Tag: unemployment

Two Minimum Wage Charts for Andy Puzder

Donald Trump has tabbed Andy Puzder to lead the Department of Labor. Puzder is the CEO of CKE, the restaurant outfit (read: Hardee’s and Carl’s Jr.). CKE, thanks to Puzder saving it from the bankruptcy hammer, employs 75,000 workers (read: jobs). Puzder knows that “high” minimum wages, such as the $15 per hour one thrown around by progressives, is a job killer for low-skill workers.

During his nomination hearings, Andy Puzder will no doubt be grilled about his views on “high” minimum wages. His inquisitors will trot out glowing claims about the wonders of a $15 per hour minimum wage, as did President Obama in his 2014 State of the Union address. As the President put it: “It’s good for the economy; it’s good for America.” Not so fast.

The glowing claims about minimum wage laws don’t pass the most basic economic smell tests. Just look at the data from Europe. The following two charts tell the tale and should be tucked into Andy Puzder’s briefing portfolio.

There are six European Union (E.U.) countries in which no minimum wage is mandated (Austria, Cyprus, Denmark, Finland, Italy, and Sweden). If we compare the levels of unemployment in these countries with E.U. countries that impose a minimum wage, the results are clear. A minimum wage leads to higher levels of unemployment. In the 21 countries with a minimum wage, the average country has an unemployment rate of 11.8%. Whereas, the average unemployment rate in the seven countries without mandated minimum wages is about one third lower — at 7.9%.

Another Lesson from Bastiat: So-Called Employment Protection Legislation Is Bad News for Workers

Frederic Bastiat, the great French economist (yes, such creatures used to exist) from the 1800s, famously observed that a good economist always considers both the “seen” and “unseen” consequences of any action.

A sloppy economist looks at the recipients of government programs and declares that the economy will be stimulated by this additional money that is easily seen, whereas a good economist recognizes that the government can’t redistribute money without doing unseen damage by first taxing or borrowing it from the private sector.

A sloppy economist looks at bailouts and declares that the economy will be stronger because the inefficient firms that stay in business are easily seen, whereas a good economist recognizes that such policies imposes considerable unseen damage by promoting moral hazard and undermining the efficient allocation of labor and capital.

We now have another example to add to our list. Many European nations have “social protection” laws that are designed to shield people from the supposed harshness of capitalism. And part of this approach is so-called Employment Protection Legislation, which ostensibly protects workers by, for instance, making layoffs very difficult.

MENA’s Misery Indices, a Story of Economic Failure

In my misery index, I calculate a ranking for all countries where suitable data exist. The misery index — a simple sum of inflation, lending rates, and unemployment rates, minus year-on-year per capita GDP growth — is used to construct a ranking for 108 countries. The table below is a sub-index of all Middle East and North African (MENA) countries presented in the world misery index.

A higher score in the misery index means that the country, and its constituents, are more miserable. Indeed, this is a table where you do not want to be first.

Syria and Iran were the most miserable in the region. War and sanctions have taken their toll. Bahrain and Kuwait are at the other end of the spectrum, with low (read: good) misery index scores.

Two points worth noting are somewhat related. First, the majority of countries in MENA have elevated misery index scores – scores above twenty. These poor scores indicate structural problems that require serious economic reforms. The second point, as indicated in the notes to the table, is that the governments in eight MENA countries were not even capable of producing the basic data required to calculate a misery index score. This represents government failure and suggests a lack of capacity to implement structural economic reforms.

Ignorance of Economics Is No Excuse

The new Spanish leftist party Podemos takes great inspiration from the victory of Syriza in Greece. As NPR reports:

Much of Europe is watching Greece closely after an anti-austerity party won elections there last weekend. And Spaniards are paying particular attention because Greece may be influential. A similar new political party–left-wing, anti-establishment–has formed in Spain over the past year. And polls show that it could win power in elections this fall.

If Podemos is elected, Spaniards may be disappointed in the results. Consider the cognitive dissonance here:

Many Spaniards are … frustrated that while the economy here is growing, unemployment still tops 23 percent and double that for youth. Polls show voters are switching to Podemos. It promises to raise the minimum wage, hike taxes on the rich and re-evaluate whether Spain should pay its debts.

Making it more expensive to hire workers and reducing the return on investment don’t seem like policies designed to deal with Spain’s appalling unemployment problem. Europe has had higher unemployment than the United States for most of the past two decades. In 2004, economist William B. Conerly suggested some reasons for that: longer and more generous unemployment benefits, reducing the incentive to find a job; inflexible wages; and job protections that make businesses reluctant to hire workers whom they won’t be able to let go. The economist Mark Perry reports that the unemployment rate in European countries with a minimum wage is twice as high as in countries with no minimum wage. And minimum wage laws certainly seem to reduce youth employment.

The World Misery Index: 108 Countries

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 108 countries based on “misery.”

Below the jump are the index scores for 2014. Countries not included in the table did not report satisfactory data for 2014.

The five most miserable countries in the world at the end of 2014 are, in order: Venezuela, Argentina, Syria, Ukraine, and Iran. In 2014, Argentina and Ukraine moved into the top five, displacing Sudan and Sao Tome and Principe.

The five least miserable are Brunei, Switzerland, China, Taiwan, and Japan. The United States ranks 95th, which makes it the 14th least miserable nation of the 108 countries on the table.

The World Misery Index: 109 Countries

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 109 countries based on “misery.” Below are the index scores for 2013. Countries not included in the table did not report satisfactory data for 2013.

Two Lessons from the Tunisian Election

The victory of the secular party Call of Tunisia (Nidaa Tounes) in the parliamentary election on Sunday carries two lessons for observers of transitions in the Middle East and North Africa (MENA). The first one is broadly optimistic, but the second one should be a cause for concern, heralding economic, social, and political troubles ahead.

1. The Arab Spring was not a one-way street to religious fundamentalism.

In spite of the unexpected and often violent turns that political events have taken in countries such as Syria or Libya, the revolutions across the MENA countries were not just thinly disguised attempts to impose theocratic rule on Arab societies. While Islam is an important cultural and social force, most people in the region have little appetite for a government by Islamist extremists. In fact, much of the headway that Islamist politicians made shortly after the fall of authoritarian regimes in the region can be explained by their track records as community organizers or providers of public services.

Tunisia is a case in point. Already in 2011, the country’s leading Islamic party, Ennahda, featured numerous women candidates in the election, and following a political crisis last year it negotiated a peaceful handover to a caretaker government that led the country to yesterday’s election.

Tunisia’s new leading political force, Nidaa Tounes, may have gained as many as 80 seats in the 217-seat parliament. It describes itself as a ‘modernist’ party. It unites secular politicians of various stripes, including labor union members, or former officials of the regime of president Zine el-Abidine Ben Ali. The leader of the party, the 87-year old Beji Caid el-Sebsi (who served as interim prime minister in 2011) had a long political career prior to the revolution, including an ambassadorship in Berlin after Ben Ali’s ascent to power.

2. Don’t expect radical economic reforms.

For those who feared that democratization in the MENA region could bring about theocracy and extremism, the status-quo nature of Nidaa Tounes is probably good news. At the same time, however, it seems unlikely that the party, whose sympathizers largely overlap with those of the country’s influential labor unions, will bring about the deep institutional and economic changes that Tunisia needs in order to extend access to economic opportunity to ordinary Tunisians by dismantling Byzantine red tape and corruption and freeing up its economy.

For example, while it is certainly praiseworthy that the party has promised to improve the economic situation of women, one should worry that it plans to do so by what are likely to be popular yet ineffective measures: creating a new government bureau fighting discrimination, investing in social housing for young female workers, and extending statutory maternity leave.

More importantly, in many areas the exact economic platform of Nidaa Tounes remains blurry. The party promises to foster consensus among the government, civil society, labor unions, and employers. It also promised to cut public spending – in part by reforming the system of fuel subsidies – increase industrial exports and promote industries with high value added, most notably hi-tech and renewable energy, and to subsidize economic development in poorer regions by an amount of 50 billion dinars ($28 billion) over the next five years, 30 billion of which would be coming from the public budget.

Heavy on clichés and light on specifics, these promises are reminiscent of electoral manifestos of social democratic parties of Europe. Regardless of whether that would be a good thing under normal circumstances, what Tunisia needs now is a bold agenda of economic liberalization, as well as a Leszek Balcerowicz-like figure to implement it. With a mushy economic program and Mahmoud Ben Romdhane – former deputy head of Tunisia’s ex-communist party, Ettajdid –as the key economic policy figure on the party, Nidaa Tounes offers neither.