Good News and Bad News

Yet More on the $15 Minimum Wage

In the Tribune, a good article on the demands of fast food workers to get a minimum of $15.00 an hour for doing low-skilled or unskilled work.

Our definition of a good article: one that quotes us a lot.

It does quote leftist Law School professor Paul Secunda (we suggested to the writer that she contact Secunda to get an alternative view, and being a good journalist, she did).

According to the article:

Paul Secunda, a Marquette law professor, points to other countries to argue in favor of raising the minimum wage.

“McDonald’s and other restaurants’ fast food workers make closer to $15 per hour by law in other countries, and McDonald’s and these other companies still choose to open restaurants there,” Secunda said in an email. “I am all for the workers striking for fairer wages.”

Secunda said unless protesters act collectively, they won’t receive national attention.

Of course, everybody in a free country has a right to seek attention. But they don’t have a right to be viewed as anything more than representatives of a moocher culture that thinks you get ahead, not by working hard or getting training or education, but by “acting collectively” and demanding free stuff at other people’s expense.

Secunda’s claim about other countries that have high minimum wages fails to mention that he is talking about socialist countries of Europe that have chronically higher unemployment than the U.S. does.

How high minimum wages drive unemployment is vividly illustrated by a 2011 article from MSN Money:

McDonald’s (MCD) is trying to make fast food even faster.

The Financial Times reports that the world’s largest fast-food chain plans to replace many of the cashiers at its 7,000 European restaurants with touch-screen terminals that allow customers to order and pay electronically.

The system is similar to what many consumers experience in supermarkets, retailers and gasoline stations that have opted for self-checkout to save on labor costs. McDonald’s says the move is about making its European restaurants more convenient and efficient. It’s also clearly about keeping down costs. If it succeeds, you can bet the trend will come soon to the U.S.

The decision is being driven by margin concerns. McDonald’s is still growing its sales, reporting a 5.7% increase during its first quarter in Europe compared with a year ago. But margins are being eaten up by higher commodity costs -- beef and dairy in particular. (Mickey D’s recently debuted new chicken menu items to fight beef inflation.)

Outside the restaurant, consumers everywhere are struggling to pay bills under the weight of rising gasoline and food prices, and a Big Mac or McCafe coffee is quickly becoming an expense many folks cannot afford as often as they might once have. That may be even more the case now that McDonald’s has said it will raise menu prices to cover rising food costs.

But while the ordering experience may not change, the labor market could feel an impact. During the Great Recession, many consumers turned to McDonald’s -- one of the few employers still hiring -- for employment. McDonald’s recently held a national hiring day to fill 50,000 jobs. There may be some risk in rolling out a cashier-free system after touting the restaurant’s footprint as an employer. And if there are not enough accessible employees around to complain about when folks use the self-checkout for the first time, that could really give customers the impression that McDonald’s is just looking to cut corners to squeeze out a few more euros.

McDonald’s didn’t mention any immediate plans to make touch-screen ordering and payment more widespread in the United States. But if it’s successful in Europe, it won’t be long before U.S. consumers find themselves reading or talking to a screen.

This has yet to come to the U.S., but any large increase in the minimum wage would guarantee that it does.

Which brings us to the dirty little secret of the leftists who want a much higher minimum wage. They want markets distorted. They want wages, salaries and profits to be distributed on the basis of politics, because they are the kind of people who have little ability to perform in a market, but substantial political power.

They are people like (just for example) law school professors.

When a higher minimum wage creates unemployment, that becomes a reason to demonize businesses that lay off workers, all for “their obscene profits.”

Unemployment increases the demand for social welfare benefits, and makes more people dependent on government. And the liberals and leftists know perfectly well that dependence on government helps them politically.

So when the liberals and leftists claim to be acting with “compassion” and “concern for the workers” they honestly have convinced themselves of that. But underneath is the raw fact that they are promoting their own political welfare at the expense of workers and consumers.

Economically Illiterate: Demanding a “Living Wage”

Don Walker of the Journal-Sentinel, who wrote an absurdly biased story about attempts in the state legislature to rein in some of the excesses of Milwaukee government, has followed it up with an equally biased story about a demonstration by local union activists demanding a “living wage” at local fast-food restaurants.

It’s basically a puff piece, quoting only activists and people sympathetic to the activists, and giving no indication that anybody but an evil greedy capitalist might oppose the notion.

But in fact, anybody who is serious about public policy will oppose the notion.

Typical of what liberals who know some economics think is this column by Christina Romer, who was chairwoman of President Obama’s Council of Economic Advisers. Dealing with President Obama’s proposal to raise the minimum wage to $9.00 per hour (far less radical than the $15 that the activists want), she goes through the evidence on various related issues. Being a liberal, she bends over backwards to find good in the policy, but still comes out against it.

. . . businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. Often, the customers paying those prices — including some of the diners at McDonald’s and the shoppers at Walmart — have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help.

It’s precisely because the redistributive effects of a minimum wage are complicated that most economists prefer other ways to help low-income families. For example, the current tax system already subsidizes work by the poor via an earned-income tax credit. A low-income family with earned income gets a payment from the government that supplements its wages. This approach is very well targeted — the subsidy goes only to poor families — and could easily be made more generous.

Just how generous the welfare state is for low income workers in Wisconsin can be seen by going to the website access.wi.gov.

There, one can enter a hypothetical person or family, and see what sort of aid they would get if they worked for the current minimum wage.

Suppose, for example, we posit a family with a single mom and two children.  She is working 30 hours per week (it’s easier to get a part-time job than a full-time job) at the current Federal minimum wage ($7.25 per hour).  Her children  are both school age (8 and 11).  She pays $500 a month for an apartment, and has to pay a heating bill.

What does she get, according to the official state website?

• Her earnings are $935 per month
• She can get a minimum of $430 a month in food stamps

This works out to $16,380 per year.  In addition she can get yearly:

• A minimum of $5,236 Federal Earned Income Tax Credit
• Wisconsin Earned Income Tax Credit of $575
• At heating benefit of at least $210
• A benefit toward her electric bill of at least $166

Thus her actual income (if you count food stamps as “good as cash”) is $22,567. (Given the complication of some of these programs, this is actually an approximation, but it’s most likely on the low side.)

In addition to these benefits, her family can get:

• BadgerCarePlus Standard plan
• Help paying for child care
• Free school lunches for the children
• Summer meals for the children

Note that her cash income ($22,567) is well above the $19,530 that is the Federal Poverty Level for Wisconsin for a family of three.

A Rational Welfare State

What we have here is a rational welfare state. It’s not perfect, and it’s probably a bit too generous, but what it does is help workers with little human capital (and thus little earning ability) without distorting labor markets.

Then why are the labor and left activists such yahoos about the issue?

They would not admit it (perhaps not even to themselves), but they want labor markets distorted. When a high minimum wage causes unemployment, that is an excuse for more stimulus spending. When income inequality increases because poor people are put out of jobs, that’s an excuse for more redistribution. When poor people have trouble affording food because prices have been driven up, that’s a reason to spend more on food stamps.

Of course, an extremely high minimum age reduces the incentive for employers to resist unionization. That goes to the fundamental agenda behind the whole “living wage” movement. It’s not really about low-wage workers at all. It’s about unionizing the workforce, since unions are the key organizational backbone behind the Democratic Party. This isn’t humanitarian politics at all. It’s about giving more power to leftist elites.

Minimum Wage Insanity in Illinois

With a hat tip to a student of ours who took our Public Policy class, a story about the consequences of having a state government dominated by liberal Democrats.

From the Daily Herald:

Is minimum wage costing businesses state contracts?

Governor pushes for higher pay then outsources jobs to states with lower wages

BY JOHN PATTERSON
DAILY HERALD STATE GOVERNMENT EDITOR

SPRINGFIELD - Illinois’ minimum wage shoots up to $7.50 an hour today, a move heralded as helping working men and women by the Democrats who pushed it, but which ironically may have cost a suburban company two state contracts and eliminated dozens of downstate jobs.

Hoffman Estates-based Rely Services has a data-entry center in downstate Carlinville, which for years held state contracts to manually input tax and vehicle data.

But in bidding to keep those contracts, the company was undercut, in part, its officials say, because out-of-state firms can pay their employees a lower minimum wage. As a result, the center that at its peak employs 134 will see its workforce plummet to 14 on Monday.

“It’s been a pretty sad day,” production manager Brenda Witt told the Daily Herald last week as employees were finishing their final days at work.

The work those employees had done now will be handled by firms based in North Carolina, Michigan and Indiana, all of which have lower minimum wages than Illinois.

Democratic Gov. Rod Blagojevich led the push to raise Illinois’ wage, the second such increase since he first took office in 2003.

Today’s $1-an-hour increase is only the beginning. Three more 25 cents-per-hour increases are scheduled to take effect. In 2010 the minimum wage here will be $8.25, which translates into $17,160 a year.

“I’m proud that in Illinois, we’ve kept our promise to help working people and make their lives easier after years of neglect at the federal level. As Illinois’ minimum wage moves up to $7.50 an hour . . . it will be a little easier for thousands of Illinois families to pay their bills, put food on the table or buy clothes for their kids,” Blagojevich said in a news release.

Blagojevich appears oblivious to the consequences of mandating a higher minimum wage. Making Illinois firms uncompetitive is just the beginning.

Further job losses are guaranteed as managers substitute capital for labor -- buying more machinery (and more sophisticated machinery) so they can hire fewer workers. And as the price of goods and services go up, people will consume less of the things that are heavily dependent on entry-level wage labor.

When the increase was debated late last year, some Republicans and business groups complained that the move tips the economic landscape against Illinois and would drive businesses out. If the minimum wage was going to be increased, it should be done nationwide to ensure everyone played by the same rules, they argued.

It seems they didn’t have the guts to flatly say any minimum wage anywhere is a bad idea. But we can hardly blame them. When your business is on the line, it’s hard not to compromise and say things that are politically palatable.

But, of course, raising the national minimum wage simply makes the U.S. less competitive in international markets. Poor countries have plenty of workers who are happy to work for far less that the U.S. minimum.

Earlier this year, a new, Democrat-controlled Congress did just that, sending President Bush the first minimum wage increase since 1997, which he signed.

But the federal wage, which is the lowest level any state can have, will only increase to $5.85 this summer from the current $5.15. It’s scheduled to increase incrementally to $7.25 by 2009.

In contrast, Illinois’ new minimum wage is among the highest in the country.

“We’re definitely one of the more progressive states in this regard,” said Illinois Department of Labor spokeswoman Anjali Julka.

The governor’s office referred minimum wage calls to Julka. She said she was unfamiliar with the Rely Services situation but that the wage increase is estimated to benefit nearly 650,000 workers.

Note that she assumes that each and every worker will keep his or her job.

She said any impact on businesses should be minimal because minimum wage earners represent just a small percent of the workforce. Illinois has nearly 6 million workers, excluding farm jobs.

But in Carlinville - population 5,685 - the data processing center is among the largest employers.

Witt said the center was typically staffed with working moms and high school and college students attracted by the flexible hours.

Rely officials said they don’t necessarily object to a higher minimum wage, so long as Illinois businesses aren’t penalized in the process. But by focusing only on raising the minimum wage, Neil Khot, owner and company president, said Blagojevich is essentially giving Illinois work to other states.

“He’s saying, ‘I’ll increase my rate for my people to $7.50,’ whereas the other states are at $5.15,” Khot said. “Not protecting the borders is becoming a bigger issue.”

Khot and Witt said they’d like to see Illinois give preference to businesses with an Illinois presence. Currently, the state only gives preference to minority or female bidders and some small businesses.

Indiana, on the other hand, gives in-state businesses preference on state contracts and has set a goal of having 90 percent of all state business done in Indiana. Officials there project it’d keep more than $1 billion within the state economy.

In Illinois, however, the idea’s gained little traction. An Illinois Senate task force has been assigned to look at the issue, but its report isn’t due until the end of 2008.

“And how many businesses,” Witt said, “are going to be out of the state by then?”

This is utterly typical in public policy debates.

One very bad, but popular, policy is implemented. It has negative effects. So another bad program is put into effect to mitigate the bad effects of the first bad program.

Affirmative action for in-state firms is guaranteed to cost taxpayers a pretty penny. Quite often the most efficient firm with the best product is out of state.

Further, the implicit subsidy given to in-state businesses is not targeted at poor workers. It goes to all workers -- including very well-paid managers -- and to owners. And it especially goes to firms who know how to “play the game” and seek political favor. It discriminates against firms who only know how to make a better produce cheaper.

The way to help low-income workers is the Earned Income Tax Credit. It subsidizes employment without distorting labor markets. If the market dictates that unskilled entry level workers can only demand $5.15 per hour in wages, that’s what people get paid. Then government chips in several thousand dollars per year for a full-time worker making this wage.

So why do Democrats want to increase the minimum wage?

It’s their dirty little secret. They want to regulate the economy for the purpose of regulating the economy. They want to shift economic decision making out of the market and into the hands of legislators and bureaucrats. They don’t, really deep down care what the consequences are.

Lately, liberal Democrats have been crowing about the fact that a majority of Republicans don’t believe in evolution. What a bunch of ignorant rubes, they say.

(Let’s leave aside, for the moment, the fact that about 40% of Democrats don’t believe in evolution.)

When the issue is economic regulation, it’s the Democrats who are ignorant rubes.

Finding an economist who is in favor of the minimum wage is about as hard as finding a biologist who doesn’t believe in evolution. They exist, but they are very rare and on the margins of the profession.