Tuesday, January 7, 2014

How to increase the real minimum wage


Proposals to increase the minimum wage are being debated again, with both sides treating us to the usual arguments. Those favoring increases note the impossibility of supporting a family on the current minimum:  $7.25 an hour federally up to around $10 in some states.  This is obviously true. Opponents say increasing labor costs will reduce the number of workers hired, increasing unemployment.  This also is true, though the extent of the damage is unclear. 

We need a policy that would increase the prevailing minimum wage to a decent level selected by the government,  perhaps $15 hourly,  without increasing unemployment.

Of all places,  North Dakota may suggest the way.  The oil boom there has produced such a labor shortage that some McDonalds are paying rank and file workers $15 to $20 per hour. Some even offer signing bonuses.

North Dakota undermines claims that increasing the legal minimum would drive fast food establishments out of business.  McDonalds pays less in the rest of the country, not because it can’t afford to pay more,  but because conditions allow it to get workers for much less.  Most places the supply of low-skill workers is greater than the demand for them, and employers are not in business for their health.

We seem to be in a trap:  Unemployment could be reduced by reducing the minimum wage,  but this would aggravate already intolerable economic inequality.  A higher floor under wages could reduce economic inequality (for those with jobs) but reduce the number of jobs. 

We can avoid this trap by make the whole country more like North Dakota.  This would require a federal program offering full time jobs for everyone over 18  for (say) $15 an hour plus legally-required fringe benefits like health insurance.   Those hired would do things that need doing but are not getting done—helping old people,  maintaining parks,  picking up litter,  tutoring kids,  keeping an eye out for vandals, taking care of invalids,  comforting the dying,  you name it. 

Given such a program, places like McDonalds would have to pay staff at least as well as the federal program does to get enough workers.  And if employers reduce staffing because of increased costs, it wouldn’t increase unemployment; the government program would pick up the slack.  There would in fact be no unemployment.  None! 

The biggest disadvantage of this program is that it would visibly cost taxpayers something.  But it is more honest than minimum wage laws which promote noble objectives without apparently costing anybody anything and which do not guarantee a job,  just  minimum hourly pay if you can find a job.    

Benefits like improved personal security against unemployment would be an offset against the costs. The services provided by people working under the program would also be a plus.  And the program could partly be paid for by eliminating or reducing the Earned Income Tax Credit,  food stamps,  unemployment compensation, and other federal benefits.  Minimum wage laws could be repealed, eliminating the costs of enforcing them,  and no one would notice. 

It is time to put a real floor under wages and eliminate the scourge of unemployment once and for all.  North Dakota proves that this is not impossible as a matter of economics.  Now all we need is leaders who will make it politically possible.

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This piece has run in the Grand Forks Herald.  


Wednesday, December 18, 2013

Catching up on postings to this blog

I have just posted a number of op-ed articles and 3 published letters to the Wall Street Journal that I have written during the last year but not gotten around to posting.  

Obamacare and Part-Time Work----letter to the Wall Street Journal

To the editor:

Andrew Puzder argues correctly that Obamacare encourages employers to add more part-time and fewer full-time workers.  But he pushes his argument too far. 

When the mandate finally kicks in,  employers who must start providing insurance for their higher-paid workers can reduce cash wages by the amount of their premiums and thus incur no increase in their total cost of labor, as those who already supply insurance are doing now.    

Employers with low-paid workers cannot reduce wages below the legal minimum and will therefore reduce them to part-time.  These are the businesses for which Puzder’s analysis is correct.

Employers with higher-paid workers would not save money by making them all part-time.  Such a strategy would ignore the value placed by workers on insurance. To be equally attractive to newly part-time workers,  such employers would have to increase wages by more than their decreased insurance costs since individually purchased insurance costs more and would not be tax-sheltered.  And their management expenses would increase because of the need to supervise more workers.    

Mr. Puzder is chief executive of a restaurant chain, and restaurants do employ large numbers of  low-wage workers,  but his analysis cannot be extended to  the economy in general.

Paul deLespinasse

CorvallisOregon

*********
A version of this letter was published by the Wall Street Journal

Don't Encourage Violent Overthrow of Iranian Government----letter to Wall Street Journal

To the editor:

In reviewing Kenneth M. Pollack’s The Ayatollah Puzzle, Sohrab Ahmari says “The book’s most compelling section contends, convincingly, that the West should attempt to foment revolution inside Iran by supporting dissidents . . .” 

This is a terrible idea.  It is much easier to overthrow a regime we regard as bad than it is to replace it with something that is better, as we have seen in Iraq, AfghanistanLibya, and (prospectively) Syria.  This is true whether the overthrow is brought about by the U.S. military or by armed insurgents.

Such overthrows have not furthered  U.S. interests and cannot be justified as “humanitarian” on behalf of the local populations.   Saddam Hussein’s regime was horrible,  and Husssein killed a lot of “his own” people to preserve his rule.  But now that he is gone life in Iraq is even more precarious as various factions that he had been able to repress are now free to bomb weddings,  funerals,  and everywhere else innocent civilians gather. 

The U.S. should refrain from encouraging violent overthrows of existing regimes,  no matter how bad.  We should instead root for reformers.   Even very bad regimes can be reformed from within, as we saw in the U.S.S.R. and South Africa.
 
Given our bad image in Iran,  we should not handicap dissidents who are seeking peaceful reforms by “supporting” them.  With friends like us,  they would not need enemies. 

Paul deLespinasse
Corvallis, Oregon

**********
A version of this letter was published by the Wall Street Journal.



Robots and Unemployment--letter to Wall Street Journal

To the editor:

Holmon W Jenkins [“Robots to the Rescue?”, Jan. 9, 2013]  worries about a future labor shortage caused by an aging population with fewer people producing what “idle oldsters” would like to consume. 

As one who is far from idle and who has been receiving Social Security for ten years,  I take umbrage at the snide generalization “idle oldsters.”  And I can’t understand how it will improve the consumer-producer ratio if people “save [more] for their retirement and depend less on Uncle Sam.”   If you are retired,  you are retired,  no matter what the source of  your income.  

Perhaps Jenkins should spend more time worrying about actual, current problems, and less time extrapolating dubious hypothetical problems into the future.  At the moment, as some of us have noticed,  not only is there no labor shortage, but there is a terrible surplus.  We call that surplus unemployment. 

As the numbers of young producers decrease, perhaps the chronically unemployed will be able to get jobs.   And if an actual shortage threatens to develop,   remember that shortages exist only at a given prevailing price.  Any shortage will evaporate once wages rise to the level where the amount of labor demanded equals the amount supplied. 

Paul deLespinasse
Corvallis, Oregon


**************
A version of this letter was published by the Wall Street Journal.

An Open Letter To U.S. Rep. Mike Rogers, My Former Student, On Iran


Dear Rep. Rogers:

Since you are were one of my students at Adrian College,  I have naturally followed your career with great interest.  Of all my students, you have been the most successful in elective politics,  and I can see real possibility of higher office for you. 

As chairman of the House Intelligence Committee you have been very prominent, and only yesterday  on C-SPAN I saw you discussing current negotiations with Iran

As you know,  bills being considered  in Congress would increase economic sanctions while the negotiations are still going on—hardly a way to enable even well-intentioned  Iranian leaders to get to yes.    And they would require any final agreement to be so harsh that it would be impossible for any Iranian leader to agree to it.  Unfortunately, it appears that you currently support these bills, which would destroy President Obama’s ability to negotiate a reasonable deal with Iran

In your interview last night you said that the preliminary confidence-building agreement with Iran could make it impossible to impose more sanctions if the negotiations fail or if agreement is reached but the Iranians build atomic weapons anyway.   But if Congress makes it impossible to negotiate a reasonable deal,  this too may burn some bridges that we cannot get back across later. 

You cited evidence of bad Iranian behavior in the past,  but did not address the serious possibility that the election of President Rouhani signals a serious effort to restore good relations with the United States and Europe in the future.

Congressman Rogers,  what if you are wrong?  What if Iranian leaders have decided that Iran would be better off as a “little China”—a country with rapidly increasing prosperity and welfare for its talented people---than as a “Big North Korea”---a destitute outlaw regime brandishing atomic bombs against its neighbors?  What if, like Mikhail Gorbachev,  Mr. Rouhani is a real reformer committed to developing good relations with the rest of the world?       

Of course all possible policies have potential downsides.  Even a reasonable deal with teeth in it may leave Iran with ultimate ability to make atomic bombs.  On the other hand sabotaging  negotiations would undermine Iranian reformers.  It would increase the danger that we will have to choose between accepting Iranian atomic weapons or attacking that country militarily. 

You are well aware that a “limited” or “surgical” air strike could not do the job.  To guarantee that Iran can't produce atomic weapons would require a massive, bloody and expensive military occupation of the entire country, the overthrow of the regime and the forcible repression of prolonged insurgent-style nationalist resistance to the occupation. To incur these costs because Iran might develop and use atomic weapons makes no sense and would never get the necessary sustained support from Americans or our allies.

The only alternative to such an invasion and occupation would be to use atomic weapons on Iran,  which would kill millions and is unthinkable if done pre-emptively.

In the end we would have to rely on deterrence, employing atomic weapons as a regrettable necessity only in response to actual Iranian use of such weapons.  If a negotiated deal went bad we would be in no worse a position, whereas successful negotiations could get us to a much better relationship with Iran

I hope very much that you will reconsider your support of Congressional efforts to derail these negotiations, negotiations which at worst can do little harm and at best could produce a much better world for all of us. 

Sincerely,

Paul F. deLespinasse

CorvallisOregon

********************
This piece has appeared in the Adrian, Michigan Daily Telegram.

How to Increase the Real Minimum Wage


Proposals to increase the minimum wage are being debated again, with both sides treating us to the usual arguments. Those favoring increases note the impossibility of supporting a family on the current minimum:  $7.25 an hour federally up to around $10 in some states.  This is obviously true. Opponents say increasing labor costs will reduce the number of workers hired, increasing unemployment.  This also is true, though the extent of the damage is unclear. 

We need a policy that would increase the prevailing minimum wage to a decent level selected by the government,  perhaps $15 hourly,  without increasing unemployment.

Of all places,  North Dakota may suggest the way.  The oil boom there has produced such a labor shortage that some McDonalds are paying rank and file workers $15 to $20 per hour. Some even offer signing bonuses.

North Dakota undermines claims that increasing the legal minimum would drive fast food establishments out of business.  McDonalds pays less in the rest of the country, not because it can’t afford to pay more,  but because conditions allow it to get workers for much less.  Most places the supply of low-skill workers is greater than the demand for them, and employers are not in business for their health.

We seem to be in a trap:  Unemployment could be reduced by reducing the minimum wage,  but this would aggravate already intolerable economic inequality.  A higher floor under wages could reduce economic inequality (for those with jobs) but reduce the number of jobs. 

We can avoid this trap by make the whole country more like North Dakota.  This would require a federal program offering full time jobs for everyone over 18  for (say) $15 an hour plus legally-required fringe benefits like health insurance.   Those hired would do things that need doing but are not getting done—helping old people,  maintaining parks,  picking up litter,  tutoring kids,  keeping an eye out for vandals, taking care of invalids,  comforting the dying,  you name it. 

Given such a program, places like McDonalds would have to pay staff at least as well as the federal program does to get enough workers.  And if employers reduce staffing because of increased costs, it wouldn’t increase unemployment; the government program would pick up the slack.  There would in fact be no unemployment.  None! 

The biggest disadvantage of this program is that it would visibly cost taxpayers something.  But it is more honest than minimum wage laws which promote noble objectives without apparently costing anybody anything and which do not guarantee a job,  just  minimum hourly pay if you can find a job.    

Benefits like improved personal security against unemployment would be an offset against the costs. The services provided by people working under the program would also be a plus.  And the program could partly be paid for by eliminating or reducing the Earned Income Tax Credit,  food stamps,  unemployment compensation, and other federal benefits.  Minimum wage laws could be repealed, eliminating the costs of enforcing them,  and no one would notice. 


It is time to put a real floor under wages and eliminate the scourge of unemployment once and for all.  North Dakota proves that this is not impossible as a matter of economics.  Now all we need is leaders who will make it politically possible.

************
This piece has appeared in the Grand Forks (N. Dakota) Herald.