Minimum Wage Hikes Reduce the Demand for Labour

Magical Thinking about Minimum Wages

The laws of supply and demand apply to labor, too.

By Kevin D. Williamson
National Review Online

Thanks to a new study from economists at the University of Washington, American progressives have learned that the laws of supply and demand apply to the labor market. Everybody already knew that, except for professional economists.

The study, commissioned by the city government of Seattle and published by the National Bureau of Economic Research, found that Seattle’s law incrementally raising its minimum wage — to $13 an hour last year, en route to $15 — resulted in low-wage workers’ earning less money rather than more. This surprised many in Seattle, who had been assured by all the best economists, including Paul Krugman, that such a thing would not come to pass.

So, what happened?

The short version is: You can pass a law saying you have to pay low-wage workers more, but you cannot pass a law that says you have to hire them in the first place, or that you cannot cut back on hours when the price of hourly labor goes up. As businesses responded to the new higher labor costs by reorganizing their processes in less labor-intensive ways (the classic examples here are the replacement of wait staff with computer screens in restaurants and the replacement of bank clerks with more sophisticated ATMs), the law that was supposed to increase low-wage workers’ incomes actually reduced them — substantially, by an average of $125 a month.

The first lecture in Economics 101 is that supply and demand interact through prices. (And a wage is a price — the price of labor.) Producers will produce more of any given product at a higher price, and consumers will consume less of it at a higher price. At some point, producers’ preferences coincide with those of consumers, and that is the market price that emerges. That’s a rough model, of course, but it describes the basic reality of how commercial transactions actually happen. . . .

How Smart We Are

Beware People in Black Robes

The aged care industry in New Zealand had laboured under government price controls for many years.  Our "socialism without doctrines" has led us down the track of the government funding rest home care for the elderly.  Once upon a time it was incumbent upon each family to ensure reasonable care could be afforded for aging parents and grandparents.  But gradually the state has subsidised and paid more and more of the care of the elderly.  Smug New Zealanders patted themselves on the back and said to one another, "What a wonderful system we have here in 'godz own'."  

Baby boomers are now entering the demographic cohort of the "aged".  Large numbers are needing care.  There is a burgeoning aged care industry, with large corporates building swanky retirement and rest-care facilities.  But the industry has been effectively price controlled.  The presence of a state subsidy for rest home care functions as a price control in the market.  Therefore, the market is inefficient.  Price signals are grossly distorted.

Recently the government was (indirectly) hit with a court case.  A rest-home carer took her employer (and implicitly, the state) to court on the grounds of pay equity.

Rebelling Against The Duty of Work

Living Without Working

Robert Tracinski
The Federalist

Voters in Switzerland just resoundingly defeated a referendum calling for a guaranteed minimum income that would have required the government to send a check to every Swiss citizen every month for as much as 2,500 francs, or a little more than $30,000 per year. That’s a solid lower- to middle-class income — for doing nothing.

There are two ways of looking at this news. We can applaud the Swiss for being sensible enough to reject a load of pernicious nonsense. Or we can be appalled that in a productive and orderly society, nearly a quarter of the population was ready to vote to make itself a ward of the state.

Because that’s the issue here.

The idea of a guaranteed minimum income has been gaining some popularity recently, oddly among libertarians, as a more efficient form of welfare spending.

Douglas Wilson's Letter From Moscow

A Biblical Case Against the Minimum Wage

Douglas Wilson
Blog&Mablog

As if we needed more evidence, we now have additional evidence that the progressive uplifters of our society are impervious to the claims of evidence. In support of this claim, I would simply point to the fact that California is now poised to join other economic illiterates in adopting a $15 an hour minimum wage.

Those advocating this are either ignorant or cruel. Since this is being done in the name of the poor, I would like to begin by noting that ignorant people can’t help the poor, and the cruel people won’t. The ignorant uplifters actually think that such measures will actually result in extra cash for low-wage works, and such advocates simply need to be escorted to a back room where they can lie down for a bit. The cruel know very well that this won’t help the poor, but rather will hurt them. But that is a small price to pay for the additional power they will acquire in harassing, controlling, and destroying the small business owners who actually supply jobs to the poor.

So I don’t keep you in suspense, here is the biblical case against the minimum wage. “Whoever oppresses a poor man insults his Maker, but he who is generous to the needy honors him” (Prov. 14:31).

The principal engine of oppression against the poor is fraud.

Whitey Privilege

Faux Guilt, Faux Pity, Genuine Ignorance

We came across a tragic tale today.  New Zealand is rife with entrenched privileges for male whiteys.  It took us some time to stop laughing and get up off the floor.  Here is the whale of the tale:

The Human Rights Commission has launched an interactive tool revealing the full extent of gender and racial inequality in the workplace.  Young Middle Eastern and African women are at the bottom of the heap, with median pay of just $14.75 an hour, on par with the minimum wage.  At the other end of the spectrum, white men aged 45-64 command top dollar, earning a median hourly rate of $28.77.  [Stuff]

And here is the punchline that generated all the mirth:

Middle-aged white men might be sick of being cast as villains, but a report suggests they should check their privilege.

Oooooh.  Let's check our privilege.  Note the implicit guilt-manipulation in this sentence: "white men might be sick of being cast as villains . . . "  You see, if they "checked their privilege" they would learn they really are villains.  They are the reason other (non middle-aged, white) people are being paid less than them.  What a hoot.

Minimum Wage Laws

No Job Apparently a Greater Good

Minimum wage laws hurt the very people they are supposed to help--those in the lowest paid jobs.  The law of unintended perverse consequences applies most powerfully in such cases.  Blogger Patterico profiles the case of Seattle, which passed just such a law.

Seattle Pizzeria Will Close Due to Higher Minimum Wage

Filed under: General — Patterico @ 5:51 pm 

Shocker:

It may be one of the first casualties of Seattle’s new minimum wage law. The owner of Z Pizza says she’s being forced to close her doors, because she can’t afford the higher labor costs.  Devin Jeran was happy to get a raise, when Seattle’s minimum wage went up to $11 an hour at the beginning of the month. “I definitely recognize that having more money is important,” he says, “especially in a city as expensive as this one.”

Sorry, Devin.

Unfortunately, he’ll only enjoy that bigger paycheck for a few more months. In August, his boss is shutting down Z Pizza and putting him and his 11 co-workers out of work.  “Fortunately she keeps us in the loop, she didn’t just tell us last minute.”

Ritu Shah Burnham doesn’t want to go out of business, but says she can’t afford the city’s mandated wage hikes.  “I’ve let one person go since April 1, I’ve cut hours since April 1, I’ve taken them myself because I don’t pay myself,” she says. “I’ve also raised my prices a little bit, there’s no other way to do it.”

Small businesses in the city have up to six more years to phase in the new $15 an hour minimum wage. But Shah Burnham says even though she only has one store with 12 employees, she’s considered part of the Z Pizza franchise — a large business. So she has to give raises within the next two years.

“I know that I would have stayed here if I had 7 years, just like everyone else, if I had an even playing field,” she says. “The discrimination I’m feeling right now against my small business makes me not want to stay and do anything in Seattle.”

The organizations who pushed a higher minimum wage, upon being informed of this, gave this thoughtful reply:

We reached out to 15 Now Seattle, the organization that pushed for the higher minimum wage. Director Jess Spear hadn’t heard about Z Pizza’s decision to close. So she wouldn’t comment specifically on that, only saying: “Restaurants open and close all the time, for various reasons.”

In brief? They don’t care.

Jeran wonders about all the rallies that were supposed to be about making life better for people like him.  “If that’s the truth, I don’t think that’s very apparent. People like me are finding themselves in a tougher situation than ever.”

Hard to believe that government monkeying around with the economy could harm the lives of lower-paid workers, isn’t it?

If you answered “not really,” then you have been paying attention.

The Case of the Dumb Council

The Watchdog is Barking This Time

Every so often the communitarian, soft-headed socialist mob that work for our daily news papers and electronic news media show that they "get it".  Economic reality--real world understanding--does not just bite, but sometimes the media shows that it understands what that reality is and how markets actually work.  To fight against market forces (which are the fruit of human nature in the final analysis) is to wage an unwinnable war.  It is to war against human nature.  It can only be won if human beings stop being human. 

Celia Wade-Brown is a greenist mayor of Wellington, the city of a million bureaucrats.  Wellington voters like Celia because she mirrors back to them their prejudices against economic markets and fundamental human nature.  Celia has talked the city council into putting up the minimum wage for all council workers to $18.50 an hour.  Why that amount?  Well, it seems like a nice number.  Celia, of course, has not a clue about the implications, ramifications, and downstream effects of this stupid council decision.  But when even the editorial writers in The Dominion show that they get it, the blame and shame upon the council increases by a large factor.

Douglas Wilson's Letter From Moscow

In a Pig’s Eye

Posted on Thursday, December 5, 2013  

By Douglas Wilson 

Blog and Mablog

The president’s Twitter account recently sent out this small dribbly contribution to the oceans of illiteracy that already exist out there. What’s another half pint?

Here’s how to improve our economy and create hundreds of thousands of jobs: #RaiseTheWage. http://OFA.BO/tXMYUq  pic.twitter.com/UDTcTSaqZJ

So here’s the comeback, and I must say that it is hard to type and snort at the same time.

So why don’t we just raise the minimum wage to a hundred dollars an hour and make everybody well off? Or, while we are in this compassion groove, why don’t we make it a hundred dollars a minute and make everybody fabulously wealthy? To reply that employers don’t have that kind of money to spare is to betray a churlish spirit, and is frankly unworthy of you. Why should we allow a detail like “not having the money” stand between us and the right thing to do?

But be a man. Run the thought experiment anyway.

Letter From Australia (About Dinosaurs)

The Not-So-Lucky Country

PIERS AKERMAN
The Sunday Telegraph
October 12, 2013

[In New Zealand, the union movement has routinely criticised New Zealand for having wages set significantly lower than Australia.  Thousands of kiwis have crossed the ditch in search not only of employment, but of higher wages offered in that country.  But there is another side to the story.  Australia is starting to price itself out of world markets, due to its high wage policies.  Piers Akerman argues that you can blame the trade unions and the collusion of  big business--who have gone along to get along.  More fools them.  Ed.]

IF your son or daughter can't find an entry-level job in the restaurant or tourism industry as the school year comes to an end, you can blame the dinosaurs in the trade union movement, Labor's Fair Work commissioner Anne Gooley and Big Business.  Nothing chokes new employment in these areas more than Gooley's decision to ignore calls to alter the current job-destroying penalty rate regime and reject the argument for reduced employment costs and more jobs.

High Stakes Poker

We Deserve Job Security and High Wages . . .

The Qantas grounding was a big deal.  High stakes negotiation.  Reverberations in lots of places--if you were flying Qantas at the time.  But the whole mess illustrates the commercial realities of the early twenty-first century.  Realities that can be ignored only to one's commercial demise.  Regrettably, it is a lesson few in New Zealand have learned.

Qantas competes in what has become a global business.  Meanwhile it is an airline which has been nurtured under a cocoon of protections and indirect support by successive Australian governments.

Anti-Minimum Wage Convert

 A Sheep in Wolf's Clothing

When we were knee high to a grasshopper we worked out that minimum wage laws are socially and economically destructive.  We know why they are the favoured populist tripe of government.  They appeal to our envious egalitarian instincts.  We are sufficiently stupid to clothe such perversity in high fashion, appealing to nostrums such as "justice" or "fairness" to cloak our covetousness.

The unintended effect is always perverse.  Minimum wage laws create a barrier for the least skilled and the least educated, making them unemployable.  Minimum wage laws increase unemployment. Thanks to  constantly inflating minimum wage rates in New Zealand in the last three years, under both Labour and National, youth unemployment rates have skyrocketed.  A quarter of the next generation is already on the scrap-heap.  Only naive economic ignorance would have failed to see this coming.

Brian Edwards, a doyen of the Left, appears to have seen the light--well, at least this particular lamp.  He has written a piece on his blog, slamming minimum wages.  Maybe even the chattering classes and some in the Commentariate are starting to get the point.  Either that, or Edwards is attempting to be satirical.  We think the latter.  (He got at least one of his audience going though--see the comment at the end).