Monday, July 27, 2015

Outlawing Entry Level Jobs

Socialists love minimum wage laws. It will lift millions of Americans out of poverty, off welfare, and into the buying public, they say.
protests for $15 minimum in Seattle

But they are starting with several false assumptions:

·         Employers are greedy, and that is the only reason they don’t pay workers more out of their evil profits.

·         People earning minimum wage can expect to remain on minimum wage indefinitely.

·         People earning minimum wage are heads of households, finding it impossible to pay for their family’s rent, food, and everything from that wage.

·         Raising the minimum wage can lift people out of poverty.

Except, all of the assumptions are wrong.

Employers set wages based on the market value of the work—how much the worker brings in to the company, and how easy it is for the employer to find workers willing to do the work. When work is worth more, the employer either pays more, or finds it difficult to get and keep decent employees.

Minimum wage workers can almost always expect a raise within six month, or at most a year, based on their being a good employee and gaining experience. It’s hard to imagine anyone expecting to work hard, either part or full time, for minimum wage year after year, expecting never to get a raise. You’d leave, with the experience under your belt, and go get a better job.

People earning minimum wage are generally getting their first job, or their first job in a long time (such as mothers re-entering the work force after being a stay-at-home mom). They likely prefer part-time work. They are likely to be teenagers getting their first job, at a time when they have little experience to offer an employer, and still live with their parents, or possibly with roommates. They likely don’t have a high school diploma, although they may be a high school or college student.

A full 81% of minimum wage workers are not heads of households. If someone is earning minimum wage and trying to support a family, they have bigger problems than any minimum wage job can solve. And they probably already get aid for housing and food. Forcing employers to pay them—and all other unqualified workers—more than they are worth doesn’t solve their lack of earning capacity.

There’s an easy logic problem you can go through with pro-minimum wage people—if you could get them to participate in logic. When they were asking for $8 (which wasn’t that long ago, and still the case in most parts of the country), you would say, “Why not $10?” And they’d probably say, “Great idea.” And then you say, “Why not $15?” which is what they’re saying now, so presumably they’d say that was only fair. So then you say, “Why not $20?” Good chance they’ll say, “Even better.” And then you raise the stakes “Why not $50, or $100?” Then they get irritated and condescending, because everybody knows that’s too high. So you ask why it’s too high, and you probably get, “Because those jobs aren’t worth it,” compared to more skilled workers that don’t even make that much. Or, “No one’s going to pay that much for a burger server,” or floor sweeper, or busboy, or dishwasher—whatever the low-skilled job may be.

There’s a point at which pretty much anyone knows, intuitively, that the low-skilled work isn’t worth the high wage. The problem is that they don’t recognize any current entry-level wage as fair and adequate—because they don’t like to think about the value of the work being offered.

What is the best way to earn above minimum wage? Get experience and skills that make you worth more to your employer than minimum wage. How do you get experience and skills? Training and education, for a start, but also work experience. Even with training, an employer is likely to want an experienced worker if he has to pay a higher wage.

Without government interference, wages could be a matter of the free market. We think “full employment” now is 4-5%, but that is because the minimum wage prevents hiring workers at lower rates, so those worth less than minimum remain unemployed. If lowering unemployment were the goal, it could be lowered under 2%—and consist pretty much of those temporarily between jobs—if the market were actually free.

But wouldn’t it be wrong to pay someone even less than minimum? Wouldn’t that be practically indentured servitude? That’s the argument. But, say you’re a 15-year-old trying to get a little spending money, to maybe save up for college, or an eventual car or other purchases? Is it better to get paid $5 an hour while gaining experience, which might lead to higher wages later—or to make nothing and gain no experience?

Minimum wages—ruled unconstitutional until the late 1930s under FDR—are literally outlawing any jobs worth less to an employer than the government-set minimum.

It is a maxim here at the Spherical Model, that any time government tries to do something beyond the limited powers granted in the Constitution, there will be negative unintended consequences, and they will usually be exactly opposite of the intended purpose of the government interference.
So how is this playing out?

Seattle, which is in process of implementing a $15/hour minimum wage, is finding there are unintended consequences (which of course they were warned about by free-market economists).

Head-of-household minimum wage workers didn’t find that $15 was enough to actually pull them out of poverty. While they were making less, they received government subsidized housing and food aid. Higher wages put them at risk of no longer qualifying for help. So they started asking their bosses for fewer hours, to avoid a drop in living standard.

So it hasn’t been good for those actually receiving the increased wage. And it hasn’t been an improvement for employers or customers either. Restaurants have closed at higher than normal rates. Some employers have claimed that wages made up more than 50% of operating costs; the higher required minimum meant no profit, no reason to stay in business.

Some restaurants have increased prices by 15%, trying to pass along the minimum wage increase to customers. But there’s a natural effect to higher prices: fewer customers. They’ve also found that customers pass along the higher costs by paying lower tips. It has turned out that dishwashers have come out better than table servers.
Self-serve kiosk at Jack-in-the-Box

There are more restaurants using automated ordering, so they can get by with fewer employees. That might be a reasonable response—but it means fewer jobs. Government can’t just impose a price find that the law of supply and demand won’t be in play.

One thing is certain: if you don’t get your first job, and the experience that comes with it, you don’t get your second job. If you haven’t magically built up your skill and experience to be worth $15 the first time you get hired, the government is saying it is against the law for you to work.

Employment is an agreement between two people: employer and worker. If the arrangement is agreeable to both, what business does government have inserting itself between them? While we watch Seattle, and LA, and other places, experiment with the higher minimum wage, how about we have another area where minimum wages are eliminated? Let’s see, over a decade or two, which place is better at lifting millions out of poverty.

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