Topic: General

Minimum Wage: From the Horse’s Mouth

Via the admittedly pro-business Employment Policies Institute, a funny anecdote regarding this whole minimum wage debate:

The generally accepted leading advocacy group for so-called “living wage” laws around the country is the Association of Community Organizations for Reform Now, or ACORN. In its Resource Guide for activists, written by David Reynolds of the Wayne State University Labor Studies Center, ACORN casts aside concerns about minimum wage laws resulting in fewer jobs for low-wage workers, scolding

That’s low road thinking, the kind of philosophy that seeks short-term increases in the bottom-line by directly lowering costs and casts high wages, benefits, and other worker protections as obstacles to competition.

But in 1995, ACORN actually went to court in California in an attempt to exempt ACORN from that state’s minimum wage and overtime laws. Why? Well, according to ACORN’s brief in an appeal of the ruling against them…

…the more that ACORN must pay each individual outreach worker–either because of minimum wage or overtime requirements–the fewer outreach workers it will be able to hire.

The U.S. Chamber of Commerce couldn’t have said it any better.

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Minimum Wage Wizardry

Ezra Klein over at TAPPED, the American Prospect blog, takes William Niskanen to task for his opposition to the minimum wage below. “[W]hile reasonable people can disagree on the impact of minimum wage laws,” Klein writes, “it’s time they stopped.”

Wow! Why? What’s the debate stopper?! Klein says, “Just crosscheck this list of state minimum wage laws with this rundown of state unemployment rates.” Turns out that there is an inverse eyeball correlation between high minimum wage and high unemployment rates. QED? Well, no. This factoid might help Klein’s case if it wasn’t totally meaningless in isolation from auxiliary assumptions.

That pattern is perfectly consistent with Niskanen’s claim, which is, after all, just an application of the bedrock Economics 101 principle that if the price of something goes up, consumers will tend to buy less of it. In fact, Klein’s pattern might be evidence in favor of Niskanen’s claim. Here’s some more Economics 101 to explain why high minimum wages and low unemployment rates might be expected to go together.

A high unemployment rate indicates a significant oversupply of labor relative to available jobs. In that case, you expect the price of labor to be low, since it is so abundant. If there is already a minimum wage—a lowest legal price—high unemployment will tend to drive wages toward that floor. Let’s say it’s $4 an hour. Now, if there is already high unemployment, and you raise it to $5 an hour, lots of people will have to get a raise, since lots of workers are probably being paid something close to the lowest legal wage. Employers will not be able to afford to give all those people raises. So unemployment would increase further. Now, the effect is quite different in places that have low unemployment rates. In a tight labor market, wages will be higher. So fewer people’s wages will be near the price floor. And so if you raise the floor, fewer workers will be affected. If the labor market is tight enough, and almost no one is getting a wage even close to the floor, raising the floor a little may have no detectable effect at all—like a law mandating breathing.

Now, suppose legislators more or less understand this (or that key constituencies pressure them to act like they do). You’d then expect that states with high unemployment rates and low wages to be least likely to raise their minimum wage, since it would have a relatively large adverse effect for them. And you’d expect states with low unemployment and high wages to be most likely to raise their minimum wage, since it is least likely to make a difference for the worse. And so you end up with high unemployment states with low minimum wages, and low unemployment states with high minimum wages.

Now, I have no idea whether this reasoning in fact explains the pattern Klein observes. But then, neither does he. He’s just a victim of confirmation bias, seeing what he wants to see in an inkblot of ambiguous data. But the pattern he points to might be evidence in favor of the idea that minimum wages increase unemployment. Hardly a debate stopper, is it? Perhaps Klein will grant reasonable people the privilege to continue disagreeing.

It’s worth nothing that Klein admits “And yes, if you jack the wage up to $16 an hour, jobs will be lost. But up to $7 over a period of years?” So what weird science reveals the “no effect” point between $7 and $16? $16 an hour? Unemployment for sure. But not at $7! So what about $8? How about $12? $15.75?

Of course, a bump up to $7 will push fewer people out of the legal labor market than a bump up to $16. But why Klein thinks that a bump up to $7 will push zero people out, when he has already conceded the general point, is mysterious.

Voluntary Charity vs. Government Charity

Chris Edwards’ post on FEMA brought to mind a 2002 New York Times article, which I recently found on FreeRepublic.com. The article concerned fiscal shenanigans at the United Way, and FreeRepublic.com allowed readers to post comments. The following were representative:

“Why anyone would give money to (through) the United Way so they can skim their take is beyond me. Pick your favorite charity or cause, and give to them.”

“If anyone at work asks you to give through United Way, point them to the Salvation Army. The difference is like night and day.”

Pity we never see comments like:

Why anyone would give money to FEMA is beyond me. Pick your favorite charity or cause, and give to them.

If anyone at work asks you to contribute to Medicaid or Food Stamps, point them to the Salvation Army. The difference is like night and day.

As I told a (hostile) room of graduate social work students this morning, when charity is coerced, charities don’t have to try nearly as hard.

Corey’s Christo-Sized Coat-Tails

Newark Mayor-elect Corey Booker has political coat-tails so long they could be a Christo art installation.

Booker won in a landslide earlier this spring on a platform of clean government and school choice, and now the slate of municipal council members he has endorsed have won a clean sweep in yesterday’s runoff elections.

Booker and his fellow revolutionaries will face stiff opposition from the teachers’ unions and state legislators in their efforts to give Newark residents unfettered school choice, but they unquestionably have the city’s people behind them.

FEMA: For Ever Mis Appropriating

A new government auditor’s report finds that at least $1 billion out of $6 billion in one FEMA aid program for Hurricane Katrina was paid out fradulently. Examples of waste ranged from $300 spent on Girls Gone Wild videos to $20,000 in aid paid to a state prisoner calling FEMA over the phone with a fake property damage claim.
As I discussed today with Bill O’Reilly on his radio show, FEMA’s wasteful spending is deep-seated and long-standing. A year before Katrina, there was Hurricane Frances in 2004. FEMA rushed in with aid and auditors later found that 12,000 claims were paid to residents not even hit by the storm.

At the time, USA Today said, “The findings are the latest to point at questionable disaster relief payments made by FEMA. Audits dating back at least a decade have shown similar problems elsewhere.”

What to do? The answers are in Downsizing the Federal Government.

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The Libertarian Center?

Jonah Goldberg over at National Review Online cites David Boaz’s recent post on the Webb-Allen Senate race, agrees with its substance, but then objects to the notion of a “libertarian center.” “[S]omeone really needs to come up with a better analytical framework than the one(s) which always seem to claim the good guys are in the center,” Jonah writes. “Who says? Besides, if libertarians are in the center, everyone is and no one is.”

I understand Jonah’s distress, since centrism all too often boils down to muddled, sloppy thinking and compromise for compromise’s sake. But the fact remains that the center—i.e., where the swing voters reside—will always be prized territory in democratic politics. Accordingly, much of the action in politics consists of trying to define the relevant issues so that people in the center identify more with your side than with the other guys. That’s why the definitions of left and right change so much over time (compare the priorities of left-wingers and right-wingers a half-century ago with those of their counterparts today, and you’ll see there’s not much overlap)—ideologues in pursuit of power are chasing the ever-changing, ever-elusive center.

Another way to put this is that the location of the center depends on the alignment of the political axis. If the axis of politics at a particular time is the size and scope of government, the center consists of one group of constituencies. If the axis shifts to cultural issues, the center relocates and includes a very different set of voters.

When, from the 1930s through the 1980s, the role of government in the economy was a major, defining issue in American politics, libertarians clearly were not in the center. But how about now? In recent years, the axis has shifted to cultural “red” vs. “blue” issues. As Edward Glaeser and Bryce Ward note in an excellent recent paper entitled “Myths and Realities of American Political Geography,”

[An] important truth captured by the red state/blue state framework is that political parties and politicians have had an increasing tendency to divide on cultural and religious issues rather than on economic differences.

Glaeser and Ward are right. There is little principled difference between the R’s and D’s these days about the size and scope of government. On that score, the main disagreements now are about which favored groups get to feed at the government trough at the expense of the rest of us. By contrast, the really fundamental issues today, the issues that define ideological loyalties and drive voters to the polls, are cultural questions: abortion, stem cell research, gay marriage, guns, immigration, nationalism. Church attendance is now a better predictor of voting patterns than income.

And so, whether Jonah likes it or not, libertarians are in the center of the American political debate as it is currently framed. In the red vs. blue culture wars, libertarians find themselves in the middle, along with that large, nonideological chunk of the electorate that is equally squeamish about the religious right and the countercultural left. This is a new and unaccustomed position for libertarians to be in, but I am coming to believe it represents a unique opportunity for us if we can figure out how to take advantage of it.

Long-Term Costs of a Minimum Wage

Greg Mankiw blogs an NBER study by David Neumark and Olena Nizalovaof on the minimum wage, including this finding by Neumark and Nizalovaof:

The evidence indicates that even as individuals reach their late 20’s, they work less and earn less the longer they were exposed to a higher minimum wage, especially as a teenager. The adverse longer-run effects of facing high minimum wages as a teenager are stronger for blacks. From a policy perspective, these longer-run effects of minimum wages are likely more significant than the contemporaneous effects of minimum wages on youths that are the focus of most research and policy debate.