Democrat Economic Leadership

[dgs49]

Barry & The Progressives Just Don’t Get It

An editorial yesterday in the local birdcage liner made a point that I have tried to make in a number of different forums for many years: Not all “jobs” are equal. To pursue “jobs” as though one job is as valuable as any other is the exact form of foolishness that has brought Greece, Ireland, Portugal, and many other EU nations to the brink of financial ruin. They all have lots of “jobs,” but the majority of them are jobs of limited or no productivity, suckling at the Government’s breast. No economy can survive in the long term without an abundance of jobs that create wealth.

The optimal form of job is one that creates (or helps to create) a product or service for which people or businesses will voluntarily spend their money to obtain a real-or-perceived benefit. Manufacturing, farming, and building construction are the obvious examples of such jobs, but information technology, the service industries, and even wholesale and retail provide jobs that have value to the economy, and are thus “good” jobs.

References to the “broken window” fallacy are rather common, but the President and his “Progressive” cronies seem not to understand that it actually is a fallacy. Briefly, the fallacy lies in the assumption that a shopkeepers’ broken window is actually a positive economic development, because it provides work for the glazier who has to fix it. It is in fact a fallacy because it ignores the benefit that is lost because the shopkeeper cannot now spend that money on a new suit of clothes (i.e., work for the tailor), which is what he would rather have done with that money.

Today’s “Progressives” apparently believe that the money required to retain a superfluous government worker (money that is borrowed by government) is no different from the money required to hire a private sector worker (funded by a tax cut, also government-borrowed money). These two jobs are not equal: one is much better than the other.

Progressives believe that forcing private enterprises to spend money to comply with new air pollution standards, or groundwater standards, or to fill out a cornucopia of new forms to meet corporate “transparency” requirements – these are all good things, because they create “jobs.” They believe it is worthwhile for government to subsidize non-viable “renewable” energy initiatives because it induces companies and utilities to spend money (and presumably hire people) in areas where they would not do so otherwise.

But none of these things creates any wealth. On the contrary, they suck the wealth out of the economy, diverting money from potentially productive spending (creating good jobs) to spending that produces nothing (not-so-good jobs).

Worst of all, in the face of Social Security and Medicare financial catastrophes brought about by promises given without regard to how they would be paid for, they promote even more unprecedented government borrowing, to pay for more and more new or “saved” unproductive jobs, even while this disastrous strategy plays out before our eyes in many countries in Europe. But Germany can’t bail us out.

A sane and cogent “jobs” program would be focused on freezing or reducing counterproductive government regulations (including Obamacare), inducing American companies to bring production back on-shore (I have several acquaintances who complain that off-shore production is NEVER as profitable as was expected), and creating tax incentives to get Corporate America to repatriate the trillion or so in profits that is currently sitting in foreign bank accounts. An elimination of the Federal minimum wage would also create millions of jobs for many low-skilled people who are now essentially shut out of the job market because they do not have the skills to EARN MW + payroll taxes and benefit costs.*

At the same time, we should be seeing initiatives that will allow governments at all levels to deal effectively with the reduction in tax revenues by curtailing public sector union work rules and seniority privileges, repealing “prevailing wage” laws and project labor agreement requirements, and dealing with the coming tsunami of pension-related municipal bankruptcies in a uniform and rational manner.

But this will never happen as long as the Progressives fail to recognize the difference between good jobs and not-so-good jobs, and start to understand that a broken window is not a good thing. Of course, this will never happen, because without government workers and unions, the Democrats would be nothing more than a pathetic shell of a party.

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* For you staunch defenders of the Minimum Wage, I would ask the flip side of your question about gay “marriage”: “How does it hurt YOU if an employer hires a teenager @ $4.00/hr?"

[Scooter]

It depresses overall wages.
It depresses consumption and is therefore a drag on the economy.
It increases the cost of social welfare programs.
It creates a disincentive to finding legitimate work and encourages seeking income from illegal means, increasing criminal activity.

[dales]

For you staunch defenders of the Minimum Wage, I would ask the flip side of your question about gay “marriage”: “How does it hurt YOU if an employer hires a teenager @ $4.00/hr?"

It devalues the idea of work for all of us.

If a "teenager" is lucky enough to snag a job in this crappy economy at a less than legal wage, why is their work any less valuable?

[Long Run]

I think both parties have shown they don't get what makes the economy go, though there are pols in each party that certainly do. The latest group of stimulus proposals are nothing more than more of what we had in 2009-10, and which will, at best, provide a bit of a spurt to the economy while adding another 1/2 trillion to the debt (along with the trillion dollar deficit that is going to be added anyway with scheduled government spending exceeding revenues, i.e., the same type of stimulus). Then the economy is back to where it would have been because the fundamentals are not there for economic growth. None of us know what the solution is to get things going again, but we know that the answer if not the same old Keynesian pump priming.

We must assume that the Administration is not full of ignoramuses, and thus is hoping for one of two things: 1) the proposals are enacted to provide a small spurt that moves the economic numbers a bit in the right direction, to give Obama a fighting chance for reelection; or 2) by the Rs not going along with this poor economic plan, he can put the blame for the bad economy on the Rs. Either way, it is a poor plan that is being proposed solely for political purposes.

[dgs49]

I am told that the word, "earn" does not translate well into other languages. The idea that an employee must "earn" his salary by producing value that is at least equal to the employee's cost is certainly not alien from an accounting standpoint, but non-English-speaking Europeans bristle at the idea that an employee may not have sufficient value to warrant his or her paycheck.

Regarding the minimum wage: There is a lot of work that can be done around businesses that has less value than, say, the $9.50 or so per hour that the MW costs an employer. It may be sweeping floors or the front sidewalk, being a "trainee" for a lower-level job, or doing work that adds intangible value to a product or service. I was speaking just yesterday to an uncle who has a small construction business, mainly building retaining walls. There was a time when he hired HS students in the summer to do little cleanup chores to supplement what his main workers were doing. It made the job look "nicer" when all was said and done. But it's not worth minimum wage to him, so he doesn't do it anymore. Fortunately, his reputation is such that he no longer needs this little bit of window dressing to keep his jobs coming.

For someone who has no skills and no experience, the minimum wage is a significant hindrance to entering the world of gainful employment.

And Obamacare will have the same kind of effect on the job market. It will increase the cost to an employer of an entry-level employee, and make it less likely that the person will be hired.

Talk to employers in France and Germany and they freely admit that taking on a new employee is a lifetime burden for a company, so they don't hire anyone who is not "gold-plated" when he walks through the door. In the process of helping workers by giving them job security, these governments have effectively doubled their unemployment rate, in perpetuity.

America's "Progressives" have no idea the harm they are doing to the overall population by "protecting" them from employer abuse.

As for deficit spending, I am willing to assume that Lefties sincerely believe that the money they pour into the economy through things like extended unemployment benefits, hiring more government workers (and keeping excess ones), and subsidizing fledgeling businesses will pay off in the long run. I would only point out that (a) it has never worked, and (b) even if you assume that the public debt never has to be paid off, the promiscuous addition to the debt burden cannot help but cause harmful long-term problems.

[Scooter]

I was speaking just yesterday to an uncle who has a small construction business, mainly building retaining walls. There was a time when he hired HS students in the summer to do little cleanup chores to supplement what his main workers were doing. It made the job look "nicer" when all was said and done. But it's not worth minimum wage to him, so he doesn't do it anymore.

Unless your uncle is 175 years old he was always paying minimum wage for that work when it was being done for him, so the reason he decided to stop having it done has nothing to do with the minimum wage, which has not even kept pace with inflation in the last 40 years.

[quaddriver]

We must assume that the Administration is not full of ignoramuses, .

did something change recently?

[The Hen]

I thought the "broken window" theory was if you don't fix and repair the small things, further damage and destruction will be done to the property because the false assumption is made that nobody cares. Much like the US economy.

I am certainly glad that the Unions in Aus have fought hard for a decent minimum wage for workers. Anyone who thinks it is not worth paying the minimum wage for someone to sweep or clean seriously has wealth issues. That kind of thinking will just end up biting you on the bum in the long term.

[Gob]

List of minimum wages by country

The USA has set the rate at the lower end of the scale for a first world country, so it shouldn't be a major disadvantage.

Australia (€417) per week; set federally by the Fair Work Australia C$ 29,640

France €9.00 per hour; per month for 151.67 hours worked C$ 17,701

Ireland €8.65 per hour. C$ 16,56

Netherlands €1,398.60 per month, C$ 19,335

New Zealand NZ$13.00 (€7.23) per hour for persons aged 18 or over, C$ 16,462

United Kingdom £5.93 per hour (aged 21 and older), per hour C$ 22,597

United States the federal minimum wage is US$7.25 per hour; C$ 15,080

C$ = international dollars

[The Hen]

I am pleased that Aus is at the top of the minimum wage. Though I am certainly not surprised.

Never leave your poor so far behind you. Reduce the gap, increase their personal respect and you will find you have workers you will want working for you.

[Long Run]

Historically, here, at least, the minimum wage was set low enough that it didn't significantly impact hiring decisions. With the recent minimum wage increases, which coincidentally or not, occurred just before the recent economic unpleasantness, the minimum wage now has a larger impact on hiring decisions. It is the most elementary of economics that a high enough minimum wage will negatively impact employment rates. You can argue that the minimum wage is necessary to protect workers, but it is not honest to argue it has no impact on how many people can find jobs. In a down economy, for the unskilled worker, it is good pay if you can get it; but what about the many who can't get any work because the minimum wage rate is too high?

[rubato]

Increases in the minimum wage are far behind inflation and everytime they have looked into it they have proven that increases in the minimum wage did not reduce hiring. At all.

Empirically, it is a dead issue.

Go find another dead horse to beat.

yrs,
rubato

[rubato]

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http://delong.typepad.com/sdj/2006/06/t ... m_wag.html

June 22, 2006
The Minimum Wage: Some Aircover for Gene Sperling...

Gene Sperling could use some aircover. Greg Mankiw writes:

Greg Mankiw's Blog: Sperling on the Minimum Wage: Gene Sperling, former economic adviser to Bill Clinton, tries to get President Bush to endorse a minimum-wage increase. Gene dismisses worries about adverse effects on employment. He writes:

No one has yet rebutted convincingly David Card and Alan Krueger's study that compared fast-food jobs on the border of New Jersey and Pennsylvania, and found no decrease in lower-wage jobs after New Jersey raised its state minimum wage.

The key word here is "convincingly." Gene is, apparently, not convinced by the Neumark-Wascher study that reevaluated the Card-Krueger work.... To me, Gene looks like a doctor prescribing a drug relying on a single controversial study that finds no adverse side effects, while ignoring the many reports of debilitating results.

Some air cover is provided by two non-big-fans of the minimum wage whose take on the evidence on employment effects coincides with Gene's:

Tyler Cowen
Stephen Landsburg

Some more air cover if provided by Card and Krueger. I, at least, thought the issue was settled in Card and Krueger's favor by their rebuttal of Neumark and Wascher.

And Jason Furman tells me to go read Daron Acemoglu and Jörn-Steffen Pischke on the minimum-wage-and-training issue:

Daron Acemoglu and Jörn-Steffen Pischke (2001), "Minimum Wages and on-the-Job Training (Bonn: IZA Working Paper 384):

Becker’s theory of human capital predicts that minimum wages should reduce training investments for affected workers because they prevent these workers from taking wage cuts necessary to finance training. In contrast, in noncompetitive labor markets, minimum wages tend to increase training of affected workers because they induce firms to train their unskilled employees. We provide new estimates on the impact of the state and federal increases in the minimum wage between 1987 and 1992 on the training of low wage workers. We find no evidence that minimum wages reduce training, and little evidence that they tend to increase training. We therefore develop a hybrid model where minimum wages reduce the training investments of workers who were taking wage cuts to finance their training, while increasing the training of other workers. Finally, we provide some evidence consistent with this hybrid model.

And also Daron Acemoglu, “Good Jobs vs. Bad Jobs”:

Daron Acemoglu (2001), "Good Jobs versus Bad Jobs," Journal of Labor Economics 19:1, pp. 1-21:

This article develops a model of noncompetitive labor markets in which high-wage (good) and low-wage (bad) jobs coexist. Minimum wages and unemployment benefits shift the composition of employment toward high-wage jobs. Because the composition of jobs in the laissez-faire equilibrium is inefficiently biased toward low-wage jobs, these labor market regulations increase average labor productivity and may improve welfare.

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[quaddriver]

a person earning the min wage will get grub stubs, free heat, rent assistance, car assistance, pay zero in taxes and will even get back a couple thou in the EITC. As a result, Im willing to bet a person working at the min wage in the USA has more material possessions cuz thats how it tends to get spent.

[rubato]

http://oregonstate.edu/instruct/anth484/minwage.html





yawn

[rubato]

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http://delong.typepad.com/sdj/2007/07/t ... m-wag.html

The Minimum Wage: Looking Across the Washington-Idaho State Line

Jared Bernstein pointed this out to me six months ago:

For $7.93 an Hour, It's Worth A Trip Across the State Line By TIMOTHY EGAN: Just eight miles separate this town on the Washington side of the state border from Post Falls on the Idaho side. But the towns are nearly $3 an hour apart in the required minimum wage. Washington pays the highest in the nation, just under $8 an hour, and Idaho has among the lowest, matching 21 states that have not raised the hourly wage beyond the federal minimum of $5.15.

Nearly a decade ago, when voters in Washington approved a measure that would give the state's lowest-paid workers a raise nearly every year, many business leaders predicted that small towns on this side of the state line would suffer. But instead of shriveling up, small-business owners in Washington say they have prospered far beyond their expectations. In fact, as a significant increase in the national minimum wage heads toward law, businesses here at the dividing line between two economies -- a real-life laboratory for the debate -- have found that raising prices to compensate for higher wages does not necessarily lead to losses in jobs and profits. Idaho teenagers cross the state line to work in fast-food restaurants in Washington, where the minimum wage is 54 percent higher. That has forced businesses in Idaho to raise their wages to compete.

Business owners say they have had to increase prices somewhat to keep up. But both states are among the nation's leaders in the growth of jobs and personal income, suggesting that an increase in the minimum wage has not hurt the overall economy. ''We're paying the highest wage we've ever had to pay, and our business is still up more than 11 percent over last year,'' said Tom Singleton, who manages a Papa Murphy's takeout pizza store here, with 13 employees. His store is flooded with job applicants from Idaho, Mr. Singleton said. Like other business managers in Washington, he said he had less turnover because the jobs paid more.

By contrast, an Idaho restaurant owner, Rob Elder, said he paid more than the minimum wage because he could not find anyone to work for the Idaho minimum at his Post Falls restaurant, the Hot Rod Cafe. ''At $5.15 an hour, I get zero applicants -- or maybe a guy with one leg who wouldn't pass a drug test and wouldn't show up on Saturday night because he wants to get drunk with his buddies,'' Mr. Elder said...

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yrs,
rubato

[Long Run]

Our common sense tells us that if you make the minimum wage high enough, it will reduce employment, else why not make it $30 per hour? So, obviously, if the wage is increased, as it has been, it will have some impact in a bad economy on those who work at that level of wage. Beyond our common sense is the plethora of academic studies that prove what we already know.

From a 2009 article in the WSJ:

Yesterday's September labor market report was lousy by any measure, with 263,000 lost jobs and the jobless rate climbing to 9.8%. But for one group of Americans it was especially awful: the least skilled, especially young workers. Washington will deny the reality, and the media won't make the connection, but one reason for these job losses is the rising minimum wage.

Earlier this year, economist David Neumark of the University of California, Irvine, wrote on these pages that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. Sure enough, the mandated increase to $7.25 took effect in July, and right on cue the August and September jobless numbers confirm the rapid disappearance of jobs for teenagers.

The September teen unemployment rate hit 25.9%, the highest rate since World War II and up from 23.8% in July. Some 330,000 teen jobs have vanished in two months. Hardest hit of all: black male teens, whose unemployment rate shot up to a catastrophic 50.4%. It was merely a terrible 39.2% in July.

The biggest explanation is of course the bad economy. But it's precisely when the economy is down and businesses are slashing costs that raising the minimum wage is so destructive to job creation. Congress began raising the minimum wage from $5.15 an hour in July 2007, and there are now 691,000 fewer teens working.

As the minimum wage has risen, the gap between the overall unemployment rate and the teen rate has widened, as it did again last month. (See nearby chart.) * * *

Congress and the Obama Administration simply ignore the economic consensus that has long linked higher minimum wages with higher unemployment. Two years ago Mr. Neumark and William Wascher, a Federal Reserve economist, reviewed more than 100 academic studies on the impact of the minimum wage. They found "overwhelming" evidence that the least skilled and the young suffer a loss of employment when the minimum wage is increased. Whatever happened to President Obama's pledge to follow the science? Democrats prefer to cite a few outlier studies known to be methodologically flawed. * * *

According to new numbers from the Labor Department, in 2008 only 1.1% of Americans who work 40 hours a week or more even earned the minimum wage. In other words, 98.9% of 40-hour-a-week workers earn more than the minimum. The data also show that teenagers are five times more likely to earn the minimum wage than adults. Minimum wage jobs are nearly all first-time or part-time jobs, and an estimated two of every three minimum wage workers get a pay raise within a year on the job.

Study after study reveals that there are long-term career benefits to working as a teenager and that these benefits go well beyond the pay that these youths receive. A study by researchers at Stanford found that those who do not work as teenagers have lower long-term wages and employability even after 10 years. A high-wage society can only come by making workers more productive, and by destroying starter jobs the minimum wage may reduce long-term earnings.

Another recent study across 17 OECD nations, also by Messrs. Neumark and Wascher, found a highly negative association between higher minimum wages and youth employment rates. But it also concluded that having a starter wage, well below the minimum, counteracts much of this negative jobs impact. If Congress won't suspend its recent minimum wage hike, it should at least create a teenage wage of $4 or $5 an hour to help put hundreds of thousands of teens back to work. White House chief economic adviser Larry Summers has endorsed this in the past. Without this change, expect the teen unemployment to remain very high for a long time.

http://online.wsj.com/article/SB1000142 ... 69840.html

[Scooter]

Congress began raising the minimum wage from $5.15 an hour in July 2007, and there are now 691,000 fewer teens working.

To claim any cause and effect relationship between the increase in the minimum wage and job losses, considering everything else that has contributed to unemployment, is post hoc argumentation at its crudest.

[quaddriver]

Congress began raising the minimum wage from $5.15 an hour in July 2007, and there are now 691,000 fewer teens working.

To claim any cause and effect relationship between the increase in the minimum wage and job losses, considering everything else that has contributed to unemployment, is post hoc argumentation at its crudest.

Of course, since it is accepted fact that mandating what a business must pay for labor will cause them to buy more of it

[Gob]

Aus pays double the rate of minimum wage that the US does, and yet has lower unemployment.