Tag Archives: Economics

News

Is a higher minimum wage good for younger workers and minority workers?

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Let’s take a look at the data, and leave the feelings and rhetoric out of it.

Excerpt:

Battles are brewing in New York, California, Minnesota and the nation’s capital over hiking minimum wages, with Democrats having the votes to ram through hikes in all four cases.

These politicians are claiming the moral high ground, saying it will help the poorest in our communities. Don’t be fooled.

Hiking the minimum wage hurts — not helps — the lowest-paid workers, especially young black men. A 10% hike in the minimum wage causes a 2.5% drop in employment among young white men without a high school diploma and a staggering 6.5% drop among young black men without that degree.

Young black males get clobbered three times as hard because they tend to work in the fast-food and restaurant industries, where any increase in labor costs produces layoffs.

[…]Only 5% of American workers earn the federal minimum, according to the latest government data, compared with 13% in 1979. Minimum wage workers are largely first-time workers. They are learning what all of us learn on our first job: to be prompt, dress appropriately, do what the boss asks and be reliable.

First-time workers face the biggest risk of being priced out of the job market by a minimum wage hike. They aren’t worth much to an employer when they start working. They don’t have the skills.

When the government increases the minimum wage, it’s more expensive to hire first-timers. According to David Neumark and J.M. Salas, University of California economists, and William Wascher of the Federal Reserve Board, “minimum wages tend to reduce employment among teenagers.”

New York needs that like a hole in the head. Teen unemployment in New York City hit a stunning 35.6% last August, compared with 23.7% nationwide.

All teens are harmed, but black male teenagers are hit hardest by minimum wage hikes, according to a 2011 study by labor economists David Macpherson and William Evans. Unemployment among young black males is currently 29%, double the rate for young white males.

Macpherson and Evans found the reason is that one out of three young black men without a high school diploma works in the restaurant/fast-food industry, where profit margins are thin. Any labor-cost hikes compel these businesses to cut their workforce.

On top of the threatened minimum-wage hikes, businesses now face the certainty of ObamaCare, which will impose the largest government-mandated labor-cost hike in history.

In 2014, employers with 50 or more full-time workers will be required to provide a package of “essential health benefits” or pay a penalty. This government mandated package will add a whopping $1.79 an hour to the cost of hiring an employee. Maybe that’s affordable when you’re hiring lawyers or bankers, but not for hiring unskilled first-time workers.

When considering what economic policies to adopt, it is not enough to do what feels good. Liberals and conservatives agree that it is good to help the poor. Liberals think that higher minimum wage rates help the poor, and conservatives think that lower minimum wage rates help the poor. This is not a topic that is up for debate, though, because economists across the left-right spectrum agree on this one.

Take a look at this post from Harvard University economist Greg Mankiw.

He writes:

My favorite textbook covers business cycle theory toward the end of the book (the last four chapters) precisely because that theory is controversial. I believe it is better to introduce students to economics with topics about which there is more of a professional consensus. In chapter two of the book, I include a table of propositions to which most economists subscribe, based on various polls of the profession. 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%)

And that’s not all. There have actually been studies done on this, and they echo the consensus.

Consider this 2009 article from the Wall Street Journal that discusses some of the studies.

Excerpt:

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.

he 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.

[…]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.

[…]State lawmakers are also at fault. At least 10 states have raised their minimum wages above the federal level in the last decade, largely in response to union lobbying and in the name of helping the working poor. Four states with among the highest wage rates are California, Massachusetts, Michigan and New York. Studies have shown in each case that their wage policies killed jobs for teens. The Massachusetts teen employment rate sank by one-third when the minimum wage rose by 88% between 1995 and 2008.

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.

You can read more about minimim wage and unemployment from my second favorite economist Walter Williams, and from my first favorite economist Thomas Sowell. This is an issue that matters to them, because they are both black, and blacks are the hardest hit by these policies – even though most blacks support these policies by voting overwhelmingly for socialists.

This issue is simple and straightforward. To help the poorest and least experienced workers, we have to take away any regulations that separate them from their first employer. From there, they will gain the experience to move up. Nobody stays in a minimum wage job all their lives. They move up when they get experience and a resume. That’s why that first job is so crucial. We have to make it easier for employers to get employees started in their careers.

Podcasts

A lecture on basic economics by Dr. Jennifer Roback Morse

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Dr. Jennifer Roback Morse
Dr. Jennifer Roback Morse

Dr. Jennifer Roback Morse, former professor of economics at Yale University and George Mason University, gave a lecture on basic economics.

The MP3 file is here.

Topics:

  • The study of economics is anti-postmodern – there is objective truth independent of what people think
  • The study of economics believes in fixed principles of human nature
  • Economics studies the allocation of scarce resources that have alternative uses
  • Economics studies how people exchange resources
  • How both people who engage in a voluntary trade always believe that they will be better off
  • How both people who engage in a voluntary trade both benefit from the exchange
  • How incentives motivate people to act
  • Understanding supply and demand
  • Understanding how “free” government services are rationed
  • Understanding opportunity costs
  • How prices signal producers to produce more or less, and consumers to buy or not buy
  • Market-driven prices versus price controls
  • The role of substitution
  • The necessity of allowing failure in a free market

The requirements of economic growth:

  • private property
  • contracts
  • the profit motive
  • competition
  • free trade
  • entrepreneurship, creativity and innovation
  • the rule of law

If you like this podcast, you can take a look at Thomas Sowell’s textbook on “Basic Economics“. Highly recommended!

Commentary

Economist Walter Williams blames school violence on secularism and moral relativism

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Economist Walter Williams
Economist Walter Williams

My two favorite economists are Walter Williams and Thomas Sowell. Both are conservative or libertarian. Both of them happen to be black. But neither is especially outspoken about religion. But imagine my surprise when I read this CNS News column on gun violence in schools by Walter Williams, who I always thought was the more libertarian of the two.

Look:

When I attended primary and secondary school — during the 1940s and ’50s — one didn’t hear of the kind of shooting mayhem that’s become routine today. Why? It surely wasn’t because of strict firearm laws. My replica of the 1902 Sears mail-order catalog shows 35 pages of firearm advertisements. People just sent in their money, and a firearm was shipped.

Dr. John Lott, author of “More Guns, Less Crime,” reports that until the 1960s, some New York City public high schools had shooting clubs where students competed in citywide shooting contests for university scholarships. They carried their rifles to school on the subways and, upon arrival, turned them over to their homeroom teacher or the gym coach and retrieved their rifles after school for target practice. Virginia’s rural areas had a long tradition of high-school students going hunting in the morning before school and sometimes storing their rifles in the trunks of their cars that were parked on school grounds. Often a youngster’s 12th or 14th birthday present was a shiny new .22-caliber rifle, given to him by his father.

Fathers? Children don’t grow up with fathers any more, 42% of the time. And why not? The feminists told us that men are evil, and that marriage is sexist. And the socialists told us that rewarding single motherhood was a good idea, because it makes women who don’t bother to get married before having sex more equal to those who do bother to get married first. But fatherlessness is a huge factor in criminal behavior, as I showed before.

Dr. Williams continues:

What explains today’s behavior versus yesteryear’s? For well over a half-century, the nation’s liberals and progressives — along with the education establishment, pseudo-intellectuals and the courts — have waged war on traditions, customs and moral values. These people taught their vision, that there are no moral absolutes, to our young people. To them, what’s moral or immoral is a matter of convenience, personal opinion or a consensus.

During the ’50s and ’60s, the education establishment launched its agenda to undermine lessons children learned from their parents and the church with fads such as “values clarification.” So-called sex education classes are simply indoctrination that sought to undermine family and church strictures against premarital sex.
Lessons of abstinence were ridiculed and considered passé and replaced with lessons about condoms, birth control pills and abortions. Further undermining of parental authority came with legal and extralegal measures to assist teenage abortions with neither parental knowledge nor consent.

Customs, traditions, moral values and rules of etiquette, not laws and government regulations, are what make for a civilized society. These behavioral norms — transmitted by example, word of mouth and religious teachings — represent a body of wisdom distilled through ages of experience, trial and error, and looking at what works.

The importance of customs, traditions and moral values as a means of regulating behavior is that people behave themselves even if nobody’s watching. Police and laws can never replace these restraints on personal conduct so as to produce a civilized society. At best, the police and criminal justice system are the last desperate line of defense for a civilized society. The more uncivilized we become the more laws that are needed to regulate behavior.

Many customs, traditions and moral values have been discarded without an appreciation for the role they played in creating a civilized society, and now we’re paying the price. What’s worse is that instead of a return to what worked, people want to replace what worked with what sounds good, such as zero-tolerance policies in which bringing a water pistol, drawing a picture of a pistol, or pointing a finger and shouting “bang-bang” produces a school suspension or arrest.

See, now that’s a smart libertarian. Smart libertarians understand that liberty depends on people being aware of the design of the universe, and the objective moral obligations imposed by that design. If we don’t promote institutions and people that help us to explore the design of the universe, then we are going to have to rely on big government to regulate us instead of regulating ourselves. What we’ve done instead is make impossible to speak about the reality of God and the reality of objective morality in schools, or in any other public place, for that matter. Hearing about God and morality is just too offensive to people who want to put their own selfishness above the moral law.

Similarly, libertarians should not be pushing for promiscuity, abortion and same-sex marriage, either. Intact families are necessary for raising the next generation of citizens to be well-adjusted, law-abiding and productive. Marriages are more stable when the participants are chaste and/or abstinent for a period of time early in the relationship. And children do better when raised by a mother and a father, and less well in other arrangements. Either we feel an obligation to control our own desires and make a plan for marriage success, so that we can provide children with a stable nurturing environment, or the government will have to control the anti-social behavior of fatherless children.

Thomas Sowell has posted a more traditional argument against gun control, in the extremist left-wing UK Guardian, of all places.