests, Climate, and Minimum Wage

Yesterday I was interviewed for a student radio show, I believe from the USC Annenberg school.  I have no quarrel with the staff I worked with, they were all friendly and intelligent.

What depressed me though, as I went through my usual bullet points describing the "lukewarmer" position that is increasingly common among skeptics, was that most of what I said seemed to be new to the interviewer.   It was amazing to see that someone presumably well-exposed to the climate debate would actually not have any real idea what one of the two positions really entailed (see here and here for what I outlined).  This gets me back to the notion I wrote about a while ago about people relying on their allies to tell them everything they need to know about their opponent's position, without ever actually listening to the opponents.

This topic comes up in the blogosphere from time to time, often framed as being able to pass an ideological Touring test.  Can, say, a Republican write a defense of the minimum wage that a reader of the Daily Kos would accept, or will it just come out sounding like a straw man?  I feel like I could do it pretty well, despite being a libertarian opposed to the minimum wage.  For example:

There is a substantial power imbalance between minimum wage workers and employers, such that employers are able to pay such workers far less than their labor is worth, and far less than they would be willing to pay if they had to.  The minimum wage corrects this power imbalance and prevents employers from unfairly exploiting this power imbalance.  It forces employers to pay employees something closer to a living wage, though at $7.25 an hour the minimum wage is still too low to be humane and needs to be raised.  When companies pay below a living wage, they not only exploit workers but taxpayers as well, since they are accepting a form of corporate welfare when taxpayers (through food stamps and Medicare and the like) help sustain their underpaid workers.

Opponents of the minimum wage will sometimes argue that higher minimum wages reduce employment.  However, since in most cases employers of low-skilled workers are paying workers less than they are willing and able to pay, raising the minimum wage has little effect on employment.  Studies of the fast food industry by Card and Walker demonstrated that raising the minimum wage had little effect on employment levels.  And any loss of employment from higher minimum wages would be more than offset by the Keynesian stimulative effect to the economy as a whole of increasing wages among lower income workers, who tend to consume nearly 100% of incremental income.

Despite the fact that I disagree with this position, I feel I understand it pretty well -- far better, I would say, than most global warming alarmists or even media members bother to try to understand the skeptic position.  (I must say that looking back over my argument, it strikes me as more cogent and persuasive than most of the stuff on Daily Kos, so to pass a true Turing test I might have to make it a bit more incoherent).

Back in my consulting days at McKinsey & Company, we had this tradition (in hindsight I would call it almost an affectation) of giving interviewees business cases** to discuss and solve in our job interviews.  If I were running a news outlet, I would require interviewees to take an ideological Touring test - take an issue and give me the argument for each side in the way that each side would present it.

This, by the way, is probably why Paul Krugman is my least favorite person in journalism.  He knows very well that his opponents have a fairly thoughtful and (to them) well intention-ed argument but pretends to his readers that no such position exists.  Which is ironic because in some sense Krugman started the dialog on ideological Turing tests, arguing that liberals can do it easily for conservative positions but conservatives fail at it for liberal positions.

 

** Want an example?  Many of these cases were just strategic choices in some of our consulting work.  But some were more generic, meant to test how one might break down and attack a problem.  One I used from time to time was, "what is the size of the window glass market in Mexico?"  Most applicants were ready for this kind of BS, but I do treasure the look on a few faces of students who had not been warned about such questions.  The point of course was to think it through out loud, ie "well there are different sectors, like buildings and autos.  Each would have both a new and replacement market. Within buildings there is residential and commercial.  Taking one of these, the new residential market would be driven by new home construction times some factor representing windows per house.  One might need to understand if Mexican houses used pre-manufactured windows or constructed them from components on the building site."  etc. etc.

Obama's Demand for Wage Rules for Salaried Workers Will Have Far More Impact Than Proposed Minimum Wage Changes

The $10.10 minimum wage discussion has gotten a lot of attention.   But in 2011 only 3.8 million workers made at or below the minimum wage, and of these, at least half earn substantially more in reality through tips.

Obama's announcement yesterday that he wanted to substantially change the way salaried workers will likely have far more negative impacts on employment than his minimum wage proposals.

President Barack Obama is expected to order a rule change this week that would require employers to pay overtime to a larger number of salaried workers, two people familiar with the matter said.

Currently, many businesses aren't required to pay overtime to certain salaried workers if they earn more than $455 a week, a level that was set in 2004 and comes to roughly $24,000 a year. The White House is expected to direct the Labor Department to raise that salary threshold, though it is unclear by how much.

Ross Eisenbrey, vice president of the liberal Economic Policy Institute, and Jared Bernstein, a former White House economist, recently proposed the limit be increased to $984 a week, or roughly $50,000 a year.

"That would mean between five- and 10-million people could be affected, but they might choose a lower number," Mr. Eisenbrey said about the White House plans.

5-10 million is potentially 3x or more the people affected by a minimum wage change.  But in some sense, this still underestimates the impact.  Here is one example.  Last year the average starting salary of college graduates is about $45,000.  The median is likely lower.  This means that over half of all college graduates going into the work force will be taking hourly jobs that used to be salaried.   Teachers will be hourly.  Budget analysts will be hourly.  Etc.

So all these folks are saying - Yeah!  I get overtime!   Wrong.  They will be eligible for overtime.  But companies will quickly restructure their work processes to make sure no one works overtime.  And since their new hires are working just a straight 40 hours (with mandatory unpaid lunch break time in CA), they will likely pay less.   If I am paying $40,000 a year for someone who will work extra hours for me, I am not going to pay that amount to someone just punching a time clock.  And the whole psychological relationship is changed - a salaried person is someone on the management team.  A person punching a timeclock may not be treated the same way.

Further, when someone gets switched from salary to hourly, they lose a minimum pay guarantee.  When I get a $3,500 a month offer, I know that no matter how slow things are, until I am fired I get $3500 a month.  There is a floor on my earnings.  As an hourly worker, my hours can be adjusted up or down constantly.  There is no floor at all.

Oh, and by the way, remember Obamacare?  The PPACA penalizes companies who do not provide a health plan that meets certain (expensive) criteria.  But that penalty is not applied for workers who are "part-time" or work less than 30 hours a week.  Salaried workers are automatically full time.  But once you convert all those people to hourly and make sure they are working no more than 40 hours a week, is it really so large a step to getting them under 30 hours a week?

PS-  Well, for those who think schools assign too much homework, this could well be the end of homework.  The most dangerous possible thing with hourly workers is to give them the ability to assign themselves unlimited overtime.  Teachers could do this at home with grading papers.  If I were a school, I would ban teachers from doing any grading or schoolwork prep at home -- after all, it's hourly and probably overtime and they could work unlimited hours at home and how would you get it under control?  The only way to manage it would be to ban it entirely.

PPS- What about travel?  Would you ever let workers paid hourly travel?  You would have to pay all the travel time and maybe part of the hotel time and there would be huge potential for ending up with overtime bills so better to just ban travel all together.  I know this seems knee-jerk to ban something that might impose a lot of extra labor costs seems extreme, but just look at California.  In California, employees have the right to a half-hour lunch break without work.  They can work through lunch if they choose, but courts have imposed enough onerous reporting standards around this that most companies (like mine) have just banned working through lunch.  It is a firing offense in my company, and in many others in CA, to be caught working during lunch.  We are going to see the same thing working from home.  In fact, we already see this, as there are class actions right now against companies who provided employees with cell phones saying that giving them a cell phone put them "on call" and subject to overtime hours that had to paid at home.  Companies are now making it a firing offense to take one's company cell phone home.

Sorry this post is so disorganized, but this initiative caught be by surprise and I have not been thinking about it for very long.  I will try to work out a more rigorous article in the next few weeks.

Small Homage to Ayn Rand -- Exiting A California Business on September 2

Today I gave notice that I was exiting another park operations contract in California.  This location has always been marginal, but we kept holding out hope of improving it.  But with rising CA minimum wage, the PPACA, and onerous CA labor and liability laws, operating in CA is so hard that I have to make good money or get out.

I had to pick a termination date at the end of the summer.  I was going to choose Labor Day but looking at the calendar, it gave me a smile to slip the date to September 2, a date that should be familiar to anyone who is a real Atlas Shrugged geek.  It is an inside joke guaranteed not to be recognized by any of the government agency managers we work with there.

Can One Be A Principled Moderate? And What the Hell Is A Moderate, Anyway?

Sorry, this is one of those posts where I am still struggling to figure an issue out, so bear with me if we wander around a bit and the ideas are a bit unfinished.

Kevin Drum and other progressives have been bending over backwards to argue that the now three year delay in implementing PPACA standards for private insurance policies is no big deal.

Really?  The PPACA is likely, for Progressives, to be the most important piece of legislation passed during this Administration.  Hell, based on the discussion when it was passed, for many it is likely the most important piece of legislation passed in the last three or four decades.  And when Republicans suggested delaying these same rules and mandates, e.g. during the government shutdown, they freaked, arguing that people should not have to go another day with their old crappy health care policies.

But now they just roll over and say, yeah, ho hum, this thing that everyone supposedly wanted is a political liability so its fine to delay it, no big deal.

If this were a signature piece of libertarian legislation (yeah, I know its hard to imagine such a thing) that was not being implemented by somebody I voted for and supported, I would be pissed.  I would be raking the President over the coals.

This difference in outlook may be why the Republican leadership hates the Tea Party.  The Tea Party gets pissed when folks they elect punt on the ideological goals they got elected to pursue.  They have no tribal loyalty, only loyalty to a set of policy goals.  The key marker in fact of many groups now disparagingly called "extremists" is that they do not blindly support "their guy" in office when "their guy" sells out on the things they want.

I have friends I like and respect -- smart and worldly people -- who are involved in a series of activities to promote political moderation.  What I have written in this post is the core of my fear about moderation -- that in real life calls for moderation are actually calls for loyalty to maintaining our current two major parties (and keeping current incumbents in office) over ideas and principles.

Which leads me to an honest question that many of you may take as insulting -- can one be a principled moderate?  I am honestly undecided on this.  But note that by moderate I do not mean "someone who is neither Republican or Democrat," because I fit that description and most would call me pretty extreme.  So "fiscally conservative and socially liberal" is not in my mind inherently "moderate".  That is a non-moderate ideological position that is sometimes called "moderate" because it is a mix of Republican and Democrat positions.  But I would argue that anyone striving to intellectual consistency cannot be a Republican or Democrat because neither have an internally consistent ideology, and in fact their ideology tends to flip back and forth on certain issues (look at how Republican and Democrat ideology on Presidential power, for example, or drone strikes changes depending on whose guy is in the Oval Office).

Moderates in my mind are folks willing to, or even believe it is superior to, take average positions, eg. "the PPACA just went too far and we should have had a less-far-reaching compromise" or "free trade agreements go too far we need a mix of free trade and protectionism".  They value compromise and legislative action (ie passing lots of laws in a fluid and timely manner) over holding firm on particular ideological goals.  I guess the most fair way to put it by this definition is they value consensus and projecting a sense of agreement and teamwork over any individual policy goal.

Postscript:  One other potential definition of "moderate":  One could argue that in actual use by politicians and pundits, "moderate" effectively means "one who agrees with me" and "extremist" means "people who disagree with me."  The real solution here may be to accept that "moderate" is an inherently broken word and stop using it.

Update:  There are areas where I suppose I am a moderate.  For example, I think that making definitive statements about what "science" has been "settled" in the realm of complex systems is insane.  This is particularly true in economics.  Many findings in economics, if one were honest, are equivocal or boil down to "it depends."  The Left is insanely disingenuous to claim that the science is settled that minimum wage increases don't affect employment.  But it is equally wrong to say that minimum wage increases always have a large effect on unemployment.  For one thing, almost no one (percentage wise) actually makes the minimum wage so we are talking about changes in the first place that affect only a couple of percent of the workforce, and may be mitigated (or exacerbated) by other simultaneous trends in the economy.  So of course their impact may not be large (in the same way that regulations on left-handed Eskimo Fortran programmers might not have much of an impact on the larger economy).

We have gotten into this bizarre situation that the science is suddenly always settled about everything, where it would be safer to argue that given the complexity of the systems involved the science can't be settled.  I liked this bit I read the other day in the Federalist

One of the more amusing threads that runs through the conversation among the online left is the viewpoint that the science is settled in every arena, and settled in their favor. The data backs the leftward view, and if it doesn’t, there must be a flaw in the data, or in the scientist, or secret Koch-backed dollars behind the research. This bit of hubris leads to saying obviously untrue things – like “every economist from the left and right” says the stimulus has created or saved at least two million jobs. Or that there’s “no solid evidence” that boosting the minimum wage harms jobs. Of course the media knows that these aren’t true, but they largely give these politicians a pass, because dealing in data and with academic research is their turf.

Folks on the Left who want to blame the Tea Party for the destruction of civil discourse need to look at themselves as well, declaring the science settled on everything and then painting their opponents as anti-science for disagreeing.  As I have pointed out before, this sort of epistemology is not science but religion, the appeal to authority backed by charges of heresy for those who disagree.

If I were going to make a political plea, it would not be for moderation but for better more respectful practices in the public discourse.

Is Occupational Licensing Meant to Block Competition from Ethnic Minorities?

Looking at this map of state licensing regimes (darker is more onerous, with AZ being the worst), it is hard to correlate with states being Republican or Democrat.  That doesn't surprise me, because I have always thought the urge to restrict competition and protect incumbents has always been a bipartisan enterprise.

click to enlarge

 

So I sat and thought for a minute about my home state of AZ.  Why is it the worst?  We have a pretty good libertarian history here, from Goldwater onwards.  We have at least one fairly libertarian Senator (Jeff Flake).  So what is the deal?

My hypothesis is that it is related to immigration.  The same majority Republican legislators who are generally open to free markets simultaneously have an incredible fear and loathing of immigration.  Perhaps our onerous business licensing regime is driven by nativists wanting to protect themselves from competition by new immigrants, immigrants who would struggle to compete onerous licensing requirements?

So what does this map look like vs. immigrant population density?  Via Wikipedia, here are the states on density of Hispanics

click to enlarge

 

Hmm, we might be getting somewhere, but its not a perfect fit.  So instead, let's hypothesize that business licensing is aimed at non-white, non-hispanic groups in general (similar to early justifications for the minimum wage as a way to keep black workers migrating from the south out of traditionally "white" jobs).  I cannot get it by state, but the map below by county looks pretty dang similar to the licensing map.  Areas in blue have above average percent of non-whites, red is below average.

Not a perfect fit certainly (one would expect Texas to be more onerous), but perhaps close enough to treat the hypothesis seriously.  I had always thought that I would be the last one to play the race card in a policy analysis, but business licensing tends to have an inherently base motive (protect one group from competition from another group) that is pretty easy to square with racial and ethnic fear.

 

Yet Another Absurd Obamacare-Related Requirement: Business Oaths

This is just sick, via Fox News and Bryan Preston

Consider what administration officials announcing the new exemption for medium-sized employers had to say about firms that might fire workers to get under the threshold and avoid hugely expensive new requirements of the law. Obama officials made clear in a press briefing that firms would not be allowed to lay off workers to get into the preferred class of those businesses with 50 to 99 employees. How will the feds know what employers were thinking when hiring and firing? Simple. Firms will be required to certify to the IRS – under penalty of perjury – that ObamaCare was not a motivating factor in their staffing decisions. To avoid ObamaCare costs you must swear that you are not trying to avoid ObamaCare costs. You can duck the law, but only if you promise not to say so.

As I have written about before, our company closed some California operations in December and laid off all the employees.  As with most business closures, we had multiple reasons for the closure.  The biggest problems were the local regulatory issues in Ventura County that made it impossible to make even simple improvements to the facilities.  But certainly looking ahead at costs soon to be imposed due to looming California minimum wage increases and the employer mandate contributed to the decision.

So, did I fire the workers over Obamacare?  If Obamacare were, say, 10% of the cause, would I be lying if I said I did not fire workers over Obamacare?  Or does it need to be 51% of the cause?  Or 1%?    Or 90%.  Business decisions are seldom based on single variables.  I am just exhausted with having my life run by people whose only experience with the real world was sitting in policy seminars at college.

Update:  The actual effect of this will not likely be to change business behavior, but change how they talk about it.  Worried that there will be too many stories next election about job losses due to Obamacare, the Administration is obviously cooking up ways not to limit the job losses, but to limit discussion of them.

Another Possible Reason for Obama's Minimum Wage Push

Obama's minimum wage push could be an honest attempt to reduce poverty, but since only a trivial percentage of the American work force earns the minimum wage, and most of those are in starter jobs rather than trying to support a family, it does not make a lot of sense.

On the other hand, it could be another cynical payoff to unions that form the backbone of Obama's political support

Organized labor's instantaneous support for President Obama's recent proposal to hike the minimum wage doesn't make much sense at first glance. The average private-sector union member—at least one who still has a job—earns $22 an hour according to the Bureau of Labor Statistics. That's a far cry from the current $7.25 per hour federal minimum wage, or the $9 per hour the president has proposed. Altruistic solidarity with lower-paid workers isn't the reason for organized labor's cheerleading, either.

The real reason is that some unions and their members directly benefit from minimum wage increases—even when nary a union member actually makes the minimum wage.

The Center for Union Facts analyzed collective-bargaining agreements obtained from the Department of Labor's Office of Labor-Management Standards. The data indicate that a number of unions in the service, retail and hospitality industries peg their base-line wages to the minimum wage.

The Labor Department's collective-bargaining agreements file has a limited number of contracts available, so we were unable to determine how widespread the practice is. But the United Food and Commercial Workers International Union says that pegging its wages to the federal minimum is commonplace. On its website, the UFCW notes that "oftentimes, union contracts are triggered to implement wage hikes in the case of minimum wage increases." Such increases, the UFCW says, are "one of the many advantages of being a union member."

The labor contracts that we examined used a variety of methods to trigger the increases. The two most popular formulas were setting baseline union wages as a percentage above the state or federal minimum wage or mandating a flat wage premium above the minimum wage.

Our Business's Response to California $2 Minimum Wage Increase

Well, we have completed our response to minimum wage increases in California.   As a review, California is raising its minimum wage from $8 to $10 (or 25%)  in two steps starting this July 1.  I will confess that in some of these cases the causes are complex, and are not just due to minimum wage changes but also other creeping California regulatory issues (particularly the first two).

  • Suspended operation and closed on large campground in Ventura County that employed about 25 people
  • Suspended investment / expansion plans at two other campgrounds
  • Raised prices everywhere else, on average adding $3 to a $20 camping fee.   (this is inevitable when wages are increased 25% in a business where more than half the costs are tied to wages and margins are around 5%)

The only reason I take the time to write this is that I think this tends to demonstrate that 1) minimum wage increases can have a real economic impact and 2) just looking at job losses after the date the wage takes effect can miss most of this economic impact.

To this latter point, a lot of the impact is not necessarily job losses.  We see lost investment, which perhaps means fewer jobs in the future but there is no way to measure that.  We see price increases, which affects consumers and disposable income.  And we see some job losses, but note that the job losses were 6 months before the law goes into effect.

We are left with a certainty that the minimum wage had a real economic effect but a suspicion that, at least in this case, that effect would not be measured.

By the way, there may also be a lesson here for those who believe that the entire problem in the economy is one of not enough aggregate demand.  In the last month I walked away from a million dollars a year of demand, because it was impossible to serve profitably, in large part due to regulatory issues.

Minimum Wage and Teen Unemployment

The other day, when criticizing an incredibly facile minimum wage analysis in the Arizona Republic, I had meant to observe that since minimum wage jobs are such a tiny (1.5% if include jobs that work for tips) portion of the workforce, one should look at more targeted metrics to assess the effect of minimum wage hikes, such as teen employment.

Kevin Erdmann has such an analysis.  He observes, "Is there any other issue where the data conforms so strongly to basic economic intuition, and yet is widely written off as a coincidence?"

Note that there is still some danger, as I wrote before, in measuring employment effects from the implementation date. Businesses plan ahead an many job losses may be occurring between the announcement and the implementation date.  I know we have made all the job cuts we plan to make in response to California minimum wage increases six months ahead of the actual date the wage takes effect.

Update:  The charts are obviously far from a smoking gun.  That is the nature of economic analysis.  In complex and chaotic multi-multi-variable systems, controlled studies are almost impossible and direct correlations are hard to find, and even when found may be coincidence.  As an employer who hires a lot of summer seasonal employees in parks, I would obviously be a natural employer of teens.  But I no longer do so, and it is important to understand that wages are only a part of the equation.  Another major issue is one of liability.  Increasingly, the legal system makes the employer liable for any action of their employees, no matter how boneheaded or how much the action is against all policy and training.   I have enough trouble with employees that have years of good work history -- I am not really excited about taking a chance on an unproven 17-year-old.

This Just In -- Demand Curves Slope Down

Apparently when prices for things are arbitrarily doubled, the demand for them goes down.  Via the New York Times:

On Monday, about 175 employees of the buffet restaurant in the slot-machine and electronic gambling casino in Ozone Park learned that the restaurant had been closed and that their jobs no longer existed. The casino had received plaudits when, in late October, a labor arbitrator issued a ruling that doubled the average pay of workers.

...

“Everything is done,” said Mariano Cano, 45, a server at the buffet for the past two years. “They just threw us out like dogs. They just gave us a couple of dollars to shut up, and that’s it.”

In October, Mr. Cano’s pay went from just over $5 an hour, plus tips for the drinks he delivered to the tables and dishes he cleared, to around $12, because of the living wage agreement.

This is one of those regulatory overreach paired with corporate cronyism stories, so I won't express any sympathy for the business involved -- it is earning huge rents from insider political deals it cut, and though the NYT does not explain it very well, my sense is that the arbitration requirement on wages was part of that political deal.

But it is amazing to me how much the Left has simply hypnotized itself into believing that minimum wage increases don't affect employment.  If we go back a number of months and look at the article where the NYT announced the arbitration decision, there is not one single mention that there might be some job security issues with forcing a doubling of wages.

Jeannine Nixon looked as if she had hit the jackpot. Ms. Nixon, a customer relations representative at Resorts World Casino in Queens, had just learned that she would be making $40,000 a year, up from $22,300.

“It’s life-changing,” Ms. Nixon, her voice cracking, said on Thursday. “I can finally feel relieved.”

It is amazing to me that it did not even occur to any at the NYT to think that a doubling of worker pay might be anything but a pure bonanza.  I suppose they were blinded by a sense that casino margins were so high (though I find that the public consistently overestimates margins of many businesses, confusing revenues with profits).  Even if the casino is wildly profitable, one had to consider that all activities in the casino were not equally profitable.   Restaurants often have thin margins and 20-30% labor costs.  There is simply no room for doubling them in a business that typically has single digit margins at best (in fact, most restaurants lose money).

There are a number of reasons why people can fool themselves into thinking that minimum wage increases have no effect on employment

  1. The biggest reason is that only about 3% of American workers earn the minimum wage.  So even a large drop in minimum wage job prospects, say by 10%, might only affect total US employment by a few tenths of a percent, a number that might not be seen in the general economic noise.
  2. Minimum wage increases are typically implemented in small steps and announced well in advance.  Looking at employment the day after vs. the day before the actual date of change likely misses most of the effect.  For example, California announced almost a year in advance that minimum wages were going up by 25% in July of 2014.  Our company closed one operation and made substantial reductions in our work force in response, but we made these changes in December 2013, months before the change actually took effect.

Which makes this article in the Arizona Republic by Ronald Hansen one of the worst, most facile bits of economic analysis I have ever seen.

But, at the most basic level, there is good reason to think the minimum wage doesn’t kill jobs.

The minimum wage has gone up 22 times since it was instituted in 1938. There is complete seasonally adjusted data from the U.S. Bureau of Labor Statistics available for 21 of those hikes.

In 15 of those 21 cases, the U.S. economy added jobs in the year after the minimum wage went up.

On 11 occasions, it added more jobs after the hike than it did in the year before the raise went into effect.

This alone suggests that raising the minimum wage isn’t an automatic drag on employment growth.

This is simply absurd for all the reasons I listed above.   I understand how I might find this kind of "analysis" in the comments section of the Daily Kos, but how does one get this past an editor?

Hidden Employment Impacts of the Minimum Wage

I have seen several stories of late suggesting that minimum wage phase-ins tend to mask the full employment effects of the wage change.  That is because people tend to look at employment before and after the wage change itself, when in fact many companies may have already adjusted their employment long before the wage change goes into effect based on the original announcement.

This certainly rings true with me.  We decided to close one operation in California after the state passed legislation to raise the state minimum wage (the minimum wage change was one of three factors leading to the closure, the other being the PPACA employer mandate which would be particularly expensive at this location and vexing litigation harassment in this one particular area).   This means that for a minimum wage change that does not take effect until July 1, 2014, our decision to reduce staff came in the fall of 2013 and the jobs will go away on December 31, 2013, months before the minimum wage change actually takes effect.

I can certainly see how this would make designing a study to capture the employment effects of the minimum wage change very difficult.  From a more cynical point of view, it also makes it far easier for minimum wage supporters to understate the employment effects.

This same phase-in effect can be seen with the Obamacare employer mandate.  I criticized Brad Delong for arguing that we would not see any shifts to part time labor until the employment report after the actual start date of the employer mandate.  But I know our company had been shifting people to part-time status in anticipation of the start date nearly a year earlier, as had most other retail businesses.  While it may be normal for the government to put off working on something until on or after the due date (e.g. the Obamacare web site), private industry tends to start planning and implementation of responses to government regulations months or years in advance.

Other Countries Have Higher Minimum Wages. They Also Have Higher Something Else...

Kevin Drum argues our minimum wage in the US is really low

blog_minimum_wage_median

 

A few quick thoughts:

  • I have a constant frustration that we never see these comparisons just on a straight purchasing power parity absolute dollar number.  Numbers related to income distribution are always indexed to a number that is really high in the US, thus making our ratio low.  I seriously doubt Turkey has a higher minimum wage in the US, it just has a much lower median wage.  Does that really make things better there?  I have this problem all the time with poverty numbers.  The one thing I would like to see is, on a PPP basis, a comparison of post-government-transfer income of the US bottom decile or quintile vs. other countries.  Sure, we are more unequal.  But are our poor better or worse off?  The fact that no one on the Left ever shows this number makes me suspect that the US doesn't look bad on it.    This chart, from a Leftish group, implies our income distribution is due to the rich being richer, not the poor being poorer.

  • Drum or whoever is his source for the chart conveniently leaves off countries like Germany, where the minimum wage is zero.  Sort of seems like data cherry-picking to me (though to be fair Germany deals with the issue through a sort of forced unionization law that kind of achieves the same end, but never-the-less their minimum wage is zero).
  • All these European countries may have a higher minimum wage, but they also have something else that is higher:  teen unemployment (and I would guess low-skill unemployment).

click to enlarge

Admittedly this only has a subset of countries, but I borrowed it as-is from Zero Hedge.  By the way, by some bizarre coincidence, the one country -- Germany -- we previously mentioned has no minimum wage is the by far the lowest line on this chart.

This Minimum Wage Conversation is Not a Hypothetical -- I Have It All The Time

Don Boudreax writes:

Here’s a project for all unemployed young people – say, ages 18 through 21 – in America today.  Go to a nearby supermarket or restaurant or lawn-care company or pet store and ask for a job at the minimum wage.  If you are denied, offer to work for $4.00 per hour.  The owner or manager will almost surely decline, saying that it’s against the law.

“Would you like to hire me at $4.00?” you ask.

“Well yes I would” is the answer you’re likely to get in reply.

“So, hire me at that wage.  I’m an adult, I’m sober, and I have no mental issues.  I’m willing to work for $4.00 per hour.”

“You don’t get it, kid.  I can’t hire you at that wage.  I’ll get fined, or worse.  Go away.”

“Ok, I’ll leave.  But no one – including you – will hire me at $7.25 per hour.  What am I supposed to do?”

“Look kid.  That’s your problem.  I’m sorry.  I don’t make the laws, but I gotta follow them.  Go away now.”

I know that this is a realistic scenario because I have this conversation with employees all the time.  Except in my case, applicants are generally not 18 years old but 70 years old.

A bit of background:  My company operates campground and other recreation areas mainly using retired people who live on-site in their own RV's.  Few of my 400+ employees are under 65 and several are over 90.

There are several reasons this conversation occurs:

  • As my employees get older, and perhaps sicker with various disabilities, their work slows down to the point that it falls under our productivity expectations.  Employees may come to me saying they want to stay busy but they know they don't work very fast but they would be happy to work for $5 or $4 an hour if they could just keep this job they love.  (There is a Federal law that allows waiving of minimum wages for disability situations.  We tried it -- once.  The paperwork was daunting and the approval came 7 months after the application -- 2 months after the seasonal employee had already gone home for the year).
  • Many people like to stay busy but face wage caps where they begin to lose their Social Security.  They want to keep their total income under the wage cap.  We try to create some jobs that require fewer hours so they can get their wages down that way, but in many cases we have a limited number of on-site living spots and a fixed amount of work such that each person occupying a living spot must do a certain amount of work to make sure it all gets done.  So at some point we can't give them fewer hours, and then they will ask for lower pay.

I frequently have to tell people I simply cannot pay them less.  They ask if they can sign a paper saying they want to be paid less, and I tell them something like "no, the law assumes you are a gullible rube and that I am evil and infinitely powerful so that if you sign a paper, it just means I forced you to do it."  Which is all true, that is exactly the logic of the law.

People look at me funny sometimes when I say the minimum wage law limits employee rights by putting a floor on what they may charge for their labor.  This is an odd way of putting it for them, because minimum wage laws are generally explained in the oppressor-oppressed model, but it makes perfect sense from my experience.

That's OK, I Am Sure They Are Gaining All the Business Skills They Need in Their Ecuadoran Gender Studies Class

Our government's plan to make sure that all young people are unemployed and have no ability to develop vital job skills continues to proceed:

Unpaid internships have long been a path of opportunity for students and recent grads looking to get a foot in the door in the entertainment, publishing and other prominent industries, even if it takes a generous subsidy from Mom and Dad. But those days of working for free could be numbered after a federal judge in New York ruled this week that Fox Searchlight Pictures violated minimum wage and overtime laws by not paying interns who worked on production of the 2010 movie "Black Swan."

A few thoughts:

  • It has always amazed me that Progressives, who are the most likely to argue that money isn't everything, simply insist on ignoring non-monetary benefits of jobs.  Jobs offer money, yes, but can also teach vital skills and benefits which can dwarf the monetary component for some.   The skills taught in an internship can be sophisticated -- e.g. how to produce a radio broadcast -- or prosaic -- e.g. how to show up on time and work with others, but they have real value to young people.  I know there are jobs my 19-year-old would take for free to gain experience and/or break into a particular industry.   Jobs can also offer people of all ages intellectual or physical challenges.  I have many people in the 70's who work for me merely to stay active, meet new people, and enjoy the outdoors.
  • There will still be one place to still get unpaid internships -- Congress, since they exempt themselves from these laws.
  • I am always simply amazed at people who accept an employment deal -- in this case exchanging their labor for experience but no money -- and then go to court because the deal was, err, exactly what they were led to expect.  This reminds me of people who buy a home next to the airport because it is cheap and then sue over the noise.

A Note on 501(c)4 Corporations

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.

On The Minimum Wage

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?

But A Minimum Wage Hike is A-OK?

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.

Soft Head, Soft Heart Argument

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.

Kevin Drum Does Not Like Being Called A Moocher

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).

The Ultimate End of Social-Democratic Labor Policy

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.

Coyote on TV

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.

Coyote on TV

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.