Friday, April 4, 2014

Minimum Wage Laws Are Fundamentally Anti-Labor and Anti-Poor People

An Open letter to Thomas Perez, U.S. Secretary of Labor

Dear Secretary Perez:

Raising the minimum wage is a formula for causing unemployment among the least-skilled members of society. The higher wages are, the higher costs of production are. The higher costs of production are, the higher prices are. The higher prices are, the smaller are the quantities of goods and services demanded and the number of workers employed in producing them. These are all propositions of elementary economics that you and the President should well know.

It is true that the wages of the workers who keep their jobs will be higher. They will enjoy the benefit of a government-created monopoly that excludes from the market the competition of those unemployed workers who are willing and able to work for less than what the monopolists receive.

The payment of the monopolists’ higher wages will come at the expense of reduced expenditures for labor and capital goods elsewhere in the economic system, which must result in more unemployment.

Those who are unemployed elsewhere and who are relatively more skilled will displace workers of lesser skill, with the ultimate result of still more unemployment among the least-skilled members of society.

The unemployment directly and indirectly caused by raising the minimum wage will require additional government welfare spending and thus higher taxes and/or greater budget deficits to finance it.

Your and the President’s policy is fundamentally anti-labor and anti-poor people. While it enriches those poor people who are given the status of government-protected monopolists, it impoverishes the rest of the economic system to a greater degree. It does this through the combination both of taking away an amount of wealth equal to the monopolists’ gains, and of causing overall production to be less by an amount corresponding to the additional unemployment it creates. The rise in prices and taxes that results from raising the minimum wage both diminishes the gains of the monopolists and serves to create new and additional poor people, while worsening the poverty of those who become unemployed.

Read the rest here.

16 comments:

  1. No matter how many times someone argues against minimum wage laws and no matter how much sense their argument makes, I'm convinced there will be those who will simply refuse to accept it outright.

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    1. Yup. Emotion always trumps thinking in the minds of idiots. Stupid is as stupid does.

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    2. There's good reason for for this and it's not because people are stupid. It appears that people process moral information in different ways. It's our job to communicate the evils of minimum wage in a manner that people can hear it.
      http://smile.amazon.com/Righteous-Mind-Divided-Politics-Religion-ebook/dp/B0052FF7YM/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1396709933&sr=1-1&keywords=the+righteous+mind

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    3. @ Mark A

      It appears that one of the primary themes of the book that you reference is that reason is overrated as a tool for human debate and is therefore not useful in discussing "moral" or policy issues. Since both economic analysis and communication depend upon the use of reason, I am puzzled as to how one can "communicate the evils of minimum wage" laws "in a manner that people car hear" if the person that one is attempting to persuade refuses to use reason.

      I must also question the book author's view that the role of morality is "to suppress or regulate self-interest and make cooperative societies possible." That seems to rule out the whole idea that cooperative societies developed precisely because many people found them to be in their own self interest.

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    4. > It appears that one of the primary themes of the book that you reference is that reason is overrated as a tool for human debate and is therefore not useful in discussing "moral" or policy issues.

      That's not really a good summary of the book's thesis. I don't remember the specifics, but the gist is that there are 6 or 7 dimensions to moral reasoning. People arrive at different moral conclusions because they value those dimensions differently. The author clusters people into liberals, conservatives (even libertarians, although in a ham-handed way), etc and points out that their moral conclusions can be explained by how these clusters of people tend to cluster along the relative priority order that they give to these dimensions. Although I doubt the author realizes it, his basic framework fits awfully well in a Misesian/Rothbardian framework for analyzing action.

      > I must also question the book author's view that the role of morality is "to suppress or regulate self-interest and make cooperative societies possible." That seems to rule out the whole idea that cooperative societies developed precisely because many people found them to be in their own self interest.

      Not at all. The author is merely making the point that some moralities would make a cooperative society impossible. For example, if humans had a high preference for violence and a relatively low preference for communication, it's not likely that we would have advanced beyond the state of nature. It is because humans (typically) have share a morality that hurting others has a lower preference than exchange that we have advanced.

      It occurs to me that morality is a merely a particular ordering of certain value dimensions and that humans share an ordering of a certain subset of these value dimensions while we have different ordering of others. I suspect that we share the lower ordering of these dimensions while there is more disagreement as you go higher.

      More to the point, if you accept the book's thesis (and the book presents pretty compelling research), liberals, conservatives, libertarians, etc will reason about the morality of wages differently. Greatly oversimplifying, some people will believe that we should treat our neighbors with love and thus, paying too little is a hateful act while others will see wages as an interaction between individuals where marginal revenue equals pay. In order to effectively argue against the state being involved in wages, we have to recognize our opponent's moral reasoning for being sympathetic to minimum wage laws. Then, we must communicate, in terms of our opponent's particular value scale how minimum wage laws are counter-productive and how a free society is a better way of reaching the desired goal.

      If we communicate using a moral reasoning that's different from our opponent, we're not going to get anywhere. We're immediately shut out as cold hearted monsters who hate poor people.

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  2. Sometimes I have to wonder if those making the laws don't already know this but simply ignore it because it gets them votes from those that don't know better.

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    1. You can't make an omelet without breaking a few eggs.

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  3. Congress Prepares To Give GE A Big Tax Break

    The GE loophole is available to any company with financial income that it can claim was generated offshore, such as by a foreign banking subsidiary. The loophole rewards the American parent company for investing overseas by sheltering its profits from U.S. tax until the American parent brings the money home.

    So GE can avoid the tax bill as long as it likes by keeping its profits invested in other countries. Not only does the loophole shortchange taxpayers, it also creates an incentive to invest overseas instead of here at home.

    Worse, the nature of financial income makes it relatively easy for companies to use the loophole to assign profits to subsidiaries in tax haven countries while assigning losses here at home.

    In 2010, Forbes dryly observed that “Over the last two years, GE Capital has displayed an uncanny ability to lose lots of money in the U.S. (posting a $6.5 billion loss in 2009), and make lots of money overseas (a $4.3 billion gain).”
    Just as in the 1990s, this year’s effort is backed by fierce lobbying. GE leads the current effort, according to a very recent report by Americans for Tax Fairness and Public Campaign. The report found that—just on the GE loophole alone—292 individual lobbyists representing 41 companies and trade associations worked on Congress, and 98 of them were paid for by GE. Twenty-eight of those are “revolvers”—former members of Congress, former Congressional staffers, or former Executive Branch officials.
    Read more: http://www.benzinga.com/general/politics/14/04/4443255/congress-prepares-to-give-ge-a-big-tax-break#ixzz2xwFU4Rdu

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  4. -- Those who are unemployed elsewhere and who are relatively more skilled will displace workers of lesser skill, with the ultimate result of still more unemployment among the least-skilled members of society. --

    The effect of imposing an artificial price-floor on labor will be as described above: employers will see their opportunity cost go up the moment they hire the lesser-skilled laborer over a higher-skilled laborer. I described this exclusion effect in my blog though a simple analogy: if government decided to impose a price-floor on vacuum cleaners, all the lesser-value vacuum cleaners would suddenly lose their market edge over the higher-priced vacuum cleaners (like the Dyson, in my example) making homemakers decide for the Dyson instead of other brands, looking to achieve more bang for their buck.

    Thus a price-floor on labor will result in employers disdaining those workers that simply do not offer the same level of performance for the artificial price as higher-skilled workers, as would happen to the competition of the Dyson vacuum cleaners if all vacuum cleaners were priced at the same level.

    http://oldmexican.blogspot.com/2012/07/minimum-wage-and-vacuum-cleaners.html

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    1. The price floor is not artificial. You're making a circular argument. You are assuming the labor market is efficient. It's not. There are a lot of under paid workers. You also don't take elasticity into account. If you start a business which merely requires someone to run a cash register, you have a large supply of labor. Let's say the business makes $100/hour profit but you can't do it without a cashier. You can get somebody to do that job for $5.00/hour. Now the govt raises the minimum wage to $20.00/hour. You going to fire that cashier? No.

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    2. The $80 profit turns out to be not enough to cover expenses and other headaches..and now the owner, who took the risk and invested time and money is now making the same salary as the unskilled worker...why start a business in the first place when we all can work at a high paying low stress job without any risk. You know Harry running that lemonade stand in front of your mother's house does not make you a business man.

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    3. Jerry, in that case fire one or more the stockboys and make the others take up the slack. An extra $15 an hour per employee eats that $100/hr profit up fast. Or replace the cashier with a self-serve checkout where one overseer can handle four lines. Change the way stock is handled. Maybe pre-racked displays from the product companies. One way or another labor costs will be aligned as required to the new rates by using fewer people.

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    4. Jerry - You don't fire the cash register operation but you do search high and low for cheaper alternatives. I don't know a more apropos example than this:
      http://www.cnet.com/news/mcdonalds-hires-7000-touch-screen-cashiers/

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    5. Jimmy Joe....that self-serve checkout cost money...you are barely making it as it is due to the smaller profit margin. It is difficult to reinvest in the business for improvements because of all the unforeseen added costs like...like that punk ass Jerry Boy throwing bricks through your window...or higher taxes to support the warfare-welfare state...the headaches..the headaches...gotta fire that cashier..thank god he is not black or homosexual or he might sue me for discrimination...gotta make payroll....bad winter, business is slow... I hope the IRS will give me that extension or installment plan for back taxes...maybe I can get that juice loan to pay for the taxes...what's this message..who called? The fire inspector has informed us that we have to replace all the batteries in our emergency lights...man, damn batteries only last a few years? I hope I can get them cheap on line somewhere...thank god for cheap shit from China....prices are rising everywhere how much should I raise my prices to make up for all the added cost and inflation?,,,my employees just don't understand what it is like running this place..what can't they share in responsibility?...I hope they are not stealing for me....This is what you think about at 2 in the morning laying awake wide eyed as Jerry sleeps soundly in his mother's basement.

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    6. Indeed, the annual safety shakedowns. The building was built that way 30 years ago, the standards haven't changed, government inspected it and approved it when it was built, it has passed it for 30 years, but suddenly it has to be changed. Sometimes they change the law and 20 years later they decide to enforce it on one guy but not the other. Such fun.

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  5. I don't know but arbitrarily deciding on a number and imposing it on others sounds pretty artificial.

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