Topic: Trade and Immigration

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.

House Faces the Dumbest Bill of the Year (So Far): A $2.10 Increase in the Minimum Wage

House Republicans have one last chance to demonstrate that they have any remaining intelligence or principles. On June 13, the House Appropriations Committee approved a bill that would increase the minimum wage from $5.15 to $7.25 per hour over the next three years. This bill, with the support of seven Republicans on the committee, would implement one of the highest priorities of the congressional Democratic leadership.

An increase in the minimum wage is one of the dumbest possible policies for the following reasons:

  1. The employment of the least-skilled members of the labor force—often new entrants—would be reduced.
  2. The non-wage benefits and working conditions of those who keep their jobs at the higher wage would probably be reduced.
  3. Most of those who keep their jobs at the higher wage would be secondary workers in non-poor families.

An increase in the minimum wage has long been a symbolic issue for the Democrats, however inconsistent with their other professed political values. House Republicans should challenge the Democrats on this issue, pointing out that an increase in the minimum wage would most hurt those that they claim to help. To do this, the House Republicans should split off the minimum wage provision from the appropriation bill, allow a separate floor vote on this provision, and demonstrate the absurdity of this proposal by a defeating this measure by a large margin. I’m waiting for a demonstration of good sense, in part, to determine whether there is any remaining reason to favor a Republican majority in the House.

Local Musician Tired of Being Hassled by the Man

A recent article on the new Massachusetts health insurance law quotes an aspiring young musician who is skeptical of both the individual mandate and the subsidies designed to help low-income individuals satisfy the mandate:

“I’m aware that I lead a lifestyle where you have to live really cheaply. So something I think about is what if I tried to do something to make a little more money?” said Crosby. “What if I get a job and I start having to pay several hundreds of dollars for health insurance just because I come out of making a low income? Sometimes I think the state does things that encourage people to stay poor.”

Rock on, Ryan Crosby.  Rock on.

Income Inequality and Social Unrest: What’s Their Function?

The current debate on Cato Unbound, particularly today’s contribution from economist Edward E. Leamer, circles around the danger that income inequality poses to political stability.

Leamer argues that computer technology amplifies innate talent differences, and hence will widen existing income disparities. This seems undeniable. He then goes on to imply that this is necessarily a threat to political stability or social harmony. But is it?

Leamer’s unstated assumption is that there is a simple monotonic relationship between income disparities and social unrest. That is certainly a reasonable hypothesis, but it is not the only such hypothesis.

Isn’t it also possible that the relationship is more complex, and multivariate? It seems at least worth investigating the possibility that the relationship between income inequality and political instability is asymptotic – that the richer and richer Bill Gates becomes, the less impact any further increase in his income will have.

More importantly, isn’t it also worth considering the possibility that there are other variables in the equation besides income inequality; for example, the sufficiency of the incomes earned by those in the lowest quartile of the earnings distribution. If the poorest quarter of citizens were destitute, that would seem more socially destabilizing than if they could comfortably feed, clothe, and house themselves and their families – regardless of the incomes of the rich. Someone able to live comfortably might not care if the richest citizens double their incomes tomorrow, whereas someone who is barely scraping by might resent even the most modest increase in the incomes of the rich.

So perhaps the seemingly inevitable increase in income inequality will not pose a threat to social stability, so long as those with the least marketable skills can still earn a comfortable living.

It would be interesting to see a natural experiment conducted to test this theory using historical data.

New at Cato Unbound: Frank Levy on Education and Inequality in the Creative Age

In today’s reply to Richard Florida’s lead essay on “The Future of the American Workforce in the Global Creative Economy,” Frank Levy, Daniel Rose Professor of Urban Economics in the MIT Department of Urban Studies and Planning, agrees that creativity is more important than ever in a world where computers and foreign workers can do routine work less expensively than domestic workers. This shift, Levy says, requires better education in problem-solving. But better education can only do so much. The gains from rising labor productivity are going largely to the wealthy, Levy argues. Unless policies and norms are reinstated that spread those gains more widely, “all of the nation’s institutions will be at risk.”

A Jobs Program for Lawyers

Earlier this week, Rep. Phil English (R-Pa.) introduced some of the most cynical trade legislation in recent memory. Simply put, English’s bill and a Doha Round agreement are mutually exclusive. 

English calls for significantly lowering the already laughably lax evidentiary thresholds (described by Brink Lindsey and me here, here, here, here, here, here, here, and here) required to impose antidumping, countervailing duty, and safeguard protection. The legislation collides head on with the practical requirement of the Doha negotiating mandate that those rules be tightened, not loosened.

In introducing his legislation, English relies on the same tired, well-refuted rhetoric: “Failing to update our outdated trade laws allows foreign countries to continue robbing Americans of their jobs,” he says. Pu-lease

Granted, in Mr. English’s district of Erie, Pa., the unemployment rate of 5.1 percent is slightly higher than the downward-trending national rate of 4.6 percent (just announced today). Yet Erie’s rate is still well below the national average in each of the past four decades. 

But it’s not the jobs of his Erie constituents that English seeks to protect. Rather, it’s the jobs of Washington’s legions of underutilized trade lawyers who are the primary beneficiaries of this proposal. 

“My initiative streamlines the process for American companies seeking relief against import surges, illegal imports, and other crippling circumstances stemming form trade,” English says. “Our trade laws are essential to police our domestic market and are used only when others break the rules. Now is the time to fix the law to serve our interests, not those of predatory trading partners.”

Exactly whose interest he means by “our interests” should be clear. There’s been a lot of talk within the trade community recently about the paucity of new trade remedy cases. In fact, there has been only one U.S. antidumping initiation this entire year, and only three over the past 10 months, which is a major dropoff from the one or two per months we’ve seen for the past few years. Combine that trend with the recent “softwood lumber” truce between the United States and Canada, and you have a sudden glut of starving trade lawyers. (And Research-in-Motion thought it was out of the woods when its patent infringement suit settled!)

The reduction in trade remedy cases is attributable to a few laudable facts: 

First, the U.S. economy has been growing steadily, if not handsomely, for over four years now. Under those circumstances, it’s difficult to make the case that your industry is materially injured (one of the stubborn requirements of winning antidumping protection). 

Second, the U.S. steel industry, which accounts for the preponderance of antidumping protection, is healthier than it has ever been. 

Third, as globalization has progressed, supply chains have gone international. The once clear definition of a domestic industry has been blurred by the fact that production of a final product often takes place in multiple countries. Bringing antidumping suits has a greater downside now, as domestic petitioners are more likely to ensnare an entity in its own supply chain or related to them in some other way. 

And fourth, as the world economy has expanded, producers have many more sales opportunities around the globe than they used to. Emerging demand in previously flat markets has caused managers to rethink their sales strategies: fewer are pursuing a strategy of competing on price in the United States, while more are looking to be early entrants in developing markets.

So, since the conditions that give rise to successful antidumping petitions are scarce today, the lawyers are trying to create demand for trade remedy measures by lowering the standards. If Congressman English’s bill were to become law, they just might succeed. What will be interesting to track is the rigor with which respondent law firms (those firms that typically represent importer and foreign-producer interests) oppose this legislation. The current environment favors their clients, but the lack of legal action doesn’t pay those hefty lawyer salaries.