The "Living Wage" Sham

The campaign to raise the minimum wage here in San Diego has been fraught with distortions and misleading information.  Thankfully, it looks like we will see the wage hike put to the voters in June 2015 2016.  Why the wait?  I'll find out.

The arguments for a minimum wage boost are fraught with emotionalism: always expected from the left.  But how much help does the minimum wage boost provide and does it do what its supporters say it will?  Since 79% of those receiving the minimum wage work part-time (national statistic), let's assume that a minimum wage worker averages 29 hours per week (from 2010 census data).  The San Diego minimum was set to increase $11.50 per hour against a new state minimum of $10.00 per hour (as of 2016).  That works out to $17,342 vs. $15,008 per year.  Can anyone support a family on $15,600 per year?  Of course not, but $17K isn't going to cut it either.

The main argument for increasing the minimum wage is that we should pay a "living wage" (also called a social wage by some economists).  The theory is that wages below that needed to pay for basic living expenses are exploitive because the employer shifts social costs to society. It presupposes that such workers are forever stuck in such jobs and have no other options.  It also presupposes that large numbers of people earn what the minimum wage law dictates, but that is only about 2% of the workforce.

In fact, minimum wage jobs are intended to be stepping stones as employees gain skills and work experience.  A study that is now over a decade old stated that nearly two-thirds of minimum wage workers get a pay raise after a year on the job.  We also know that minimum wage workers are likely to be young (less than 24).  I posit that they are often living with their parents. This makes the calculation of a "living wage" problematic because the "social cost" of labor varies widely with age.  Certainly there are other circumstances that greatly vary the social cost of labor.  In order to help the relatively few workers who are full time heads of household, are we going to reduce employment opportunities for younger workers who need to build work experience?

The other myth regarding the "living wage" is that heads of household earning the minimum wage have no other supplements to income (some data based on two parents, one child making $17,000 per year):

• Many minimum wage workers are in industries where tips supplement income.  Nationally, tips earn an average of $8 an hour.  (I have no local figures.)
• The Earned Income tax credit can provide up to $3250 in additional annual income.
• The annual value of food stamps is $1789 in California for low income persons.
• The annual value of Medicaid for poor families is equivalent to a $4500 insurance policy in California.
• Students who earn the minimum wage may use student loans for room and board while they gain skills to increase their employment value.  (Helping students was one of the arguments raised by the proponents of the increase.)

In general, we provide social safety nets for those making the minimum wage.  Raising it may feel good, but it penalizes employers whom we need to keep our fragile economic recovery on track.

There are some other myths used to support a minimum wage rise that I will take on in other columns.  I note that the studies regarding macro-economic benefits of minimum wage increases apply to states or countries, not individual cities and there is reason to believe that they wouldn't hold up for a single city.

What You Should Be Reading

• Richard Rider points out the very high cost of water in San Diego.
• Word Warrior points out that Obama is failing to learn lessons from the Vietnam War in his conduct of war against ISIS (and yes it is war.)

Minimum Wage Referendum Expected and Desired - UPDATE

San Diego's 10News is reporting that a campaign to repeal an expected rise in the minimum wage is being organized by the San Diego Small Business Coalition. (I urge you to "like" their Facebook page.)

San Diego Mayor Kevin Faulconer vetoed the measure, but the San Diego City Council is expected to override it. If that happens, Jason Roe, spokesman for the San Diego Small Business Coalition, says he has already begun to fundraise and has "substantial commitments from small businesses." 

Roe says the group is ready to launch a ballot drive to repeal the hike. Some 34,000 signatures must be gathered in a month to get it on the ballot in June 2016.

Meanwhile Council President Todd Gloria is already asking people not to sign the expected petition.  Pretty clear that the referendum fight is game on.  The petition is a great idea that I will support by getting signatures and making donations.

If the minimum wage hike stands, it is going to be a nightmare to have a different wage in San Diego than in neighboring communities.  Enforcement will be tough.  How will the City Attorney collect records from out of town businesses?  Further, such a measure erodes the competitive edge of San Diego businesses at the margins.  The minimum wage hike will only hurt the working poor and punish businesses.  All the energy expended on an issue that only helps a very small 2% of the workforce is all the proof I need that something foul is afoot.  Minimum wage hikes are a back door way for unions to get wage concessions without bothering to bargain or strike.  When some thug tries to stop me from gathering signatures on my petition, I guarantee that they will have been paid by a union.

UPDATE - From the U-T:

The San Diego City Council voted Monday to override Mayor Kevin Faulconer’s veto of gradual increases in the local minimum wage to $11.50 an hour by 2017, starting the clock on a referendum campaign that business leaders have said they’ll pursue.
If opponents can collect the 34,000 valid signatures required for a referendum by Sept. 17, the wage increases will be held in abeyance pending an election in June 2016.

What You Should Be Reading

• The supposed death of the Tea Party has been greatly exaggerated.  
• Meanwhile the left is pinning their hopes of defeating Carl DeMaio's challenge to Scott Peters by tying Carl to the Tea Party.  (I guess its not good enough to actually be LGBT to get support from that community, you have to be the right kind of LGBT.)  
• The VOSD fact checks claims and counter-claims in the Peters-DeMaio race regarding Peters' role in the pension scandal.  While they take DeMaio's claims to task, they also note that Peters' did not in fact solve the problem.  His involvement in the pension mess is surely a liability that no amount of left-leaning fact checking will wash away.  To be fair, I like a lot of the VOSD reporting, despite their clear bias.
•  Having a tough time blogging, research getting tough?  Consider hiring a virtual assistant (VA) for $5 per hour.  Wait, will the city attorney come looking for me if my VA is in India, but I benefit from the work?  (Seriously, I have considered this, as the research and editing is slowing down my writing.)

Wouldn't you rather be doing internet research for me?

Public domain image of 1903 Chicago "sweatshop" workers.

Yes, You Should Be Punished

KPBS has a story about how the purported affect of a San Diego minimum wage hike on a restaurant owner and burger flipping Mom with four kids.  They try to make it sound as if their is no some kind of moral symmetry in the situations, there isn't.

Kristin Aguirre is a married mother of four daughters, all under age 8. She's 25 years old and earns minimum wage working at the Burger King in City Heights.
. . .
"I could have waited to have kids and gone on with school, but I didn't," she said. "Just because of that, we shouldn't be punished and make a low wage to raise our kids."

News flash for you Kristin, you should be punished for having not one, but four kids, with both you and your husband lacking the skills to support them. (Her husband makes $200/week, they both get assistance.)  Both of you decided to be leaches on society through your lifestyle choices and take advantage of society's compassion.  You are punishing your children as well, cramming all four of them into a single bedroom.  What's wrong with you?

Meanwhile, restaurant owner Matt Gordon is going to be hit with over half a million dollars per year in additional direct costs and untold indirect cost increases.  If his business fails, 54 employees will lose work.  Meanwhile, the immediate impact of the minimum wage rise is for Kristin's pay to go from $500 to $540 per month. Not exactly life changing.

The contrast between who we are rewarding and punishing with the left's push for a minimum wage hike couldn't be more revealing of the damage they wish to inflict on society.  Matt Gordon is clearly a successful, creative, ambitious man and pretty decent looking to boot.

The contrast with Kristin Aguirre couldn't be more striking.  Check the pictures in the article and ask yourself "Do we want more Matts or Kristins in our society?"

Key Minimum Wage Facts

Half of all minimum wage earners are young people entering the work force (under 24).  Source: BLS.

In 2012, almost two-thirds of minimum wage workers (64.4%) were part-time workers. Source: BLS.

About 2.8% of all workers are paid at or below the minimum wage.  Over half of that number are paid below minimum wage. Source: BLS.

Of the 3.6 million people who earned at or below minimum wage in 2012, 2.0 million earned less than the minimum wage.  Source: BLS.
---Conclusion raising the minimum wage would only help 1.6 million or 1.2% of the workforce, because those making less than minimum wage are already operating outside of the law.

Hard Truths About Minimum Wage - Who Should I Fire?

My income is fixed but decent, so I choose to employ maids and gardeners.  My choice results in extra coin in the pocket of people whom I know are not near as well off as myself.  The hard truth about a minimum wage increase of the size being contemplated by the San Diego City Council is that I can't really afford to continue to employ both.  So who should I fire, the maids or the gardeners?  This is the hard truth about the minimum wage.  My income is set by law, it's not going to change, so those are my choices to deal with rising costs.  Those arguing for the minimum wage will tell me that I am not paying those people enough, but when someone loses that income, I'll bet they would prefer that I still employed them.  Further, I won't be the only one making such a choice; some people are going to lose their jobs with a minimum wage hike.

The other hard fact is that the people who really need employment, the young, will be disproportionately shut out of the job market by a minimum wage rise.  From the BLS:

Minimum wage workers tend to be young. Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the Federal minimum wage or less. Among employed teenagers paid by the hour, about 21 percent earned the minimum wage or less, compared with about 3 percent of workers age 25 and over. 

And from the Heritage foundation (also based on 2012 statistics):

The characteristics of the teenagers and young adults who earn the minimum wage or less support the notion that these minimum-wage workers rarely work to support children and their families:

• 79 percent work part-time jobs.
• 62 percent are enrolled in school during non-summer months.
• Their average family income is $65,900 per year.
• Only 22 percent live at or below the poverty line, while 68 percent enjoy family incomes over 150 percent of the poverty line, which is $33,500 for a family of four.[6]
• Most have not finished their education. A third have not yet finished high school, while almost a quarter have only a high school degree. Another two-fifths have taken college courses but have not yet graduated. Many of these are college students working part-time while in school. Only 3 percent have finished college and obtained a degree.

Only 3.7 million workers in the U.S. earn the minimum wage or less, which is about 2% of the workforce.  This doesn't do much about income inequality, if that is your current shibboleth.  This is a solution in search of a problem.

Finally, when we look at employment statistics, we find that the young are the ones suffering in the lack of growth in the economy:

Here is the civilian labor force participation rate for those over 55 since 2000:

U.S. Civilian Labor Force Participation Rate for age 55+. Source bls.gov.

And here is the same data for the youngsters (16-24).

U.S. Civilian Labor Force Participation Rate (16-24). Source bls.gov.

It is pretty obvious that the drop in participation rate is far greater for the younger age population. They are the ones leaving the work force; don't believe the lies that labor participation is down because baby boomers are retiring.  The old goats are hanging on to their jobs like the bitter clingers they are. Demographic trends of the older folks retiring is pure bunk. These statistics bode ill for the future because we aren't getting youth employed when they should be starting their working careers and learning skills.

You know what would really help lack of youth employment? Increasing the minimum wage to further disconnect their pay from their skill levels.

My Son May Lose His Job

. . . If the city of San Diego passes a minimum wage hike.  The San Diego City Council has taken the first step to put a separate minimum wage hike on the ballot.  This is a terrible idea beyond the usual arguments against a minimum wage increase.  But, first the issue with a hike at all.  The argument gets made that there is some right to be paid a certain amount of money just because one work's a full time job.  It doesn't matter if the worker's skills can command that amount compensation.  The practical effect of increasing the minimum wage is to pick some winners and some losers.  Some employers have said that they would cut staff.  My son makes minimum wage; I don't want him to lose his job if his employer makes that choice to keep down labor costs.  From the WSJ:

Just over half of U.S. businesses that pay the minimum wage would hire fewer workers if the federal standard is raised to $10.10 per hour, according to a survey by a large staffing firm to be released Wednesday. But the same poll found a majority of those companies would not cut their current workforce.
About two-thirds of employers paying the minimum wage said they would raise prices for goods or services in response to an increase, the survey by Express Employment Professionals found. About 54% of minimum-wage employers would reduce hiring if the federally mandated rate increased by $2.85 per hour. A smaller share—38% — said they would lay off employees if the wage increase favored by President Barack Obama becomes law.

Expressed graphically from the same article, here are the percent of companies responding to the yes/no question: If the minimum wage were to increase to $10.10 per hour, would your company . . .

The argument for the minimum wage hike is couched in terms of the earning power of a single individual making that wage providing for a family.  If that is the argument, then why isn't the minimum wage different for teenage students living at home.  Why isn't it different for a bunch of single men or women sharing a small apartment?  What if you have a chronic illness? Shouldn't you get paid more?

In fact none of those circumstances matter, because they ignore the justice for the employer, who needs to get productive labor from the work force to stay in business.  It's also unfair to consumers who will have to pay more.  It's unfair to those workers who will lose jobs.  It's unfair to the unemployed who might not get a chance to get a job.  If you are going to argue fairness why isn't fairness for those groups mentioned?

Finally, increasing the minimum wage just in the city limits is ludicrous.  Our city has a hard enough time competing because we live in California, but to lose jobs to Poway and El Cajon is egregiously stupid.  Do Democrats want their party to be synonymous with unemployment?  It would seem so.

What You Should Be Reading

• KT Cat and Dean both discuss the disgusting burning of human fetal remains in England.
• Waves of banker suicides around the world?  Leading indicator that is time to cash out capital gains from this bull market? H/T WC Varones.
• For a dying party, the GOP seems curiously successful.
• James Poulos examines the role of Asian-American Democratic legislators in killing affirmative action legislation for California public universities in Cal Watchdog.  From the comments: Democrats cannot take Asians votes for granted as they do the Black voter, . . .

Minimum Wage - Robots Replacing Workers

The minimum wage laws in this country are daggers to the heart of opportunity for our poorest and least skilled citizens.  Those in favor argue that it helps the poor because they get paid more, and that there is no adverse impact on the economy, overall.  I disagree, but want to focus on the very people that the left proposes to help, the unskilled.  Take South Africa for instance.  The ministry of labor sets minimum wages in various employment areas.  But the labor unions in South Africa are closely allied with ruling ANC and they impose wage rates even on non-union sectors of the economy.  As a consequence, there is massive unemployment in South Africa amongst the largely unskilled work force, because they are not skilled enough to be affordable to businesses.

Another way that minimum wages hit the unskilled is through automation.  It is no coincidence that the world leader in viticulture technology is France, where there are high minimum wages.  The best robots for picking and sorting grapes are used there.  I have personally witnessed McDonald's experiments with outsourcing the person who takes my order to who knows what country.  No less an authority on technology than Bill Gates makes this same point, businesses will invest in technology to displace entry level workers as minimum wages rise.  We risk having no entry level positions to train up our young people if we continue to boost the minimum wage.   The minimum wage isn't intended for a work force of older workers with families to support.  They should be expected to have amassed skills that would allow them to command a higher wage.

Product on sale above, replaces French workers pictured below.

As a compassionate society, those who need help but only make the minimum wage are helped through programs like Earned Income Credit, food stamps and medicaid.  We should carefully craft these programs so that there is an incentive for the working poor to make more money.  In other words, benefits should be phased out gradually as income rises.  But to impose the burden of helping the working poor on employers is unfair and will only result in more automation and fewer such jobs.  Even if the economy overall benefits from the improved efficiency such automation brings, raising the minimum wage will only exacerbate income inequality.

Locally, Todd Gloria proposed raising San Diego's minimum wage to $14.50 an hour.  Given that neighboring cities would not be bound by the law, the loss of San Diego jobs to Poway for instance is inevitable should this proposal become law.  Businesses that can relocate outside city limits will reap a windfall by comparison.  It is hard to see how this can help our city.  Big corporations such as Petco and Websense have relocated jobs to Texas.  Why would San Diegans want to provide more incentives for job losses?

This is a major reason why I so vehemently oppose David Alvarez for mayor and support Kevin Faulconer.  Alvarez is on the record as supporting minimum wage increases.  If he is mayor, there will be no stopping organized labor from prevailing in making San Diego a hostile location to start businesses and create jobs.  I admit that I have a personal interest in this issue.  My son works at minimum wage as a UFCW 135 member and I don't want him to lose his job.  Do we really want a city with far less opportunity for the unskilled and entry level job seekers?  I don't and voted for Kevin Faulconer because of it.

If You Really Cared About Income Inequality - Tea Party Prescription

I have been stewing about the President's latest "pivot," this time to income inequality, for a while.  First, it isn't necessarily a problem. Second, Obama has no real solutions.  Income inequality is a problem per se, it depends on the source of the inequality.  If it is caused by a privileged class entrenching its grip on a not-so-free economy, like crony capitalist third-world economies, then this is fundamentally unfair.  But if caused by the inevitable winners and losers in a free-market economy, then we shouldn't care so much, in fact, we should rejoice that our system rewards endeavor.

By the way, actual income inequality is NOT increasing.  The welfare state and progressive taxation have vastly reduced the gap between the poor and everyone else.

According to Messrs. Ohanian and Hagopian, once the effect of taxes and transfer payments is taken into account, "inequality actually declined 1.8% during the 16-year period between 1993 and 2009, when the Gini coefficient dropped from .395 to .388."

Unfortunately, government policies are increasing pre-tax/pre-entitlement inequality (as defined as "earned income" inequality for this discussion).  There is some real evil going on that could be addressed to improve actual fairness and improve economic growth.  Here are some liberty movement suggestions.

End the Fed and Return to a Gold Standard.  The Federal Reserve lends Wall Street bands money at below market rates that they use to fund loans.  This is supposed to help the economy, but it just concentrates wealth in Wall Street which then gets bailed out when it makes bad bets.  If you want to really stop the shenanigans that funnel wealth to people who don't produce anything, return to the gold standard and disband the federal reserve system.

The biggest source of income inequality.

Stop Raising the Minimum Wage.  Raising the minimum wage reduces the opportunity for lower skilled and teens to enter the workforce and start making their way up the economic ladder.  Moving people into the workforce begins lifelong upward mobility. By raising the minimum wage, we keep youth out of the labor market.

Introduce Competition into Education. Students are graduating from college and high school without discernible skills that allow them to enter the work force.  This was not alway so.  There was a time when a high school diploma indicated familiarity with basic math, reading and writing skills and at least a rudimentary knowledge of science.  No more.  Employers can no longer count on even college graduates being able to perform basic tasks needed in business.  This is the result of a century of monopoly in education.  Government schools have failed us.  Competition would restore the incentives for parents to be involved in education choices for their kids, and the result would cause employers to start to trust diplomas again.

Fix Immigration Policy to Favor Skilled Immigrants.  Amnesty for unskilled farm laborers is the opposite of this idea.  The United States is still the land of opportunity when compared to the rest of the world, even if our absolute level of opportunity has declined under Obama's leftist policies.  Bringing skilled immigrants to our country allows various tech teams to stay together and provides all sorts of additional jobs for native Americans as well.  However, if we limit immigration to unskilled farm workers, then we are bending the income curve to increase inequality.  If the President really care about income inequality he would have included a vast expansion of H-1B and other avenues to bring the skilled and wealthy, because he is such a smart policy dude.  Unfortunately, he did not.

Repeal the ACA.  There are plenty of incentives for people at the lower end of the income ladder to reduce their income in order to qualify for subsidies, including married couples getting divorced to reduce their household income.  The ACA is contributing to a rise in inequality by reducing the incentives for those in lower to middle income brackets to increase their income.

Of course, the President isn't really serious.  He is just making another speech about something he chose to ignore for five years, much like immigration.  But if we would like a larger middle class and economic growth, then my tea party policies should be considered.

Your Economics Lesson for the Week

H/T Carpe Diem. From NBC News in the Bay Area.

The catchy Subway sandwich shop jingle involving a variety of foot-long sandwiches available for $5 doesn't apply in San Francisco.
. . .
Apparently, the city's new minimum wage, raised to $10.24 as of Jan. 1, make $5 footlongs an impossible business model.

There was an eruption of comments on Carpe Diem. One complaint was about how it was impossible to live by oneself on minimum wage in San Francisco. No sharing apartments! The new cri de guerre of aspiring Bolsheviks.

Quick Hitters

San Fran Chronicle headline:

Government should defend climate science

Bdaddy responds in the comments: I disagree with this article and the Constitution is on my side:
Congress shall make no law respecting an establishment of religion.


Ever notice how Democrat favored policies have a racist outcome, even if Dems aren't racist? Welfare trapped minorities into a life of dependency. Racial quotas breed resentment of minorities. Public school monopolies primarily put inner city minorities at a disadvantage. Abortion impacts blacks disproportionately more than whites. The latest? Minimum wage increases enacted in 2007 are strongly correlated with increasing black teen unemployment. The WSJ has the story, but here is the picture worth a thousand words.


Speaking of harm to the black community, Obama's lies about abortion and health care continue unabated. Despite promising to keep the balance of the Hyde amendment, here is what he is really up to.

The president's plan goes further than the Senate bill on abortion by calling for spending $11 billion over five years on "community health centers," which include Planned Parenthood clinics that provide abortions.

Finally, when will the Republicans do something to deserve our vote? They tossed Jim Bunning over the side because he had this CRAZY notion that any spending should be accompanied by a means of paying for it and he held up a bill extending unemployment benefits because of it. Instead of making him a poster boy for Democrat ridicule, and he plays the part well, the GOP should have gotten behind the idea. The public is anxious and fed up with the debt and deficits. The Tea Parties got started in opposition to porkulus, TARP and bailouts and a dread over the debt. WHEN WILL YOU GET IT, GOP?