Tag Archives: Minimum Wage

Should blacks vote for Democrats? Do liberal policies help young black men?

I want to quote from two black economists – my two favorite economists – to answer some questions.

First, Thomas Sowell.

Economist Thomas Sowell
Economist Thomas Sowell

Is minimum wage good for young blacks?

He writes:

Low-income minorities are often hardest-hit by the unemployment that follows in the wake of minimum wage laws. The last year when the black unemployment rate was lower than the white unemployment rate was 1930, the year before there was a federal minimum wage law.

The following year, the Davis-Bacon Act of 1931 was passed, requiring minimum wages in the construction industry. This was in response to complaints that construction companies with non-union black construction workers were able to underbid construction companies with unionized white workers (whose unions would not admit blacks).

Looking back over my own life, I realize now how lucky I was when I left home in 1948, at the age of 17, to become self-supporting. The unemployment rate for 16- and 17-year-old blacks at that time was under 10%. Inflation had made the minimum wage law, passed 10 years earlier, irrelevant.

But it was only a matter of time before liberal compassion led to repeated increases in the minimum wage to keep up with inflation. The annual unemployment rate for black teenagers has never been less than 20% in the past 50 years, and has ranged as high as over 50%.

You can check these numbers in a table of official government statistics on page 42 of professor Walter Williams’ book “Race and Economics.”

Incidentally, the black-white gap in unemployment rates for 16-year-olds and 17-year-olds was virtually nonexistent back in 1948. But the black teenage unemployment rate has been more than double that for white teenagers for every year since 1971.

Second, Walter Williams.

Economist Walter Williams
Economist Walter Williams

Is voting for black leaders good for blacks?

He writes:

Black leaders stress the importance of political power and getting out the vote, but we might ask how important political power is to the ordinary black person. As a start toward answering that question, we might examine black life in cities where blacks hold considerable political power.

Detroit is the nation’s most dangerous city. Rounding out Forbes magazine’s 2013 list of the 10 most dangerous cities are Oakland, Calif.; St. Louis; Memphis, Tenn.; Stockton, Calif.; Birmingham, Ala.; Baltimore; Cleveland; Atlanta; and Milwaukee.

According to a recent American Community Survey by the U.S. Census Bureau, the 10 poorest cities with populations of more than 250,000 are Detroit, with 33% of its residents below the poverty line; Buffalo, N.Y., 30%; Cincinnati, 28%; Cleveland, 27%; Miami, 27%; St. Louis, 27%; El Paso, Texas, 26%; Milwaukee, 26%; Philadelphia, 25%; and Newark, N.J., 24%.

In addition to poverty, there is grossly inferior education and high welfare dependency in these cities.

The most common feature of these cities is that for decades, all of them have had Democratic administrations. Some cities — such as Detroit, Buffalo, Newark and Philadelphia — haven’t elected a Republican mayor for more than a half-century.

What’s more is that in most of these cities, blacks have been mayors, chiefs of police, school superintendents and principals, and have dominated city councils.

[…]Let’s be clear about what I am saying and not saying. I am not suggesting that there’s a causal relationship between crime, poverty and squalor on the one hand and Democratic and black political power on the other. Nor am I suggesting that blacks ought to vote Republican.

What I am saying is that if one is strategizing on how to improve the lives of ordinary — and particularly the poorest — black people, he wants to leave off his high-priority to-do list the election of Democrats and black politicians. Also to be left off the to-do list is a civil rights agenda.

Perhaps the biggest roadblock to finding solutions is the widely held vision that the major problem confronting blacks is discrimination. I am not arguing that every vestige of discrimination has been eliminated. I am arguing that the devastating problems facing a large proportion of the black community are not civil rights problems. The solutions will not be found in the political or civil rights arena.

And third, more Walter Williams.

Is focusing on the few cases where a white police officer shoots a black man good for blacks?

He writes:

Excerpt:

Each year, roughly 7,000 blacks are murdered. Ninety-four percent of the time, the murderer is another black person.

According to the Bureau of Justice Statistics, between 1976 and 2011, there were 279,384 black murder victims. Using the 94-percent figure means that 262,621 were murdered by other blacks.

Though blacks are 13 percent of the nation’s population, they account for more than 50 percent of homicide victims. Nationally, the black homicide victimization rate is six times that of whites, and in some cities, it’s 22 times that of whites.

Coupled with being most of the nation’s homicide victims, blacks are most of the victims of violent personal crimes, such as assault and robbery.

The magnitude of this tragic mayhem can be viewed in another light. According to a Tuskegee Institute study, between 1882 and 1968, 3,446 blacks were lynched at the hands of whites. Black fatalities during the Korean War (3,075), Vietnam War (7,243) and all wars since 1980 (8,197) come to 18,515, a number that pales in comparison with black loss of life at home.

It’s a tragic commentary to be able to say that young black males have a greater chance of reaching maturity on the battlefields of Iraq and Afghanistan than on the streets of Philadelphia, Chicago, Detroit, Oakland, Newark and other cities.

Not everyone who runs around crying “racism, racism” is interested in helping blacks to do as well as other racial groups.

Blacks will do well, just as they used to do, when the political parties in power embrace free-market capitalist policies, such as lowering the minimum wage, or scrapping it entirely. Blacks will do well, just as they used to do, when we strengthen and subsidize natural marriage – by repealing no-fault divorce and reforming welfare for single mothers. Blacks will do well, just as they used to do, when we make public schools more responsive to parents, and less responsive to teacher unions. And so on.

San Francisco book store closes after minimum wage increase

Important story from the most leftist city in America.

ABC News:

Independent bookstores have faced tough times for quite a while. In San Francisco, neighborhood businesses have been passionately protected, so it’s hard to believe that an initiative passed by voters to raise the minimum wage is driving a Mission District bookstore out of business.

San Francisco’s minimum wage is currently $11.05 an hour. By July of 2018, the minimum wage in San Francisco will be $15 an hour. That increase is forcing Borderlands Bookstore to write its last chapter now.

[…]Borderlands was turning a small profit, about $3,000 last year. Then voters approved a hike in the minimum wage, a gradual rise from $10.75 up to $15 an hour.

“And by 2018 we’ll be losing about $25,000 a year,” he said.

It’s an unexpected plot twist for loyal customers.

“You know, I voted for the measure as well, the minimum wage measure,” customer Edward Vallecillo said. “It’s not something that I thought would affect certain specific small businesses. I feel sad.”

Though it’s caught a lot of people off guard, one group that wasn’t completely surprised was the Board of Supervisors. In fact, they say they debated this very topic before sending the minimum wage to the voters.

“I know that bookstores are in a tough position, and this did come up in the discussions on minimum wage,” San Francisco supervisor Scott Wiener said.

Wiener knows a lot of merchants will pass the wage increases on to their customers, but not bookstores.

“I can’t increase the prices of my products because books, unlike many other things, have a price printed on them,”

Wiener says it’s the will of the voters. Seventy-seven percent of them voted for this latest wage hike.

Unexpected!

Let’s review the facts on minimum wage, and then I can make fun of one of my friends in my conclusion.

Abstract from new National Bureau of Economic Research study:

We estimate the minimum wage’s effects on low-skilled workers’ employment and income trajectories. Our approach exploits two dimensions of the data we analyze. First, we compare workers in states that were bound by recent increases in the federal minimum wage to workers in states that were not. Second, we use 12 months of baseline data to divide low-skilled workers into a “target” group, whose baseline wage rates were directly affected, and a “within-state control” group with slightly higher baseline wage rates. Over three subsequent years, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers. Lost income reflects contributions from employment declines, increased probabilities of working without pay (i.e., an “internship” effect), and lost wage growth associated with reductions in experience accumulation. Methodologically, we show that our approach identifies targeted workers more precisely than the demographic and industrial proxies used regularly in the literature. Additionally, because we identify targeted workers on a population-wide basis, our approach is relatively well suited for extrapolating to estimates of the minimum wage’s effects on aggregate employment. Over the late 2000s, the average effective minimum wage rose by 30 percent across the United States. We estimate that these minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point.

That comes out to 1.4 million workers.

Harvard economist Greg Mankiw explains the top 14 views that a majority professional economists agree on, and here’s #12:

12. A minimum wage increases unemployment among young and unskilled workers. (79%)

OK, now the funny part.

I know someone who is a fairly committed Christian. He is also an unemployed graduate student. He doesn’t understand anything about politics or economics. He is also single, and looking for a girlfriend. He messages me periodically about new girls he is interested in, and he asks me “is she pretty?”. He asks that for each new girl. I try to tell him that there is more to women than just appearances, but this guy looked at my list of courting questions on Christian worldview and he thought it was a joke. Appearance is everything – he wants Barbie with a Bible.

He asked me what I thought of this one lady he liked. I went on her Facebook page, and I found out that she was in favor of minimum wage hikes. So I messaged her and linked her to some peer-reviewed studies by economists showing that minimum wage hikes hurt young, minority workers most – they can’t get an entry-level job to start themselves off. And she said, and I quote: “oh, that appeal to authority doesn’t work on me at all xD”. She is in high school, but wants to study philosophy. I hope she doesn’t borrow money for that, but I think that she probably will.

She writes:

it has barely effected (sic) price ranges at all for corporations who’ve been required to raise the wage. the fact is, corporations have never been trustworthy with voluntarily treating their workers well. our best years were ones where banks and corporations were very heavily regulated.

No evidence was provided for that statement, of course. The money comes from… magic beans! Or something.

I think my friend just likes attention from women, and that they like that he doesn’t ask them hard questions, or tell them when they are wrong about anything. He’s a good student, but I wouldn’t take his advice on anything real-world until he grows up. But I think his tendency to affirm anything a woman says to him will make him very popular with a certain subset of women.

New study: raising minimum wage hurts young, minority workers most

This report is from the libertarian Cato Institute.

Except:

A new working paper from the National Bureau of Economic Research finds that significant minimum wage increases can hurt the very people they are intended to help. Authors Jeffrey Clemens and Michael Wither find that significant minimum wage increases can negatively affect employment, average income, and the economic mobility of low-skilled workers. The authors find that significant “minimum wage increases reduced the employment, average income, and income growth of low-skilled workers over short and medium-run time horizons.”  Most troublingly, these low-skilled workers saw “significant declines in economic mobility,” as these workers were 5 percentage points less likely to reach lower middle-class earnings in the medium-term. The authors provide a possible explanation: the minimum wage increases reduced these workers’ “short-run access to opportunities for accumulating experience and developing skills.” Many of the people affected by minimum wage increases are on one of the first rungs of the economic ladder, low on marketable skills and experience. Working in these entry level jobs will eventually allow them to move up the economic ladder. By making it harder for these low-skilled workers to get on the first rung of the ladder, minimum wage increases could actually lower their chances of reaching the middle class.

Most of the debate over a minimum wage increase centers on the effects of an increase on aggregate employment, or the total number of jobs and hours worked that would be lost. A consensus remains elusive, but the Congressional Budget Office recently weighed in, estimating that a three year phase in of a $10.10 federal minimum wage option would reduce total employment by about 500,000 workers by the time it was fully implemented. Taken with the findings of the Clemens and Wither study, not only can minimum wage increases have negative effects for the economy as a whole, they can also harm the economic prospects of  low-skilled workers at the individual level.

With that in mind, I have some bad news for everyone who likes the idea of young people of color finding work.

The Daily Signal explains: (H/T Dad)

At the stroke of midnight today, 19 states increased their minimum wage. Residents of three more and the nation’s capital can expect hikes later on this year.

[…]Federal legislation was met with resistance. though. Republicans argued raising the minimum wage would cause an increase in prices for consumers and low-wage workers likely would face layoffs as companies grappled with the higher costs associated with hiked wages.

Some of those concerns were validated last month by a University of California, San Diego, study. For three years, researchers followed low-income workers residing in states that saw wage hikes and those that did not. The study found that minimum wage hikes had negative impacts on employment, income and income growth.

[…]“Minimum wage supporters have good intentions, but those good intentions cannot repeal the law of unintended consequences,” James Sherk, an expert in labor economics at The Heritage Foundation, told The Daily Signal. He added:

Minimum-wage increases reduce the total earnings of low-wage workers — the higher pay for some workers gets completely offset by the nonexistent pay of those no longer employed.

In its study, UCSD researchers found that after minimum-wage increases, the national employment-to-population ratio decreased by 0.7 percent points between December 2006 and December 2012.

In addition, the study found that minimum-wage increases hindered low-skilled workers’ ability to rise to lower-middle -lass earnings.

So we need to be really careful about setting economic policy based on emotions. Things that sound nice, which we feel will help the poor, actually hurt the poor. We have to have evidence-driven public policy, not feelings-driven public policy. People’s lives are depending on it.

Jay Richards: eight common myths about wealth, poverty and the free market

Have you read Jay Richards’ book “Money, Greed and God?” Because if you haven’t, he’s written a series of articles that summarize the main points of the book.

The index post is here.

Here are the posts in the series:

  • Part 1: The Eight Most Common Myths about Wealth, Poverty, and Free Enterprise
  • Part 2: Can’t We Build A Just Society?
  • Part 3: The Piety Myth
  • Part 4: The Myth of the Zero Sum Game
  • Part 5: Is Wealth Created or Transferred?
  • Part 6: Is Free Enterprise Based on Greed?
  • Part 7: Hasn’t Christianity Always Opposed Free Enterprise?
  • Part 8: Does Free Enterprise Lead to An Ugly Consumerist Culture?
  • Part 9: Will We Use Up All Our Resources?
  • Part 10: Are Markets An Example of Providence?

Parts 4 and 5 are my favorites. It’s so hard to choose one to excerpt, but I must. I will choose… Part 4.

Here’s the problem:

Myth #3: The Zero Sum Game Myth – believing that trade requires a winner and a loser. 

One reason people believe this myth is because they misunderstand how economic value is determined. Economic thinkers with views as diverse as Adam Smith and Karl Marx believed economic value was determined by the labor theory of value. This theory stipulates that the cost to produce an object determines its economic value.

According to this theory, if you build a house that costs you $500,000 to build, that house is worth $500,000. But what if no one can or wants to buy the house? Then what is it worth?

Medieval church scholars put forth a very different theory, one derived from human nature: economic value is in the eye of the beholder. The economic value of an object is determined by how much someone is willing to give up to get that object. This is the subjective theory of value.

And here’s an example of how to avoid the problem:

How you determine economic value affects whether you view free enterprise as a zero-sum game, or a win-win game in which both participants benefit.

Let’s return to the example of the $500,000 house. As the developer of the house, you hire workers to build the house. You then sell it for more than $500,000. According to the labor theory of value, you have taken more than the good is actually worth. You’ve exploited the buyer and your workers by taking this surplus value. You win, they lose.

Yet this situation looks different according to the subjective theory of value. Here, everybody wins. You market and sell the house for more than it cost to produce, but not more than customers will freely pay. The buyer is not forced to pay a cost he doesn’t agree to. You are rewarded for your entrepreneurial effort. Your workers benefit, because you paid them the wages they agreed to when you hired them.

This illustration brings up a couple important points about free enterprise that are often overlooked:

1. Free exchange is a win-win game.

In win-win games, some players may end up better off than others, but everyone ends up better off than they were at the beginning. As the developer, you might make more than your workers. Yet the workers determined they would be better off by freely exchanging their labor for wages, than if they didn’t have the job at all.

A free market doesn’t guarantee that everyone wins in every competition. Rather, it allows many more win-win encounters than any other alternative.

2. The game is win-win because of rules set-up beforehand. 

A free market is not a free-for-all in which everybody can do what they want. Any exchange must be free on both sides. Rule of law, contracts, and property rights are needed to ensure exchanges are conducted rightly. As the developer of the house, you’d be held accountable if you broke your contract and failed to pay workers what you promised.

An exchange that is free on both sides, in which no one is forced or tricked into participating, is a win-win game.

On this view, what you really need to fear as a consumer is government intervention that restricts your choices in the marketplace.

Economists agree on the benefits of free trade

Who could possibly disagree with free trade? Well, many people on the left do. They favor imposing restrictions on free trade. For example, people on the left favor making those who import goods pay tariffs, which makes it harder to trade with other nations. People on the left want to pass rent control laws to block landlords and tenants from trading more freely. People on the left want to pass minimum wage laws that block employers and workers from trading wages for labor more freely. But economists generally don’t agree with any of restrictions on free trade. In fact, even across the ideological spectrum, the majority of economists view free trade as a wealth creating policy, and restrictions on free trade as a wealth destroying policy.

Harvard economist Greg Mankiw explains what most professional economists agree on.

Excerpt:

Here is the list, together with the percentage of economists who agree:

  1. A ceiling on rents reduces the quantity and quality of housing available. (93%)
  2. Tariffs and import quotas usually reduce general economic welfare. (93%)
  3. Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
  4. Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
  5. The United States should not restrict employers from outsourcing work to foreign countries. (90%)
  6. The United States should eliminate agricultural subsidies. (85%)
  7. Local and state governments should eliminate subsidies to professional sports franchises. (85%)
  8. If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
  9. The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
  10. Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
  11. A large federal budget deficit has an adverse effect on the economy. (83%)
  12. A minimum wage increases unemployment among young and unskilled workers. (79%)
  13. The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
  14. Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

Now when you are talking to a Democrat, you are talking to someone who disagrees with most or all of those common sense economic policies. For example, Obama’s backers in the labor movement inevitably endorse higher import tariffs, which discourage free trade between countries. No economist supports these tariffs on imports, because history has shown (e.g. – Smoot-Hawley Act) that tariffs destroy economic growth and reduce wealth creation. And that’s what I mean when I talk about economic illiteracy – I mean ignoring what we know from economics and our past experience with bad policies.

Democrat economic policies don’t work because they are making policies that are based on economic myths. We know that these myths are myths because of economics is a mathematical science, and because we have tried good and bad policies in different times and places. We have calculations and we have experience to know what works and what doesn’t work. If you want to help the poor, you have to respect what economists know about how wealth is created. The solution is not to “spread the wealth around”, it’s to encourage people to create more wealth by inventing things that people freely choose to buy.

New study: minimum wage hikes hurt low-skill workers during last recession

The American Enterprise Institute reports. (H/T Jay Richards tweet)

Higher unemployment:

A new NBER working paper from Jeffrey Clemens and Michael Wither of the University of California, San Diego, suggests that the 30% increase in the average effective minimum wage over the late 2000s “reduced the national employment-to-population ratio — the share of adults with any kind of job — by 0.7 percentage point” between December 2006 and December 2012.

That works out to 14% of the total working-age decline during that period. Clemens and Wither basically looked at what happened to workers in states that were affected by federal minimum wage hikes versus what happened in states that weren’t. They also adjusted for the differing state-level impact of the Great Recession.

Low-skill workers hurt the most:

Now what’s particularly interesting in what Clemens and Wither found is that the minimum wage hikes made it harder for low-income workers to climb the ladder. From “The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers“:

 … we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers. Lost income reflects contributions from employment declines, increased probabilities of working without pay (i.e., an “internship” effect), and lost wage growth associated with reductions in experience accumulation….

We also present evidence of the minimum wage’s effects on low-skilled workers’ economic mobility. We find that binding minimum wage increases significantly reduced the likelihood that low-skilled workers rose to what we characterize as lower middle class earnings. This curtailment of transitions into lower middle class earnings began to emerge roughly one year following initial declines in low wage employment. Reductions in upward mobility thus appear to follow reductions in access to opportunities for accumulating work experience.

But this paper is one of several recently that have outlined the negative employment effect of minimum wage hikes. In “More on Recent Evidence on the Effects of Minimum Wages in the United States,” researchers David Neumark, J.M. Ian Salas, William Wascher conclude “the best evidence still points to job loss from minimum wages for very low-skilled workers – in particular, for teens.”

And the nonpartisan Congressional Budget Office find that a $10.10 federal minimum wage option would reduce total employment by about 500,000 workers, or 0.3 percent” in 2016.

So that’s 3 studies from 3 different sources, that all agree that raising the minimum wage will definitely cost jobs. The real minimum wage is, of course, zero. That’s what you get paid when your employer can’t afford to pay you what government tells them to pay you.