Sunday, August 30, 2015

When Work Is Punished: Raising The Minimum Wage And The Perverse Incentives Of The Welfare State

The $15 minimum wage will not only act to dispense with jobs but in many cases results in perverse incentives for employees to quit the jobs they and those without jobs not to work.  It is called the "welfare cliff."
From the article:
A study by the Illinois Policy Institute shows just how dramatic the effect of “falling off the cliff” (so to speak) can be. In one of the most startling findings for instance, if a single mother raising two children were to accept a pay raise from $12 to $18 per hour, her total resources would fall by nearly 33%. Here’s more:
For single-and two-parent households in Illinois, there is a significant welfare “cliff” where the household may become worse off financially as they work more hours or as their wages increase. That is because the available welfare benefits decline by a greater amount than the increase in earned income.
And Illinois is not alone . . . 
Article here:

Friday, August 14, 2015

Minimum Wage And Maximum Stupidity

Contributed to by our good friend, Anthony Duke . . .

A friend of mine who owns a highfalutin martini bar in Manhattan called me in a tizzy the other day.  Since her tavern also sells gourmet appetizers, one way or another the state's proposal to jack up the minimum wage from $8.75 to $15 over the next three years spells doom.  Even if her flat-bread bakers aren't deemed fast-food workers, she will have to compete with McDonald's to keep them.  Her claim: "It's not about profits. I can't afford it."  

To be clear, there are few people I trust less than small-business owners when it comes to what they can and cannot afford to pay in wages and taxes.  They can drive a fleet of G500s through their tax deductions and claim poor faster than they can buy a first-class ticket to fly off and play Torrey Pines.  However, in this case I'll concede as I trust my martini-shaking friend and think that the Empire State's proposal is a super-sized order of unintended consequences.  

  First, a bit of background.  The state decided to do this because they are tired of paying for food stamps and healthcare for millions of employed New Yorkers who work for wealthy corporations like McDonald's and 3G, the Brazilian billionaires who own Burger King.  Food stamps, school lunch programs, healthcare.  It's all on the public's dime because these jobs pay so poorly.  It must really be dire in New York City because you can't really live there for less than $200,000, let along $8.75 an hour.  But I digress.

In New York's attempt to play Robin Hood with the $4.8 billion McDonald's made last year, the state is also beating up independent restaurants.  If their staff isn't covered by the law, they will have to compete for employees.  True, I'd rather work in a nice restaurant than Wendy's, but a 70% raise in three years is real money.  Scott Boras has to use his best chops to extort a 70% raise for his clients from the Yankees.   Nice little local restaurants will close.  Some of them anyway.  Instead of an egg-white martini with duck bacon and spinach flatbread, it's a quarter pounder and a coke. Lovely.

Remember, this wage law won't cover retail workers, nannies and customer service workers or the guy who trims the hedges.  They can eat cake, from a drive-thru, of course.  So you can expect those people to migrate on over to the Golden Arches.  That means retailers pay more or customer service gets even worse.  Honestly, in many industries I can't imagine customer service getting any worse.  I know, I know,  No none gets a baby sitter for $9 an hour on the Upper West Side.  But in Ithaca or, if other states follow, Peoria?  You get the idea.

See, there isn't one New York.  That $15 an hour is actually worth about $12 an hour in the Big Apple, according to the Pew Research Center.  But up in places like Buffalo and Syracuse, it's worth as much as $17 in real buying power.  Now you're making it harder for contractors, warehouses and other light manufacturers to keep employees.  
Before I go any further, let me state that I think stagnant wages is one of our economy's biggest problems.  And I do support a higher minimum wage.  But this one is so poorly thought out that it reads like a Lewis Black standup routine.
I won't sound off on immigration, but in cities across America illegals are used to do everything from bussing tables and cutting grass to building houses.  If ever there was an incentive to pay people illegal immigrants under the table, this is it.

Low-wage jobs have a purpose.  It should be where people start.  With the exception of New York City--which isn't really America, economically speaking--$15 an hour is just too high.  It could actually create a disincentive for people to try to get out of the minimum-pay work and improve their lot.  Why look for better work when $15 an hour lets you get by just fine in Watertown?  

Here's a better solution.  Let's give the minimum wage one last arbitrary bump.  Make it $1or $2, ,or whatever a panel of reasonable economists can determine after being locked in a padded room with nothing but black coffee, a carton of Camels and each other for 48 hours.  Then take that figure, strap it to the consumer price index and get on with it.  

Wednesday, August 12, 2015

Why A Billionaire CEO Lives In A Trailer and Owns Four Pair Of Shoes

An amazing individual, plain and simple, literally.  He's built a multi-billion company a different way.  There are lessons here for everyone.

I commend the article and the video trailer to your review.

Monday, August 10, 2015

The Ugly Truth About Unemployment

In 1994 the Clinton administration stopped counting long-term discouraged workers as unemployed. Clinton wanted his economy to look better than Reagan’s, so he ceased counting the long-term discouraged workers that were part of Reagan’s unemployment rate. John Williams ( continues to measure the long-term discouraged with the official methodology of that time, and when these unemployed are included, the US rate of unemployment as of July 2015 is 23%, several times higher than during the recession with which Fed chairman Paul Volcker greeted the Reagan presidency.
An unemployment rate of 23% gives economic recovery a new meaning. It has been eighty-five years since the Great Depression, and the US economy is in economic recovery with an unemployment rate close to that of the Great Depression.
The labor force participation rate has declined over the “recovery” that allegedly began in June 2009 and continues today. This is highly unusual. Normally, as an economy recovers jobs rebound, and people flock into the labor force. Based on what he was told by his economic advisors, President Obama attributed the decline in the participation rate to baby boomers taking retirement. In actual fact, over the so-called recovery, job growth has been primarily among those 55 years of age and older. For example, all of the July payroll jobs gains were accounted for by those 55 and older. Those Americans of prime working age (25 to 54 years old) lost 131,000 jobs in July.
The link to Dr. Paul Craig Roberts article that goes into much more startling detail is here:

Saturday, August 08, 2015

Economics 101: Why Wal-Mart's Wage Increase Blew Up In Its Face

"Pressure has grown in America for employers to pay higher wages to workers who cannot earn enough to make ends meet. Soaring rents and crippling student debt aren’t doing anything to help the situation. Of course there are unintended consequences that go along with raising wages.
"The standard criticism is that forcing employers to pay more will simply result in layoffs and/or a reduced propensity to hire, but as we saw with Dan Price and Gravity Payments, there are a whole lot of other things that can go wrong.
"For instance, higher paid employees may not understand why everyone under them in the corporate structure suddenly makes more money and if people who are higher up on the corporate ladder don’t receive raises that keep the hierarchy proportional they may simply quit. Don’t look now, but that’s exactly what’s happening at Wal-Mart. Here’s Bloomberg:
When Wal-Mart Stores Inc. chief Doug McMillon announced plans to boost store workers’ minimum wage earlier this year, he said the move was intended to improve morale and retain employees.
Yet for some of the hundreds of thousands of workers getting no raise, the policy is having the opposite effect.
In interviews and in hundreds of comments on Facebook, Wal-Mart employees are calling the move unfair to senior workers who got no increase and now make the same or close to what newer, less experienced colleagues earn. New workers started making a minimum of $9 an hour in April and will get at least $10 an hour in February.
Article here: