So what will happen if the President raises the minimum wage?

So what will happen if the President raises the minimum wage?

Controlled Labor Markets

What is the main theme Dr. S is

driving at in this chapter?


• Pay or working conditions can be controlled by law, custom, organizations of employees or employers, and/or government officials



• i.e., the free market does not always prevail in employment

Okay, what’s “i.e.”?

• i.e. means “that is” or “in other words”• From the Latin “id est”

Okay, what’s “i.e.”?

• i.e. means “that is” or “in other words”• From the Latin “id est”• Not to be confused with “e.g.”, which means

“for example” from the Latin “exempli gratia”



• i.e., the free market does not always prevail in employment

• As always, we’re not concerned with goals or intent, but with the ____________ with which these incentives lead

Job Security

• Many countries such as France and South Africa have very strict laws that make it difficult and costly to fire anyone

Job Security


• Does that lead to lower or higher unemployment?

Unemployment rates

• South Africa: 24.9%• France: 10%• U.S.: 7.9%, youth unemployment 16.8%• Spain: 26.2%, youth unemployment 55%• Germany: 5.3%• Canada: 7%• Greece: 26.6%, youth unemployment 61.7%

Job Security


• Does that lead to lower or higher unemployment?

• Always look for the unintended consequences!

“Firing is such a costly headache that many prefer not to hire in the first place.” The Economist

Why shouldn’t we preserve jobs?

Why shouldn’t we preserve jobs?

• “The very thing that makes a modern industrial society so efficient… makes it impossible to keep on having the same workers doing the same jobs in the same way.”

Jobs that no longer exist

• Elevator operator, lector, copy boy, pin setter, milk man, switchboard operator, typesetter, ice man


• Elevator operators, lector, copy boys, pin setter, milk man, switchboard operator, typesetter, ice man

• And some that are going away: bank teller, newspaper reporters, professional critics, travel agents


• Elevator operators, lector, copy boys, pin setter, milk man, switchboard operator, typesetter, ice man

• And some that are going away: bank teller, newspaper reporters, professional critics, travel agents

• Scare CT: “It’s how the free market does the rearrangin’…”

Minimum Wage Laws

Minimum Wage Laws

• Make it illegal to pay less than the minimum specified price for labor

Minimum Wage Laws


• $7.25/hour nationally; many states and cities also have such laws. Employees get the higher of the two

State minimum wages

• Only five states don’t have minimum wage laws: Alabama, Louisiana, Mississippi, South Carolina and Tennessee

• Washington: $9.19• Florida: $7.79• California: $8• Oregon: $8.95

City minimum wage laws

• More than 120 municipalities including three in Florida (such as Gainesville and Miami Beach) have enacted their own “living wage” laws

• San Francisco: $10.55

City minimum wage laws

• More than 120 municipalities including three in Florida (such as Gainesville and Miami Beach) have enacted their own “living wage” laws

• San Francisco: $10.55• There is a growing movement of activists

pushing such laws

Minimum Wage Laws


• $7.25/hour nationally; many states and cities also have such laws. Employees get the higher of the two

• Net effect? A price artificially raised causes more to be supplied (labor) and less to be demanded… therefore, more unemployment

Sowellianism

“...the real minimum wage is always zero regardless of the laws and that is the wage that many workers receive... in the wake of minimum wage laws”

What demographic group is most affected by minimum wage laws?

Youth and minorities

38.5% unemployment for blacks 16-24

20% for whites

So why would President Obama want to raise minimum wages to $9?

• “This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead.”

So why would President Obama want to raise minimum wages to $9?

• “This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead.”

• “We know our economy is stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year.”

Michael Saltsman, Research Director, Employment Policies Institute

• “According to the Census Bureau, 60 percent of people living below the poverty line didn’t work last year. They don’t need a raise, they need a job, period. And among those who do work and earn the minimum wage, the vast majority live in households above the poverty line.”

Robert Bennett, former U.S. senator

• “He (President Obama) asked for $9 an hour, which works out to be $18,720 a year, which is still poverty for most families. Why not make raise the minimum wage to $20 an hour, or $41,600 a year for every wage earner and eliminate poverty altogether?”

The answer?

• “…a $20 minimum wage would vastly increase poverty by destroying many existing jobs. Telling a worker, ‘The government decrees that you are now worth $20 an hour’ might make him feel good but won’t help him if the skills he has to offer are not worth that much to a prospective employer.”

The answer?

• “President Obama’s economists understand this, which is why they don’t propose anything close to $20…the difference between a $20 and a $9 wage would only be one of degree. There would still be a negative impact.”

More minimum wage impacts

• Substitute capital for labor


• Substitute capital for labor• Results in higher wages for unionized

workers… many of whom have contracts indexed to minimum wage laws




• Big losers: youth and the poor




• Big losers: youth and the poor• Only winners are those on the inside: those

who have a job and manage to keep it

Informal Minimum Wage Laws

• Mandated benefits (sick leave, family leave, medical benefits, etc.) have same results



• Family and Medical Leave Act of 1993: mandates 12 weeks of unpaid leave from the job for things like birth, family illness, adoption



• Family and Medical Leave Act of 1993: mandates 12 weeks of unpaid leave from the job for things like birth, family illness, adoption

• At least 15 states have jumped aboard to include domestic partners, application to smaller companies, etc.


• What about Third World wages by companies such as Nike, Hanes, Mattel?


• What about Third World wages by companies such as Nike, Hanes, Mattel?

• Not clear that overall Third World countries benefit when artificially high wages are put in place… better for those employed, not for those looking in without jobs

Labor Unions

A trade union or labor union is an organization of workers who have banded together to achieve common goals in key areas such as wages, hours, and working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members and negotiates contracts with employers…. “collective bargaining”

Labor Unions

• Key Point: where unions have driven wages higher than the free-market level (i.e., UAW and the Big Three), it reduces employment in that industry and can make the unionized companies less competitive

Labor Unions

• Key Point: where unions have driven wages higher than the free-market level (i.e., UAW and the Big Three), it reduces employment in that industry and can make the unionized companies less competitive

• Because people are SRTHAU, society as a whole suffers because less total wealth is produced

Decline of Unions in U.S.

• In the mid 1900s, about 50% of all workers belonged to unions



• According to Bureau of Labor Statistics, in 2012 only 11.3% belonged to unions



• According to Bureau of Labor Statistics, in 2012 only 11.3% belonged to unions

• Just 6.6% of private-sector employees belonged to unions

35.9% percent of government workers are now unionized.

Why??

Union influence

• During last 20 years, unions have contributed more than $500 million to political campaigns… vast majority to Democrat party

Union influence


• Next highest is investment industry (“Wall Street”) at $200 million

Union influence


• Next highest is investment industry (“Wall Street”) at $200 million

• “…those who hire government workers were not spending their own money, but taxpayers’ money and so had little reason to resist union demands.”

What is largest union in the U.S.?

National Education Association (NEA)

2.7 million members

In fact, top three are public sector workers

• NEA• Service Employees International Union (SEIU)• American Federation of State, County and

Municipal Workers• International Brotherhood of Teamsters• United Food and Commercial Workers

International Union• American Federation of Teachers

Working Conditions

• Gov and unions regulate working conditions such as hours/week, safety rules, vacations, sick days, medical benefits, even whether you can unplug a coffee maker

Working Conditions

• Gov and unions regulate working conditions such as hours/week, safety rules, vacations, sick days, medical benefits, even whether you can unplug a coffee maker

• Result: better working conditions and more restrictive conditions mean less employment

Working Conditions

• Child labor laws: unions want to keep young out of the workplace as long as possible. “Child labor laws passed to protect children from dangerous factories now keep strapping teenagers out of air conditioned offices”

Working Conditions

• Child labor laws: unions want to keep young out of the workplace as long as possible. “Child labor laws passed to protect children from dangerous factories now keep strapping teenagers out of air conditioned offices”

• Hours of work: French laws: 35/hours week, plus 25 days paid vacation… severe impact on society as a whole

U.S. working conditions

• Things have improved sharply since the 1900s


• Things have improved sharply since the 1900s• Many people are working fewer hours… 59

hours in 1900 to 37 hours today


• Things have improved sharply since the 1900s• Many people are working fewer hours… 59

hours in 1900 to 37 hours today• However, professionals such as lawyers,

physicians, executives are working longer. This is the leisure gap… remember the myth of the “idle rich” and the “hard-working poor”

Assignment 3/19

• Read chapter 15: “National Output”

Documents

So what will happen if the President raises the minimum wage?