Quotulatiousness

July 6, 2019

Putting global worker pay into perspective

Filed under: Business, Economics — Tags: , , , — Nicholas @ 05:00

Tim Worstall explains why the headline-friendly numbers in a recent ILO report are nothing to be surprised at:

“Nearly half of all global pay is scooped up by only 10% of workers, according to the International Labour Organization, while the lowest-paid 50% receive only 6.4%.

“The lowest-paid 20% – about 650 million workers – get less than 1% of total pay, a figure that has barely moved in 13 years, ILO analysis found. It used labour income figures from 189 countries between 2004 and 2017, the latest available data.

“A worker in the top 10% receives $7,445 a month (£5,866), while a worker in the bottom 10% gets only $22. The average pay of the bottom half of the world’s workers is $198 a month.”

[…]

The explanation? To be in the top 10% of the global pay distribution you need to be making around and about minimum wage in one of the rich countries. Via another calculation route, perhaps median income in those rich countries. No, that £5,800 is the average of all the top 10%.

Note that this is in USD. About £2,000 a month puts you in the second decile, that’s about UK median income of 24,000 a year.

And as it happens about 20% of the people around the world are in one of the already rich countries. So, above median in a rich country and we’re there. Our definition of rich here not quite extending as far as all of the OECD countries even. Western Europe – plus offshoots like Oz and NZ, North America, Japan, S. Korea and, well, there’s not much else. Sure, it’s not exactly 10% of the people there but it’s not hugely off either.

So, what is it that these places have in common? They’ve been largely free market, largely capitalist, economies for more than a few decades. The most recent arrival, S. Korea, only just managing that few decades. It is also true that nowhere that hasn’t been such is in that listing. It’s even true that nowhere that is such hasn’t made it – not that we’d go to the wall for that last insistence although it’s difficult to think of places that breach that condition.

June 6, 2019

New paper on minimum wage effects is bound to be mis-used

Filed under: Economics, Politics, USA — Tags: , , , — Nicholas @ 05:00

In the Washington Examiner, Tim Worstall explains why a new well-researched paper on the minimum wage will be misunderstood and then used to “prove” things it doesn’t actually say:

None of this changes the standard intuition that when there’s a heavy such bite then there will be ill effects. What it does do is then lead us to trying to calculate what is a wage that does have that snarl, that bite? What is a minimum wage that is “too high” in the sense of having an excess of those ill effects upon employment? This is where I predict — no, not fear, not posit, nor surmise, but predict — this paper will be misused.

Our thinking is that the effects come from the relationship between the minimum and median wages. If we insist that wages cannot be lower than more than we already pay half the people, then we really are going to have problems. A minimum wage of 100% of the median wage isn’t going to work, that is. That ratio is called the Kaitz Index. This paper shows us that there are few to no such bad things happening up to 0.59 on that Kaitz measure. We can have the minimum wage at 59% of the median wage and know that we’ll have the good effects and only trivial amounts, at worst, of the bad.

You can see what’s going to happen next, can’t you? The Economic Policy Institute tells us that the median wage is about $22 this year, and 59% of that is $13. A bit of rounding and some aspiration, and why not go for a $15 minimum wage?

Except there are two median wages. Part-time and seasonal wages tend to be lower than full-year and full-time ones. The Economic Policy Institute is using that higher full-time one. The one for all jobs is quite a bit lower, $18.58 per hour. Take 59% of that and you get a rather lower level of $10.95 an hour. That’s around and about what McDonald’s, Walmart, and similar establishments pay as entry-level wages, which does seem about right, doesn’t it?

So, the new research paper, from esteemed researchers, published in the world’s top English language economics journal, tells us that minimum wages up to a certain level cause few to no problems. They’ve shown this for up to 59% of median wages. But which median do they mean? Dube himself told me they mean that lower one — specifically, the “median wage of all workers, not just for full time.”

But we all know how this is going to be used, don’t we? As proof that $15 an hour won’t cause any problems — which isn’t what the paper shows at all. Rather, it says that a $10.95 an hour minimum wage shouldn’t cause any problems of note.

The new paper is good empirical work. The fault is in what people will argue it says, not what it does.

February 16, 2019

Indian government considers hiking the national minimum wage

Filed under: Business, Economics, Government, India — Tags: , — Nicholas @ 03:00

Tim Worstall explains why this is a bad idea that won’t do much — if anything — to improve the lot of workers already earning the current minimum wage, and might well make things worse:

It’s not surprising that this is happening, India mooting a rise in the national minimum wage. There is, after all, an election in the offing. Just when we would expect crowd pleasing but bad ideas to surface. The problem here is that the Indian minimum wage is already too high. Increasing something that’s too high is not sensible policy. […]

Sure, we can declare a floor price and that will be valid wherever the government’s writ runs. Which, in the Indian economy, isn’t all that far.

    The national minimum wage could be set at Rs 9,750 per month, almost double the current level, along with an additional Rs 55 per day of average HRA for urban workers, an expert committee has submitted. The January report, which went public for suggestions on Thursday, has also suggested an alternate plan, with a range of Rs 8,892-11,622 per month of national minimum wage for five different regions as they have diverse socio-economic and labour market situations, The Indian Express reported.

The specific details don’t matter all that much because the Indian government isn’t that powerful in economic matters.

The point being that any formal minimum wage will only apply to people in the formal economy. Depending upon who you want to believe between 80 and 90% of the Indian economy is over in the informal sector. That’s the part of the economy that doesn’t have health and safety standards, proper contracts and minimum wages. And our proof that the current minimum wage is too high is exactly that, that most of the economy isn’t in the formal sector where it applies.

In one manner raising that Indian minimum wage is an irrelevance because it affects so few people. In another it’s actively bad, as it makes it more expensive to join that formal economy, thus making it less likely. Thus it’s a bad idea either way. But you know, elections, politics.

November 1, 2018

The Living Wage Makes It Harder to Make a Living

Filed under: Business, Economics — Tags: , — Nicholas @ 02:00

Foundation for Economic Education
Published on 11 Oct 2018

We take big risks with people’s livelihoods when we make demand about what people should be paid. The reality is, people don’t necessarily need a “living wage” to make a living.

October 29, 2018

The $15 Minimum Wage Is Turning Hard Workers Into Black Market Lawbreakers

Filed under: Business, Economics, USA — Tags: , , , , — Nicholas @ 02:00

ReasonTV
Published on 11 Oct 2018

An in-depth look at New York’s car wash industry, and the real world consequences of politicians interfering with a complex industry they don’t understand.

Reason is the planet’s leading source of news, politics, and culture from a libertarian perspective. Go to reason.com for a point of view you won’t get from legacy media and old left-right opinion magazines.

—————-

On March 4, 2015, a group of union leaders, activists, and elected officials were arrested for blocking traffic during a protest in front of a Vegas Auto Spa, a small car wash in Park Slope, Brooklyn. Chanting “No contract, no peace!” and “Si se puede!,” they had come in support of striking workers, who had walked out demanding a union contract after allegedly being subjected to dismal working conditions.

For David Mertz, the New York City director and a vice president at the Retail, Wholesale and Department Store Union (RWDSU), it was an inspirational moment in an ambitious six-year campaign to unionize the city’s car washes industry.

“These workers were willing to stand out there during one of the coldest winters … literally in decades to fight for their rights and for basic human dignity,” says Mertz, who was also arrested that day. “You have the ability to make change by coming together, and when you do that sometimes you find that you’ve got some friends on your side.”

In the past six years, the car wash industry, which employs low-skilled, mostly immigrant workers, has also been the target of lawsuits for alleged underpayment of wages, including a handful of cases spearheaded by the New York State Attorney General’s office. Working conditions in the industry were also cited as a raison d’être in the successful campaign to raise the state minimum wage to $15 per hour, which takes full effect at New York City car washes in January of 2019.

As Reason chronicled in a feature story in our July 2016 issue, the real world impact of the unionization drive, the lawsuits, and the $15 minimum wage has been mainly to push car washes to automate and to close down.

Two years later, there are more unintended consequences. The $15 minimum wage is fostering a growing black market—workers increasingly have no choice but to ply their trade out of illegal vans parked on the street, because the minimum wage has made it illegal for anyone to hire them at the market rate.

The minimum wage is also cartelizing the industry: Businesses that have chosen to automate are benefiting from the $15 wage floor because outlawing cheap labor makes it harder for new competitors to undercut them on price and service.

As a sequel to the 2016 article, this video takes an in-depth look at the real world consequences that result when politicians interfere with a complex industry they don’t understand, enabled by media coverage that rarely questions the overly simplistic tale of exploited workers in need of protection.

Written, shot, edited, and narrated by Jim Epstein.

September 26, 2018

The New York Times on the minimum wage question

Filed under: Business, Economics, Media, USA — Tags: , , , — Nicholas @ 05:00

Jon Miltimore shares the key points of a New York Times editorial on the minimum wage:

The minimum wage is the Jason Vorhees of economics. It just won’t die.

No matter how many jobs the minimum wage destroys, no matter how many times you debunk it, it always comes back to wreak more havoc.

We’ve covered the issues at length at FEE, and quite effectively, if I do say so myself. But I have to admit that one of the greatest takedowns of the minimum wage you’ll ever find comes from an unlikely place: The New York Times.

There are many reasons people and politicians find the minimum wage attractive, of course. But the Times, in an editorial entitled “The Right Minimum Wage: 0.00,” skillfully rebuts each of these reasons in turn.

Noting that the federal minimum wage has been frozen for some six years, the Times admits that it’s no wonder that organized labor is pressuring politicians to increase the federal minimum wage to raise the standard of living for poorer working Americans.

“No wonder. But still a mistake,” the Times explains. “There’s a virtual consensus among economists that the minimum wage is an idea whose time has passed.”

But why has the idea “passed”? Why would raising the minimum wage not help the working poor?

“Raising the minimum wage by a substantial amount would price working poor people out of the job market,” the editors explain.

But wouldn’t the minimum wage increase the purchasing power of low-income Americans? Wouldn’t a meaningful increase allow a single breadwinner to support a family of three and actually be above the official U.S. poverty line?

Ideally, yes. But there are unseen problems, as the editors point out:

    There are catches…[A higher minimum wage] would increase employers’ incentives to evade the law, expanding the underground economy. More important, it would increase unemployment: Raise the legal minimum price of labor above the productivity of the least skilled workers and fewer will be hired.

But if that’s true, why would progressives support such a law? What’s their rationale for supporting a minimum wage if it does more harm than good? Is it sheer political opportunism?

Not necessarily. The Times explains:

    A higher minimum would undoubtedly raise the living standard of the majority of low-wage workers who could keep their jobs. That gain, it is argued, would justify the sacrifice of the minority who became unemployable.

There’s just one problem with this logic, the editors say:

    The argument isn’t convincing. Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs. The idea of using a minimum wage to overcome poverty is old, honorable – and fundamentally flawed. It’s time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.

September 9, 2018

QotD: Minimum wages hurt the very poorest workers

Filed under: Britain, Economics, History, Quotations — Tags: , , — Nicholas @ 01:00

The theory that minimum wages discharged the least productive workers had been a constant of Anglophone political economy, dating to John Stuart Mill’s (1848) Principles of Political Economy. When England established a minimum wage with the Trades Board Act in 1909, it did so notwithstanding the objections of a generation of England’s most eminent economists – Henry Sidgwick, Alfred Marshall, Philip Wicksteed, and A.C. Pigou – all of whom observed that while the law could make it criminal to pay a worker less than the minimum, it could not compel firms to hire someone at that rate. Even the intellectual champions of the English minimum wage conceded the point.

Thomas Leonard, Illiberal Reformers, 2016.

August 22, 2018

That’s not a minimum wage increase. This is a minimum wage increase!

Filed under: Americas, Economics, Government — Tags: , , — Nicholas @ 03:00

Fifteen dollars as a minimum wage? Pffffft. Venezuela just hiked their minimum wage to $30*. Your move, capitalist pigs.

We should indeed praise the success of Bolivarian Socialism in Venezuela. For they’ve been able to announce a 60 fold increase in the minimum wage. Isn’t that a massive boost to the fight against inequality, a proof that this state control of the economy raises the living standards of the poor? No, truly, we’re told, repeatedly, that raising the minimum wage is a necessary and important part of that fight against the drear circumstances facing the poor. The US minimum wage of $7.25 an hour, just think how rich we’d all be if that were $435 an hour. We could all work just the one hour a week and live well. The British minimum wage, raise it to £400 or so an hour. Why not? After all, Venezuela’s application of proper socialist principles has shown us what is possible.

* Spoiler: that’s $30 per month, not per hour. But it’s a vast increase over the previous minimum wage, no?

July 22, 2018

QotD: A touching naivety

Filed under: Economics, Government, Quotations — Tags: , , — Nicholas @ 01:00

… the typical “Progressive” continues to imagine the state to exist in the same way that a four-year old child imagines Santa Claus to exist: as a super-human force for good that possesses a supernatural capacity for pursuing and achieving that good. There is, in practice, no epistemological difference between the belief of many children that dusk on December 24th causes reindeer to fly and the belief of many adults that minimum-wage legislation causes the incomes of all low-skilled workers to rise. Higher-skilled workers, and the labor unions that represent them – as well as some firms that use fewer low-skilled workers than are used by their competitors – are only too happy to promote this juvenile fantasy.

Don Boudreaux, “Bonus Quotation of the Day…”, Café Hayek, 2016-09-04.

July 12, 2018

“And that is how the Flat Century dies. Upstairs, downstairs isn’t just our past, it’s our future”

Filed under: Economics, History, Technology, USA — Tags: , , , , — Nicholas @ 06:00

ESR looks in his crystal ball and finds a much less egalitarian future lurking just ahead of us:

I think we all better hope we get germ-line genetic engineering and really effective nootropics real soon now. Because I think I have seen what the future looks like without these technologies, and it sucks.

A hundred years ago, 1918, marked the approximate end of the period when even middle-class families in the U.S. and Great Britain routinely had servants. During the inter-war years availability of domestic servants became an acute problem further and further up the SES scale, nearly highlighted by the National Council on Household Employment’s 1928 report on the problem. The institution of the servant class was in collapse; would-be masters were priced out of the market by rising wages for factory jobs and wider working opportunities for women (notably as typists).

But there was a supply-side factor as well; potential hires were unwilling to be servants and have masters – increasingly reluctant to be in service even when such jobs were still the best return they could get on their labor. The economic collapse of personal service coincided with an increasing rejection of the social stratification that had gone with it. Society as a whole became flatter and much more meritocratic.

There are unwelcome but powerful reasons to expect that this trend has already begun to reverse.

[…]

But now it’s 2018. Poverty cultures are reaching down to unprecedented levels of self-degradation; indicators of this are out-of-wedlock births, rates of drug abuse, and levels of interpersonal violence and suicide. Even as American society as a whole is getting steadily richer, more peaceful and less crime-ridden, its lowest SES tiers are going to hell in a handbasket. And not just the usual urban minority suspects, either, but poor whites as well; this is the burden of books like Charles Murray’s Coming Apart. J. D. Vance’s Hillbilly Elegy, and the opioid-abuse statistics.

It’s hard not to look at this and not see the prophecies of The Bell Curve, a quarter century ago, coming hideously true. We have assorted ourselves into increasing cognitive inequality by class. and the poor are paying an ever heavier price for this. Furthermore, the natural outcome of the process is average IQ and other class differentiating abilities abilities are on their way to becoming genetically locked in.

The last jaw of the trap is the implosion of jobs for unskilled and semi-skilled labor. Retail, a traditional entry ramp into the workforce, has been badly hit by e-commerce, and that’s going to get worse. Fast-food chains are automating as fast as political morons pass “living wage” laws; that’s going to have an especially hard impact on minorities.

But we ain’t seen nothing yet; there’s a huge disruption coming when driverless cars and trucks wipe out an entire tier of the economy related to commercial transport. That’s 1 in 15 workers in the U.S., overwhelmingly from lower SES tiers. What are they going to do in the brave new world? What are their increasingly genetically disadvantaged children going to do?

Here’s where we jump into science fiction, because the only answer I can see is: become servants. And that is how the Flat Century dies. Upstairs, downstairs isn’t just our past, it’s our future. Because in a world where production of goods and routinized service is increasingly dominated by robots and AI, the social role of servant as a person who takes orders will increasingly be the only thing that an unskilled person has left to offer above the economic level of digging ditches or picking fruit.

March 30, 2018

QotD: “Progressive” eugenicists

Filed under: Economics, Government, History, Quotations — Tags: , , — Nicholas @ 01:00

Although their ethics were appalling, “Progressive” eugenicists of the late 19th and early 20th centuries at least got their economic analysis correct: they understood that forcibly raising employers’ cost of employing certain kinds of labor would reduce the quantity of that labor that is employed. This correct economic understanding was at the foundation of these “Progressives’” support for minimum wages; these “Progressives” explicitly wanted to keep people that they regarded as ‘undesirable’ from working.

I say (and believe) that these “Progressives’” ethics were appalling. Yet I’m quite sure that they did not see themselves as monsters. They surely believed themselves to be enlightened, humane, and highly ethical. They believed that they worked for a larger cause – “social reform” – and saw eugenics, minimum wages, and other uses of state force as progressive means of improving humankind through social engineering. One lesson here is that people convinced that they have a mission to improve society by helping forcibly to re-arrange that society so that it conforms to some pre-conceived image are dangerous brutes (if ones that wear suits) whose brutality is hidden from them by their consciously held good intentions and masked from their contemporaries, ironically, by the grand scale (‘society’) upon which they propose to implement their schemes. (If Bill pokes a gun at his neighbor Betty and threatens to shoot Betty if she pays any of her workers less than $7.25 per hour, Bill is rightly recognized as a brute who belongs in prison. Yet if Bill persuades a uniformed and well-armed gang to threaten to shoot, not just Betty, but everyone in the state who employs workers at wages lower than $7.25 per hour, Bill is celebrated as a humane social reformer who belongs in public office. It’s damn bizarre.)

Don Boudreaux, “Quotation of the day…”, Café Hayek, 2016-07-16.

February 16, 2018

QotD: It’s not economics, it’s magic!

Filed under: Economics, Quotations — Tags: — Nicholas @ 01:00

People who really believe that trade restrictions prevent domestic unemployment or raise domestic wages – people who really believe that minimum wages raise the incomes of low-skilled workers without causing any loss of employment or worsening of other terms of these workers’ jobs – people who really believe that government-mandated family leave leaves workers better off – are like people who attend magic shows and really believe that the magician causes a rabbit to materialize out of the thin air within the magician’s hat.

“Wow!” exclaims an audience member. “I saw with my own eyes the magician pull a rabbit from a hat that only a moment earlier was empty! And also, the magician assures me that that’s what he did. He wouldn’t lie to me. So it must be true that the magician pulled a rabbit miraculously from his hat – that he bends reality to his will. I’m impressed!!”

These people believe their eyes. And why shouldn’t they? The empirical record, after all, is stuffed with rabbits being pulled from magicians’ hats – hats that audiences saw were empty just moments before live rabbits were pulled from them. What’s not to believe?

Don Boudreaux, “Do You Believe in Magic?”, Café Hayek, 2016-06-22.

February 8, 2018

QotD: Minimum prices for wine, a thought experiment

Filed under: Economics, Quotations, Wine — Tags: , , — Nicholas @ 01:00

Consider this hypothetical (which, given the poor quality of today’s punditry and publicly discussed economics, is not as far-fetched as it might at first seem): Ostensibly to help raise the incomes of hard-working vintners of low-quality wines – vintners many of whom have children to feed and sick parents to care for, and many of whom also are stuck in their jobs as owners of low-quality vineyards – Congress passes minimum-wine-price legislation: no wine may sell for any price less than $1.00 per fluid ounce. Roughly, that means that the minimum price of a standard-sized – 750ml – bottle of wine becomes $25.00. Armed officers of the state will use deadly force against anyone and everyone who insists on disobeying this diktat.

If proponents of the minimum wage are correct in their economics, then the only effect of this minimum-wine-price diktat will be distributional. Consumers – including retailers and restaurants buying from wholesalers – will continue to buy as much wine, and the same qualities of wine, that they bought before the diktat took effect. The only difference is that, with the diktat in place, owners of low-quality vineyards earn higher incomes, all of which are paid for by consumers who dip further into their own incomes and wealth to fund this transfer. Easy-peasy! Problem solved!

But who in their right mind would suppose that a minimum-wine-price diktat would play out in the manner described above? Who would not see that a wine buyer, obliged to pay at least $25 for a standard-size bottle of wine, will buy only higher-quality wines – wines that before the diktat took effect were fetching at least $25 per bottle (or some price close to that)? Many wine buyers who before the diktat were confronted with the choice of paying either $8.99 for a bottle of indifferent but drinkable chardonnay and $25.00 for a bottle of much more elegant and enjoyable chardonnay opted for the less-pricey bottles. They did so not because they prefer to drink chardonnay that is indifferent to chardonnay that is elegant – they in fact do not have this preference. Rather, they did so because the greater elegance of the pricier chardonnay was not to them worth its higher price. So the low-quality chardonnay found many willing buyers.

Don Boudreaux, “Quotation of the Day…”, Café Hayek, 2016-06-02.

February 6, 2018

QotD: The original goal of the minimum wage

Filed under: Economics, Government, History, Quotations, USA — Tags: , , — Nicholas @ 01:00

For progressives, a legal minimum wage had the useful property of sorting the unfit, who would lose their jobs, from the deserving workers, who would retain their jobs. Royal Meeker, a Princeton economist who served as Woodrow Wilson’s U.S. Commissioner of Labor, opposed a proposal to subsidize the wages of poor workers for this reason. Meeker preferred a wage floor because it would disemploy unfit workers and thereby enable their culling from the work force.

Thomas Leonard, “Eugenics and Economics in the Progressive Era”, Journal of Economic Perspectives, 2005-09.

January 28, 2018

The origins of the minimum wage

Filed under: Business, Economics, Government — Tags: , , , , — Nicholas @ 03:00

In Ontario, many businesses are still struggling to cope with the provincial government’s mandated rise in the minimum wage (the Tim Horton’s franchisees being the current Emmanuel Goldsteins as far as organized labour is concerned). In this essay for the Foundation for Economic Education, Pierre-Guy Veer points out that most franchise businesses have very low profit margins (2.4% for McDonalds franchises, for example) meaning that they can’t just pay the higher wages without a problem, and that the original intent of minimum wage legislation in the US was actually to drive down employment for certain ethnic and racial groups:

Normally, wages are determined at the intersection of supply (employees offering their services, the blue line) and demand (employers wanting workers, the orange line), the letter E. Since working in retail or restaurants requires little more than a high school diploma, that equilibrium is much lower than, say, a heart surgeon, who must endure years of training and study.

But when governments come and impose a minimum wage (the dark line), wages do increase… at the expense of workers. With a base wage now at E’, more workers want to work but fewer employers want to hire because of the increased cost. The newly formed triangle is made of surplus workers, i.e. unemployed workers who can’t find a job. This unlucky Brian meme summarizes the situation of what minimum wage is: wage eugenics.

And don’t think it’s a vice; creating unemployment was the explicit goal of imposing a minimum wage. It was a Machiavellian scheme imagined during the so-called Progressive Era (late 19th Century to about the 1920s), where it was thought that governments could better humanity by “weeding out” undesirables – in other words, eugenics.

In the U.S., this eugenic attitude was explicitly aimed at African Americans, whose (generally) lower productivity gave them lower wages. To “fight” this problem nationwide, the Hoover administration passed, in 1931, the Davis-Bacon Act in order to impose “prevailing wage” (usually unionized) on all federal contracts. It was a thinly veiled attempt to “weed out” non-unionized workers, who were either African American or immigrant, in order to protect unionized, white jobs. Supporters of the bill, like Representative Clayton Algood, were very explicit in their racist intents:

    That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.

But while the racist intent of the minimum wage has disappeared, its effect is always very real. It greatly affects the people it wants to help, i.e. low-skilled workers, and leaves them with fewer options. So don’t be fooled by unemployment statistics from the Bureau of Labor Statistics. Youth participation rates (ages 16-19) are still hovering around all-time lows (affected, among others, by minimum wage laws); this means that fewer of them are looking for jobs, decreasing unemployment figures.

It gets worse when breaking down races; only 28.8 percent of African American youth were working or looking for a job, compared to 31.6 for Hispanics and 36.7 percent for whites in December 2017.

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