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Posts Tagged ‘Minimum Wages’

Progressivism’s Failures: From Minimum Wages to the Welfare State | Mises Wire

Posted by M. C. on April 3, 2021

In fact, a separate study found that Seattle’s policy reduced low-wage employment by 6–7 percent, and due to the reduction in employment, workers in this category actually saw a net decline in pay.

Eben Macdonald

As I write, the Democratic Congress is contemplating various measures designed to alleviate poverty levels in the United States. They include: the doubling of the minimum wage; the expansion of child credits. Let’s review both.

The Minimum Wage Hike

Congress intends to raise the federal minimum wage from $7.25 to $15. This makes various assumptions: first, that minimum wage workers themselves are indeed poor. This is wrong: they come from families with a median household income of $66,000; for, their median age is twenty-four years old, and 60 percent are still attending school. Secondly, this policy makes the assumption that it will have no statistically significant impact on unemployment. This is also misguided. The City of Seattle enacted a $13 minimum wage in 2016, resulting in a fall of 9 percent in hours worked among these jobsThe job turnover rate declined by 8 percent, and the city’s less experienced minimum wage workers saw no net increase in payment.

In fact, a separate study found that Seattle’s policy reduced low-wage employment by 6–7 percent, and due to the reduction in employment, workers in this category actually saw a net decline in pay. The third assumption made by this minimum wage hike is that workers will indeed see an increase in inflation-adjusted income. A crucial lesson of economics is that living standards are not determined just by nominal wages, but also the amount which such a wage can consume. Literature suggests that raising the minimum will correspond with an increase in cost of living, due to businesses offsetting higher labor costs, and therefore harm precisely those whom the policy intends to help—low-wage workers. For instance, the average childcare worker in the United States earns $11 an hour—below the threshold Congress intends to set. Therefore, higher labor costs will simply mean an increase in the cost of childcare.

One estimate found that this policy would cause, on average, childcare costs to rise by 21 percent in the United States—that’s an increase of $3,700. Some areas would inevitably be hit harder than others: for instance, the state of Mississippi would see a whopping 43 percent increase in costs. Another essential component of the cost of living is food costs. Many grocery workers work below $15 in the United States: and higher labor costs will simply mean higher inflation in the price of food, which will clearly affect low-wage workers more than high-wage ones. In fact, one study conducted by the University of Zurich found that all the income gains made by workers who had enjoyed a minimum wage increase were simply offset by higher grocery prices. There is more general evidence that raising the minimum wage raises the rate of inflation, therefore negatively impacting those very workers. A study from Canada found that minimum wage hikes can boost the CPI by at least 0.1 percent. Whilst this might not seem statistically significant, the study specified that this small increase caused interest rates to rise, thereby having negative effects on employment. Moreover, an American study (pp.19) estimated that a one third decline in the minimum wage between 1979 and 1995 lowered the CPI by 1 percent (which is of statistical significance).

Raising the minimum wage will harm precisely those it intends to help through higher unemployment and cost of living.

Expanding the Welfare State

Some economists have rosy predictions about Congress’s plan to expand child credits on poverty levels. That being said, in the 1960s, President Lyndon Johnson hoped to end poverty and racial injustice as he initiated the War on Poverty programs. $20 trillion dollars later, the American poverty rate has bounced between 12 percent and 15 percent since those programs began.

A law of the Welfare state can be said to be this: increases in public income transfers will simply be offset by reductions in private earningsThe famous Seattle-Denver Income Maintenance Experiment (SIME/DIME) found that a $1,000 increase in welfare payments is offset by a $660 reduction in private earnings. Thus, low-income families experience only a meagre increase in their standard of living, and are subject to dependency on state welfare spending.

On top of that, welfare spending increases levels of single parenthood. This was a concern early on when Johnson’s welfare programs were initiated, and it was confirmed by a 1993 study that the welfare state was indeed responsible for the rise in single parenthood. The study postulated that a 50 percent increase in welfare spending yields a 43 percent increase in the levels of single parenthood.

I’ve argued in the past that single parenthood and a lack of full-time work are fundamental contributing factors to poverty in the United States, both of which the welfare state reinforces (in fact, the economists Isabelle Sawhill and Ron Haskin famously predicted that if single parenthood were eradicated and full-time work were universal, among other factors, poverty in the United States could be reduced by 70 percent).

Furthermore, the welfare state may negatively impact social mobility. According to research conducted by the economist Raj Chetty, there is a powerful negative correlation between the prevalence of single parenthood across the OECD and the actual levels of upward child mobility in each of those countries. In fact, there even seems to be a connection between the prevalence of single parenthood amongst the US states and poverty levels/social mobility.

Evidence strongly suggests that the welfare state does not alleviate poverty in the United States, and therefore that these poverty projections to support Congress’s proposals are overblown. A groundbreaking study postulated a Laffer curve–like relationship between poverty and welfare spending (where spending will alleviate poverty to an extent, but beyond a certain point will in fact increase poverty). The study argued that public overreach was responsible for the poverty rate being 50 percent higher than without that extra assistance (due to the impoverishing effect of dependency, single parenthood and work disincentives). This statistic ought to worry Congress, and make them think twice about these welfare proposals.


The two policies which are on Congress’s books will not, and never have, succeeded in truly benefitting low-income Americans. To accomplish this aim, they should in fact focus on welfare reform, lowering cost of living through deregulating commodities like housing, energy and childcare, removing labor regulations which exclude poor, inexperienced workers from employment, and thinking twice about inflating the money supply during recessions, which erodes the paychecks of low-income earners. Author:

Eben Macdonald

Eben Macdonald is a 15-year-old student, a keen free-marketeer, and he wants a society which is predicated on liberty.

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Markets Rely on Accurate and Honest Information — But Governments Want the Opposite | Mises Wire

Posted by M. C. on October 6, 2019

In contrast, when governments displace voluntary arrangements with coercive impositions, lies displace truth in two ways. Not only is the competition to get political power based largely on misrepresentations, but government’s coercive impositions also replace the truth revealed in voluntary market behavior with lies. What is the effect on society? It isn’t pretty.

…The reason people don’t always communicate truthfully is that our reason serves our self-interest. Sometimes we perceive a strategic advantage at other people’s expense from intentionally deceiving them. Our words are also often ex post rationalizations to ourselves and others of why whatever we chose or did was a good idea. But that often makes what people say a frail reed to rely upon. And when political power is involved, the incentives for such deception and self-delusion are put on steroids, because the payoffs are far greater when backed by government’s coercive power.

As a consequence, accurate information about the issues most important to our ability to co-operate with others is often among the scarcest and most valuable of goods. Making it worse, the unknowably vast amount of potentially useful information—the infinite permutations of who, what, when, where, why and how–exceeds any individual or group’s ability to comprehend and integrate it. But voluntary market arrangements based on private property rights provide a powerful mechanism of cutting that problem down to manageable size.

Most of the time, we don’t really want to know all the details that might affect our productive interactions with others. We mainly want to know “how much”–what are the tradeoffs others are willing to make between goods, services, current versus future consumption, labor versus leisure, etc. The reason is that, regardless of their specific determinants, others’ willing tradeoffs determine our possibilities and constraints in any society that honors members’ self-ownership.

Expanding the mutually beneficial arrangements that are possible by accurately revealing such information is a central aspect of effective social coordination, as the seminal works of Ludwig von Mises and Friedrich Hayek have made clear. No central planners knows the tradeoffs each individual would make; only the individuals involved know that information. That requires a process to honestly reveal that information to those who will make choices regarding it, or the information will be effectively thrown away, along with the societal wealth creation it would enable.

Markets provide that honest information. While what people say may often be misleading to themselves and others, people reveal the truth about the tradeoffs they are willing to make when they engage in un-coerced exchange. What you do is often far more truthful than what you say.

Regardless of your words, if you actually buy a product for $10 out of your pocket, you reveal that you believe it is worth at least $10 to you; similarly, if you sell a product for $10, you reveal that what the money could purchase was worth more to you than the product. And those choices reveal valuable information about the real alternatives available to those who might choose to deal with you. In contrast, since politics is based on what people say rather than what they actually do, it often short-circuits our central mechanism for discovering the truth to better enable our cooperative potential.

In fact, a vast array of government interference in individuals’ voluntary exchange relationships substitutes lies for the truth that would otherwise be revealed. And in a world where relative scarcities are frequently the primary things we want to know from others, to combine with our more intimate knowledge of ourselves and our situations, the harm is massive.

Consider price ceilings, like rent controls. In their absence, market rents tell you the prices at which you can find apartments, reflecting the opportunity costs landlords face. But rent controls impose a price divorced from landlords’ opportunity costs, and at which many will often be unable to successfully rent an apartment. That is, it misinforms people that the opportunity costs are cheaper than they really are, and in the process makes knowledge of the terms at which apartments can generally be successfully rented largely disappear.

Price floors, like minimum wages, act in a parallel manner. In their absence, market wages tell you the prices at which you can generally find jobs. But a minimum wage dictates a price divorced from prospective workers’ opportunity costs, and at which many will often be unable to successfully get jobs. That is, it misinforms people that unskilled labor’s opportunity costs are higher than they really are, and in the process makes the knowledge of the terms at which jobs can generally successfully be gotten largely disappear.

Taxes, which are the price of the artificial input, “government permission to produce and sell,” reflecting coercively imposed government burdens rather than opportunity costs of inherently scarce goods and services, tell buyers that products are scarcer than they really are. The same is true of import restrictions, like tariffs and quotas, which raise prices above opportunity costs. The burdens of government regulations and mandates also act like taxes. Government barriers to entry and operation in markets similarly raise prices above what relative scarcity would dictate. All of these result in artificially higher prices, underuse and waste, compared to free markets.

Subsidies act in a parallel manner to taxes, but in the opposite direction. They communicate to prospective buyers that products are less scarce than they really are, leading to artificially low prices to consumers, overuse and waste, compared to free markets.

Not only do voluntary market interactions better reveal the truth about relative scarcities through pricing, they allow more accurate evaluation of other aspects of trading, such as product and service quality, than government.

The key (though often ignored) factor is repeat business. The usual scare stories to justify the “need” for government regulation involve one-time interactions, in which others can gain by “cheating” on what they promise. But the relevant question is not whether they can, but whether it is in their interest to do so. We don’t need government protection against things people will choose not to do, even if they could. And since almost everyone we deal with economically wishes to continue in business, effects on future business (directly, as when current customers refuse to deal with such suppliers in the future, and indirectly, through reputation effects on other current and prospective trading partners) act as a performance bond against misbehavior, leading to far better outcomes than the scare stories imply. As students of game theory recognize, repeated games generate very different strategies than one-shot games.

Consider an example. I can cheat you today by providing lower than claimed quality, and doing so would generate $1 million in increased profits for me. If it would leave my future business relationships unchanged, I have an incentive to do so. However, what if I expect the resulting damage to my reputation will lose me more than $1 in future discounted profits? I can cheat you, but I won’t because I have no incentive to. The problem in this case is solved by markets’ reputation mechanisms. Even if the future losses don’t completely eliminate my incentives to cheat, they sharply reduce them, letting much of the air out of the “we need government regulation to protect you” balloon.

This mechanism, while ignored by “nothing can be done if the state doesn’t do it” acolytes, is far from new. For instance, the famous Maghribi traders of Northern Africa relied on reputations to deal with problems in international trade in the 11th century…

In contrast, when governments displace voluntary arrangements with coercive impositions, lies displace truth in two ways. Not only is the competition to get political power based largely on misrepresentations, but government’s coercive impositions also replace the truth revealed in voluntary market behavior with lies. What is the effect on society? It isn’t pretty. And even though it is an essential aspect of government intrusion into citizens’ affairs, not a single moral or ethical system endorses lying. Lies will not set you free. Not only does the truth set us free, but freedom in our cooperative endeavors reveals truths we have no other way of knowing.

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Thomas Sowell Quote: “Government central planning means ...




Posted in Uncategorized | Tagged: , , , , , | Leave a Comment » What Does Bussing Your Own Restaurant Table Show About Minimum Wages?

Posted by M. C. on December 31, 2018

By Art Carden

With the New Year’s Day right around the corner, various outlets are reporting on workers who will “get a raise” with increases in the minimum wage going into effect in several states. But will people—potential low-income workers especially—be better off in the long run as a result of higher minimum wages?

Not necessarily. And we can see how if we follow the economist Ronald Coase’s advice and look out the window for an example. I saw one at a restaurant in Boston with a sign on the wall that said “Please put away your own plates & silverware when you are done.” They don’t have anyone on staff to bus the tables; hence, we have to do it ourselves.

Lest I be misunderstood—I can hear someone sneering “look at mister fancy man who is too good to clean up after himself!”—scraping a plate and putting it in a bucket is no great imposition. But what, I wonder, is happening to the bussers who would otherwise be earning money doing it? Where did they go?

Simple: they’re being priced out of the labor market by minimum wages. At $8 an hour, it might be worthwhile to hire someone to bus tables. At $11 an hour, Massachusetts’ minimum, it probably isn’t. With the minimum wage in Massachusetts set to rise to $12 an hour in 2019 on its way to $15 an hour over five years, we should expect to see fewer and fewer jobs like these.

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free lunch

Bernie’s free lunch.

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