So what will happen if the President raises the minimum wage?

2. So what will happen if the President raises the minimum wage?

3. Controlled Labor Markets What is the main theme Dr. S is driving at in this chapter?

4. Controlled Labor Markets • Pay or working conditions can be controlled by law, custom, organizations of employees or employers, and/or government officials

5. Controlled Labor Markets • Pay or working conditions can be controlled by law, custom, organizations of employees or employers, and/or government officials • i.e., the free market does not always prevail in employment

6. Okay, what’s “i.e.”? • i.e. means “that is” or “in other words” • From the Latin “id est”

7. Okay, what’s “i.e.”? • i.e. means “that is” or “in other words” • From the Latin “id est” • Not to be confused with “e.g.”, which means “for example” from the Latin “exempli gratia”

8. Controlled Labor Markets • Pay or working conditions can be controlled by law, custom, organizations of employees or employers, and/or government officials • i.e., the free market does not always prevail in employment • As always, we’re not concerned with goals or intent, but with the ____________ with which these incentives lead

9. Job Security • Many countries such as France and South Africa have very strict laws that make it difficult and costly to fire anyone

10. Job Security • Many countries such as France and South Africa have very strict laws that make it difficult and costly to fire anyone • Does that lead to lower or higher unemployment?

11. Unemployment rates • South Africa: 24.9% • France: 10% • U.S.: 7.9%, youth unemployment 16.8% • Spain: 26.2%, youth unemployment 55% • Germany: 5.3% • Canada: 7% • Greece: 26.6%, youth unemployment 61.7%

13. Job Security • Many countries such as France and South Africa have very strict laws that make it difficult and costly to fire anyone • Does that lead to lower or higher unemployment? • Always look for the unintended consequences!

14. “Firing is such a costly headache that many prefer not to hire in the first place.” The Economist

15. Why shouldn’t we preserve jobs?

16. Why shouldn’t we preserve jobs? • “The very thing that makes a modern industrial society so efficient… makes it impossible to keep on having the same workers doing the same jobs in the same way.”

17. Jobs that no longer exist • Elevator operator, lector, copy boy, pin setter, milk man, switchboard operator, typesetter, ice man

22. Jobs that no longer exist • Elevator operators, lector, copy boys, pin setter, milk man, switchboard operator, typesetter, ice man • And some that are going away: bank teller, newspaper reporters, professional critics, travel agents

23. Jobs that no longer exist • Elevator operators, lector, copy boys, pin setter, milk man, switchboard operator, typesetter, ice man • And some that are going away: bank teller, newspaper reporters, professional critics, travel agents • Scare CT: “It’s how the free market does the rearrangin’…”

24. Minimum Wage Laws

25. Minimum Wage Laws • Make it illegal to pay less than the minimum specified price for labor

26. Minimum Wage Laws • Make it illegal to pay less than the minimum specified price for labor • $7.25/hour nationally; many states and cities also have such laws. Employees get the higher of the two

27. State minimum wages • Only five states don’t have minimum wage laws: Alabama, Louisiana, Mississippi, South Carolina and Tennessee • Washington: $9.19 • Florida: $7.79 • California: $8 • Oregon: $8.95

28. City minimum wage laws • More than 120 municipalities including three in Florida (such as Gainesville and Miami Beach) have enacted their own “living wage” laws • San Francisco: $10.55

29. City minimum wage laws • More than 120 municipalities including three in Florida (such as Gainesville and Miami Beach) have enacted their own “living wage” laws • San Francisco: $10.55 • There is a growing movement of activists pushing such laws

30. Minimum Wage Laws • Make it illegal to pay less than the minimum specified price for labor • $7.25/hour nationally; many states and cities also have such laws. Employees get the higher of the two • Net effect? A price artificially raised causes more to be supplied (labor) and less to be demanded… therefore, more unemployment

31. Sowellianism “...the real minimum wage is always zero regardless of the laws and that is the wage that many workers receive... in the wake of minimum wage laws”

33. What demographic group is most affected by minimum wage laws?

34. Youth and minorities 38.5% unemployment for blacks 16-24 20% for whites

35. So why would President Obama want to raise minimum wages to $9? • “This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead.”

36. So why would President Obama want to raise minimum wages to $9? • “This single step would raise the incomes of millions of working families. It could mean the difference between groceries or the food bank; rent or eviction; scraping by or finally getting ahead.” • “We know our economy is stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year.”

37. Michael Saltsman, Research Director, Employment Policies Institute • “According to the Census Bureau, 60 percent of people living below the poverty line didn’t work last year. They don’t need a raise, they need a job, period. And among those who do work and earn the minimum wage, the vast majority live in households above the poverty line.”

38. Robert Bennett, former U.S. senator • “He (President Obama) asked for $9 an hour, which works out to be $18,720 a year, which is still poverty for most families. Why not make raise the minimum wage to $20 an hour, or $41,600 a year for every wage earner and eliminate poverty altogether?”

39. The answer? • “…a $20 minimum wage would vastly increase poverty by destroying many existing jobs. Telling a worker, ‘The government decrees that you are now worth $20 an hour’ might make him feel good but won’t help him if the skills he has to offer are not worth that much to a prospective employer.”

40. The answer? • “President Obama’s economists understand this, which is why they don’t propose anything close to $20…the difference between a $20 and a $9 wage would only be one of degree. There would still be a negative impact.”

41. More minimum wage impacts • Substitute capital for labor

42. More minimum wage impacts • Substitute capital for labor • Results in higher wages for unionized workers… many of whom have contracts indexed to minimum wage laws

43. More minimum wage impacts • Substitute capital for labor • Results in higher wages for unionized workers… many of whom have contracts indexed to minimum wage laws • Big losers: youth and the poor

44. More minimum wage impacts • Substitute capital for labor • Results in higher wages for unionized workers… many of whom have contracts indexed to minimum wage laws • Big losers: youth and the poor • Only winners are those on the inside: those who have a job and manage to keep it

45. Informal Minimum Wage Laws • Mandated benefits (sick leave, family leave, medical benefits, etc.) have same results

46. Informal Minimum Wage Laws • Mandated benefits (sick leave, family leave, medical benefits, etc.) have same results • Family and Medical Leave Act of 1993: mandates 12 weeks of unpaid leave from the job for things like birth, family illness, adoption

47. Informal Minimum Wage Laws • Mandated benefits (sick leave, family leave, medical benefits, etc.) have same results • Family and Medical Leave Act of 1993: mandates 12 weeks of unpaid leave from the job for things like birth, family illness, adoption • At least 15 states have jumped aboard to include domestic partners, application to smaller companies, etc.

49. Informal Minimum Wage Laws • What about Third World wages by companies such as Nike, Hanes, Mattel?

50. Informal Minimum Wage Laws • What about Third World wages by companies such as Nike, Hanes, Mattel? • Not clear that overall Third World countries benefit when artificially high wages are put in place… better for those employed, not for those looking in without jobs