Category Archives: Politics

On the Minimum Wage

Economics, Politics
by Mike Clements

Lots of news about the minimum wage lately. I’m disappointed at how poorly people understand it – especially people with some knowledge of economics. This leads to the nearly universal view that it is a policy that benefits the poor. I believe this view is incorrect. Here’s why.

I characterize the minimum wage as a form of welfare, or a  policy intended to help the poor. Any such policies should meet 2 basic guidelines.

  1. The benefits should be focused on the poor.
  2. The costs should be paid by the non-poor (middle class or rich).

The minimum wage fails both of these guidelines. I’ll take them in order.

People making the minimum wage are new or inexperienced workers – but not necessarily poor. Many new or inexperienced workers are young people spanning the entire economic spectrum including middle class and wealthy families. High school and college kids working part time jobs during the school year and full time during summers. Minimum wage jobs are frequently taken by middle class or wealthy retired people looking for something to do and a little extra income. Of course there are also some adult head of households working minimum wage jobs to support themselves or their families. Whatever benefits the minimum wage provides are not focused on the poor, but distributed equally to all of these different people, many of whom aren’t poor and don’t need the benefit.

When we think about what kind of businesses have minimum wage jobs, what comes to mind? Fast food, stores like Wal-Mart and Target, etc. And what do these businesses have in common? They are patronized by the lower and middle classes. Rich people are less likely to eat at McDonalds or shop at Wal-Mart. Increasing the minimum wage makes the products and services these businesses provide, more expensive. And the people paying those higher prices are the people who shop there – not the rich, but the lower and middle class.

In short, the minimum wage (1) fails to focus its benefits on the poor, and (2) its cost is not fully paid not by the rich, but also borne by the poor and middle class. It fails both legs of the test of charity.

Yet the problems with the minimum wage don’t stop there. It also fails the test of economics.

Minimum wage doesn’t increase the productivity of labor. All it does is make it illegal to sell one’s own labor below a certain price. People whose productivity of labor is below that price will be unemployed. So each person who benefits from the minimum wage, does so at the expense of others who can’t get jobs at all. Economists argue over how much a minimum wage raises unemployment – not whether it does.

Minimum wage laws also exacerbate the pernicious effects of discrimination. Suppose you own a fast food restaurant and 2 people apply to flip burgers: one is a black high school dropout, the other is a clean-cut white kid attending college. Who are you going to hire? Remember you have to pay them the same. Normally, a kid attending college doesn’t compete with high school dropouts because his skills enable him to demand a higher rate for his labor. But when minimum wage is high enough, he competes with people having fewer skills and experience. The unemployment rate among young black males is already more than twice as high as the national average. Higher minimum wages will only make that worse, not better.

In this sense, minimum wage laws harm the very people they are supposed to protect –  the newest, least experienced workers, especially minorities and otherwise disadvantaged – by forcing them to compete with more skilled and experienced workers for jobs.

Minimum wage laws passed over broad areas like an entire state have another problem: variable cost of living. The cost of living – and wages – are much higher in San Francisco than in Redding; or in Seattle vs. Spokane. The $15 minimum wage proposed for CA is a bad idea for San Francisco, yet in Redding the effects would be even worse.

Finally, a word about the popular phrase living wage. Many of the people working minimum wage jobs are part-time college students, retirees, and others who have independent means of support and don’t need a  living wage. Yet those who do need a living wage to support themselves or a family, aren’t working minimum wage jobs very long. A minimum wage job is an entry level job. Minimum wage workers quickly gain on-the-job experience and skills and move on to higher paying jobs. Even if the total number of people working minimum wage jobs is growing, they’re not the same people year over year. The group of minimum wage workers has high churn – a constant influx of new low skilled people entering the job market, as others leave the group moving on to higher paying jobs. The minimum wage doesn’t necessarily help heads of households working entry level jobs because:

  • It makes it harder for them to get a job in the first place.
  • They don’t hold minimum wage jobs very long before they move on to higher paying work.

Alternatives

I don’t like to shoot something down unless I offer an alternative. In this case, a better alternative is refundable tax credits. They already exist, so could be easily expanded. Unlike the minimum wage, this passes both legs of the charity test: focused on people who actually need it, and paid for by general funds, rather than by businesses that cater to the lower class.

We should consider requiring able-bodied people receiving this benefit to do whatever work they are capable of doing – sweeping streets, filling potholes, filing paperwork at the local DMV or public school, etc. This is typically work that the govt would perform, whether directly or through contracts, so this would save taxpayers money while taking few jobs from private industry. And it would benefit the people working by teaching them skills that make them employable. And it makes common sense fairness.

A World Without Borders

Politics
by Mike Clements

I sympathize strongly with this article in the Atlantic. Yet the author doesn’t discuss an important point: borders don’t exist just because people think human rights depend on an accident of birth. That’s a straw man argument – it’s hard to find anyone who thinks human rights should depend on accidents of birth.

Historically, people created borders to protect themselves from attacks from other people. Clearly, this is a morally justified reason to create borders and militarily defend them. Over time, borders merged, dissolved, grew until eventually becoming the nations of the modern world.

The author’s case would be more compelling if he acknowledged this. Perhaps his point is that there is no legitimate justification for preventing peaceful, productive people from crossing borders. Of course, there are numerous illegitimate justifications, mainly related to displacing or disrupting the status quo, whether economic or cultural. From a moral perspective, whatever displacement or disruption arises from somebody taking a job, opening a business, joining or starting a club, or any other peaceful activity, is something we all accept as part of a free society. The benefits of living in a free society, where we can all do these things, outweighs the drawbacks of the disruptions that free and mutually voluntary actions may cause.

The only morally justifiable restriction to people crossing borders that I can think of is the time & effort needed to confirm that they aren’t carrying contagious diseases and aren’t  “bad guys” – criminals, terrorists, etc. Put differently, people and governments have the morally justified right to keep out bad guys. The effort to distinguish bad guys from everyone else represents the extent of immigration/emigration restriction consistent with ethics, public safety and security. Yet the restrictions we have today go much farther than this. And people attempt to justify them for additional reasons, most of which have no ethical basis.

There’s a difference between no ethical basis, and ineffective. Some restrictions are neither effective nor ethically sound. Others may be effective, yet have no ethical basis. For example, preventing people from entering the US to work in agricultural fields or high tech companies is effective, if the goal is to restrict the supply of labor increasing wages of those already employed in these jobs. Yet it does so by making the resulting products – whether groceries or software – more scarce or expensive. If the goal is cheaper more abundant groceries and software, it is ineffective. However, even if effective, it has no ethical basis. This is not the kind of beneficial disruption mentioned above, because it was not achieved by the voluntary cooperation of free people. It was achieved through the use of force – restricting the free movement of people across borders.

If we ask ourselves: do we want to live in a society of abundance, or of scarcity? The question answers itself.

A world without borders sounds attractive at first. Yet anyone who knows why borders were first created knows that a world without borders would be violent and unstable. I would like to live in a world where borders were used only to protect and defend from outside aggressors, never to restrict the movement of peaceful productive people, as they are today. I wonder whether such a world might eventually evolve into one without borders, as the free movement of people would tend over time to more evenly distribute human talents and perspectives across the world. This would tend to reduce conflict by balancing economic differences and promoting acceptance of cultural differences.