The wages of fear
Not from the Onion:
LA unions call for exemption from $15 minimum wage they fought for
Los Angeles city council will hear a proposal on Tuesday to exempt union members from a $15 an hour minimum wage that the unions themselves have spent years fighting for.
The proposal for the exemption was first introduced last year, after the Los Angeles city council passed a bill that would see the city’s minimum wage increase to $15 by 2020. After drawing criticism last year, the proposed amendment was put on hold but is now up for consideration once again.
Union leaders argue the amendment would give businesses and unions the freedom to negotiate better agreements, which might include lower wages but could make up the difference in other benefits such as healthcare. They argue that such exemptions might make businesses more open to unionization.
Case closed?
HT: Anand
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13. April 2016 at 16:39
Great French movie.
I am not a fan of the minimum wage. It should be noted that in California in 2020 the minimum wage adjusted for inflation will be the same that it was in 1970. So, 50 years of sideways drift.
What has changed in California in the last 50 years is increasingly stipulative and restrictive property zoning, and the preservation of square miles of single-family detached housing districts.
Some media outlets present anti-growthers as the frizzy-haired headed liberals in San Francisco story. That is true. But in fact up and down along the California coast communities such as Newport Beach, Calafia Beach, Coronado etc, GOP strongholds all, embrace the most socialistic and restrictive development policies imaginable.
But remember, socialistic regulations that attempt (stupidly) to preserve lower-class wages are bad, but socialistic regulations that preserve the privileges of property owners are much less often discussed.
The zoning story goes even deeper. Evidently it is now accepted that you cannot sell product in any California city except in an area that is zoned retail.
That means unless you own property or can rent property that is zoned retail you cannot engage in retailing. This prevents push-cart vendors and all sorts of truck vendors (except for specific limited exceptions for food trucks). Nobody can sell anything out of their front yard or vehicles.
This closes off an avenue of self-employment for millions of Californians, but it’s never a topic of discussion.
Given that the minimum wage has been roughly flat for the last 50 years in California, there is a much better case that it is extremely stipulative and restrictive property zoning, and related soaring rentals, that is chasing business development out of the Golden State.
13. April 2016 at 16:42
I don’t see what the problem is here. Unions can reasonably make the case that unionized workers have greater bargaining power over the workplace, so if they do a trade-off of wages for lower health care premiums or something else, it’s much more likely to be a result of what they actually desire in terms of compensation.
The Danes do a version of this. They have no statutory minimum wage – just a wage collectively bargained along with a set of working condition rules.
13. April 2016 at 17:12
This is common. But an outrageous scandal nevertheless. Unions often lobby city councils for minimum wage increases and negotiate an exemption for the companies that work with them. The unions, like any organization, seek revenue. Unions are no different from companies that lobby to create regulations that shut out the competition. It is typical rent-seeking behavior.
13. April 2016 at 17:19
Scott,
The CBO estimate for the loss of employment arising from a federal increase in the minimum wage to $10.10 seems reasonable, but going to $15/hour seems to potentially be a big difference. Maybe it wouldn’t hurt as much in New York or California as it would in Ohio or Oklahoma, but still.
Even most Republicans in polls support a minimum wage increase, so I’m glad you’re bringing attention to these supply-side issues, which perhaps are gaining in importance versus monetary policy in the US at the moment.
13. April 2016 at 18:22
Brett:
Its akin to California enacting a law forbidding any car manufacturer from selling a car under $40K, then giving Ford an exemption, because they said they’d try real hard to sell people an expensive warranty.
13. April 2016 at 19:27
It gets even better. Check out some of the testimonials here: http://www.latimes.com/local/cityhall/la-me-union-minimum-wage-20160410-story.html
13. April 2016 at 20:31
Fun Fact: Bernie’s favorite Nordic countries essentially have no minimum wage which allows for the formation of unions. They also have fairly strong “right-to-work” regulations and make it very easy for employers to fire unionized employees. Yet, they still have extremely high unionization rates 60%+….
13. April 2016 at 21:30
Speaking of California, Kobe scored 60 in his last game in Socal and the Warriors won 73 games, tying the Bulls of Michael Jordan for regular season wins.
As a native Californian and a fan of great basketball, it was a fun night.
14. April 2016 at 03:56
They’re just being pragmatic, Sumner.
You know, like how you fight and push for free trade but then plead for an exemption to money production (among other anti-free trade activities by government).
While there is more positives than negatives in our world, the main negative characteristic feature or our age is hypocrisy founded on philosophic contradictions.
14. April 2016 at 04:51
Ben, Those are problems, and I do talk about them.
Brett, You say:
“The Danes do a version of this. They have no statutory minimum wage”
That doesn’t sound like a “version of this”. That sounds like they understand that minimum wages are foolish ideas. Has it ever occurred to you that people not in unions might also prefer more wages to more benefits? Or do you think only union workers should have that right?
Here’s what the unions are more worried about. They understand that workers making t shirts at $15 dollars and hour in LA factories can’t compete with workers making $10 in Texas factories. In other words, they understand that artificially high wages costs jobs. It’s that simple.
Gary, In the future, stick to basketball.
14. April 2016 at 05:30
‘Gary, In the future, stick to basketball.’
He can’t even get that right; ‘…the Warriors won 73 games, tying the Bulls of Michael Jordan for regular season wins.’
Here’s a great Richard Epstein podcast, mostly on the recent Wisconsin court decision declaring that unions have a property right to extort dues from workers, but touches on union monopoly power historically;
https://soundcloud.com/hoover-institution/wisconsins-right-to-work
14. April 2016 at 06:20
The Minimum Wage came for Samoa, and I said nothing, because I was not Samoan….
http://www.aei.org/publication/minimum-wage-activists-should-look-to-puerto-rico-for-clues-to-the-future/
————-quote————
The Fair Minimum Wage Act mandated an increase in the federal minimum wage from $5.15 in 2006 to $7.25 by 2009. The federal minimum wage applies to all 50 U.S. states and, since 1983, to Puerto Rico. The 2007 law also required local minimum wages in the U.S. territories of American Samoa and the Commonwealth of the Northern Mariana Islands to increase annually until they equaled the federal minimum wage. Minimum wages were required to rise by 50 cents a year beginning in 2007 until they reached parity, even if in the interim period federal minimum wages were increased beyond $7.25.
The impact on the economies of American Samoa and the Northern Mariana Islands was devastating. In American Samoa, by 2009, after only three of the ten scheduled minimum-wage increases, overall employment dropped 30 percent — 58 percent in the critically important tuna-canning industry. Real per capita GDP in American Samoa fell nearly 10 percent from 2006 levels. In the Northern Mariana Islands, by the end of 2009, employment was down by 35 percent, and real per capita GDP off by 23 percent.
Appearing before the U.S. Congress in September 2011, Togiola Tulafona, the governor of American Samoa, testified that the mandatory minimum-wage increases created “the real possibility that American Samoa could be left substantially without a private-sector economic base except for some limited visitor industry and fisheries activities. American Samoa’s economic base would then essentially be based solely on federal-government expenditures in the territory.”
———–endquote———-
Then It came for Puerto Rico…
———–quote————
The law had a similar effect in Puerto Rico where the mandatory increases resulted in a minimum wage that was greater than 75 percent of the Puerto Rican median wage. And the results were predictably catastrophic for the economy.
Economic activity declined and Puerto Rican unemployment surged. Between 2007 and 2013, Puerto Rico’s GDP per capita declined by nearly 7 percent, while over the same period it was unchanged nationwide. As a result, many Puerto Ricans left for the U.S. mainland. The migration of young, mobile, working-age Puerto Ricans created an imbalance as the aged and less ambitious remained behind.
Foreign investors were deterred by the high cost of hiring Puerto Rican workers. Labor costs in the Bahamas and Jamaica, two direct competitors for foreign investment, were half of those in Puerto Rico.
———–endquote———–
14. April 2016 at 06:36
I support minimum wages as a “second-best” policy that can potentially be used to shift future support into far policies such as a universal basic income.
Overall, I think the utilitarian calculus supports having minimum wages in the status quo rather than abolishing them: it’s worth it for some poor people lose their jobs and middle class/rich people to be slightly worse off in exchange for a significant fraction of poorer people being better off.
Yes, it’s an economic distortion of sorts, but it also serves to counteract issues with poor people not having enough bargaining power due to being unable to afford not having a job.
On the whole, I support minimum wages as a stepping stone to much better economic policies such as a universal basic income.
14. April 2016 at 06:37
Sorry, *far* should be *far better*.
14. April 2016 at 06:58
Ben Cole is absolutely correct. The min wage is a market distortion trying to cover up other market distortions. My biggest problem with it is that it is so inefficient. If you need to put a band aid on the problem, use one big enough: increase the EITC.
14. April 2016 at 07:07
@Pras
Agreed, EITC is preferable to minimum wages. However, it’s distortionary because only people who are employed benefit from the EITC.
A better program would be to do do away with minimum wages, unemployment benefits, and the EITC, and replace all three of them with a basic income. Much simpler, and it’s much less of a distortion.
14. April 2016 at 07:20
@dimitri. Completely agree. It should also be distributed monthly like SS.
14. April 2016 at 08:51
I am reminded of exceptions given to unions in some Obamacare provisions as well.
The problem with this kind of backroom dealing and transparent hypocrisy is that the unions’ reputation itself is damaged, both among members and the wider public. Indeed, as another commenter has pointed out above, there is already outrage among many locals.
If the aim of supporting the measure was to undermine it to get an advantage in organizing then it should have been said straight out, not weaseled around like this. They should fight for more union-friendly laws directly, instead of using subterfuge.
14. April 2016 at 12:35
Scott said:
“Gary, In the future, stick to basketball.”
Economists and especially those who say they are libertarian but really are for a more active Fed, are cruel. But I laughed.
Patrick, what did I do? I got it right, both the Warriors and the Bulls were 73-9.
By the way Scott, your next article is really good. Why can’t the Fed finance government projects by using base money instead of government using interest bearing bonds? But I always say the Fed chairman is a bond salesman, and would rather create demand for bonds instead of weakening demand for bonds.
And, since Bernanke did the liquidation of 2008, can America really trust the international central bank? I guess if we want crumbs as a nation we will have to.
I even quoted Don Geddis, who was helpful and got links to your work, Scott.
14. April 2016 at 12:36
Oh wait, the Bulls were 72-10. It was late, Patrick.
14. April 2016 at 15:45
I actually agree with the unions on this one, except I think it should go further so that all workers, union and non-union alike, can exempt themselves from the minimum wage. 🙂
If Progressives really believe in “nudges”, then they should support allowing all workers to opt-out of the minimum wage. That way, any worker that thinks that the minimum wage may be pricing him out of a job could opt-out. Yet, the default minimum wage could nudge employers to pay higher wages if there really is all this free money sitting around.
Recently, there have been some historical articles pointing out some of the really dispicable policies of the early Progressives — eugenics and using the minimum wage to block immigrants from working, for example. Modern Progressives have complained that it’s unfair to hold them responsible for policies that they no longer support. Here, we have a case of modern Progressive unions supporting those same early Progressive policies: using the minimum wage to block competition from non-union labor, the same purpose that originally motivated the minimum wage.
14. April 2016 at 16:28
Dimitri,
Minimum wage laws do not increase wages. They just make low paying jobs illegal.
14. April 2016 at 17:21
The literal wording of the law and its net effect on the economy are two completely different questions.
A trivial Econ 101 supply / demand model clearly shows that the effect of a minimum wage is to reduce employment while increasing wages See, for example, this post:
http://noahpinionblog.blogspot.com.au/2016/04/101ism-in-action-minimum-wage-edition_9.html
Of course, the extent to which such a model is accurate is decidedly ambiguous, and the matter is one that ought to be decided based on evidence.
15. April 2016 at 05:33
Patrick, I wish I’d read that before my newest post.
Dimitri, You said:
“However, it’s distortionary because only people who are employed benefit from the EITC.”
That’s a feature, not a bug. And progressives would never agree to eliminating those policies in exchage for a UBI
15. April 2016 at 11:17
Puerto Rico lost a tax break that attracted higher paying jobs to the Island. That tax break was repealed about 10 years ago, if I remember correctly. The US government, Congress and Bill Clinton signed legislation to destroy the tax break by 2006 or so.
The US government is solely responsible for the crisis of wages and of credit in Puerto Rico. Clinton, who repealed Glass-Steagall as well, was just a horses ass who was bought by the banksters.
15. April 2016 at 11:18
So correction, Clinton signed the legislation dooming Puerto Rico, but the tax break was not terminated until 2006.
15. April 2016 at 18:14
Scott, you said:
“That’s a feature, not a bug. And progressives would never agree to eliminating those policies in exchage for a UBI”
What reason do you have to believe that low-wage work is superior to other things people could/would be doing with their time? Why should the government subsidize menial labour over volunteer work, unpaid work experience, or for that matter leisure?
Also, subsidizing low-wage work much more than unemployment or high-wage work massively reduces the incentives people have to take the kinds of risks that are actually good for the economy, like training for higher-wage work or enterpreneurship. Low-wage work is one of the worst things in modern society, and you’re promoting the kinds of policies that lead to *more* of it.
I have nothing against people working for $5/hr if they choose to do so, but I want to live in a society where they do that because they *want* to and not because they *have* to.
16. April 2016 at 06:53
Dimitri, You said:
“Low-wage work is one of the worst things in modern society,”
I think it’s one of the best, it provides income to unskilled people from all over the world. I’ve done lots of low wage work myself. There’s a reason why welfare reform was adopted in the 1990s (by Democrats), the system of paying people not to work was not working. I don’t want to go back to that system.
I have nothing against people doing volunteer work and/or lying on the beach. But I don’t want government policies to distort that decision. Some distortion is inevitable, but we should make it as small as possible. Suppose you did UBI, the income would have to be high enough to eliminate all other welfare programs. An income that high would cause a massive reduction in work, and hence output. Living standards would fall.
It’s better to subsidize low wage workers with a wage subsidy, and then let them freely decide how much leisure to take, without any government distortion.
16. April 2016 at 13:17
Scott, You said:
“It’s better to subsidize low wage workers with a wage subsidy, and then let them freely decide how much leisure to take, without any government distortion.”
This is a pure self-contradiction. A wage subsidy is, by definition, a government distortion. By contrast, a UBI is *not* a distortion precisely because you pay people the same amount regardless of whether they’re working or not. Absence of such distortions is precisely why a UBI is a better approach.
As for eliminating other welfare programs in exchange for UBI, under current circumstances I’d support eliminating pretty much everything except the medical programs. Combine that with eliminating a bunch of middle- and upper-class welfare programs (primarily in the form of certain kinds of tax credits), and you’ve fixed some *huge* distortions in the tax code.
Yes, any reasonable basic income also requires increases in effective marginal tax rates higher up in the income spectrum, but the overall effect is significantly *less* distortion, especially in cases where some people face effective marginal tax rates in excess of 100%…