Tag Archives: jobs

Minimum Wage

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…and costs to the consumer as well as the worker….

California is about to raise its minimum wage to $10/hr.  Washington (the state, not the capital, so far), has a current minimum wage of $9.19/hr, and that’s tied to inflation.

However, neither labor nor the wage paid for it occur in a vacuum.  Labor is required to produce the good or service being sold, and the wage paid the laborer—whether CxO or line worker—has a direct impact on the minimum price the producer must charge for that good or service in order to stay in business.

Labor costs amount to about 10% of the cost of a car sold to you at the dealership.  Not many cars are produced in California—or Washington—though, so minimum wage increases in these two states won’t impact the prices Californians or Washingtonians must pay for their cars.  Labor costs in the restaurant industry, though, run to 25%-30% of the cost of the meals sold, with the high end coming in sit-down restaurants, the low end in fast food restaurants.

Labor costs as a per cent of the cost of the the end product or service being sold vary widely across industries (vis., auto vs restaurant); I’m going to focus on the restaurant industry for illustration.

California’s rise in its minimum wage, a 25% increase over its existing $8/hr minimum, will have a commensurate impact on the cost of meals bought in these places.  In a sit-down restaurant, that increase in cost can amount to meal price increase of 7.5%.  Factoring in the impact on the business’ payroll taxes for Social Security and Medicare/Medicaid (and eliding the payroll tax that California charges), we get an additional labor cost increase through those taxes (7.65%) of 1.9%, for a total labor cost increase in the price of a meal of 9.4%.  That’s what consumers can look forward to in the inflation of their price for a relaxing dinner out.

Here’s where the tie to inflation comes in: Washington’s tying minimum wage increases to its inflation guarantees that that state’s inflation will be higher than it otherwise would: by that state’s labor cost impact on the prices of goods and services sold there.  This feeds back into its mandated inflation-driven rising minimum wage.  And the vicious circle is up and running.

Of course there are other ways California restaurants can deal with a 25% increase in labor costs.  In order to hold down the total cost of their labor force and thereby keep their meal price increase down to something more marketable, they can either eschew hiring the additional labor with whom they were considering expanding (and not expand), or they can lay off existing workers, or both.  Either way, the restaurants end up using fewer workers to do the same amount of, or more, work.

It’s important to note at this point that food service companies can function very well with low-skill—minimum wage—labor, while other industries (vis., auto assembly) need skilled labor, pay commensurately higher wages, and so are little impacted by minimum wage requirements.  It’s the low-skill, low-wage worker that’s hurt by minimum wage laws, yet it’s these guys who need to get that first job so they can start accruing the experience and training and skills necessary to get better jobs.  Or that need this second job so they can save a little, put a little by for their kids’ college, and so on.

Government-mandated minimum wage increases are job killers.  And they kill the jobs with the greatest marginal value for a nation’s economy and for the individual worker: the low-skilled worker on the cusp of having a job at all.

Immigration Limits

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I’ve written elsewhere about the folly of limiting the numbers of immigrants we allow in.

Here are a couple of interesting facts offered by Steve Case in a recent Wall Street Journal op-ed:

Canada got its new startup visa program running this summer, explicitly seeking to lure talented entrepreneurs away from Silicon Valley. Our Canadian friends even erected a billboard near San Francisco…urging foreign-born innovators to consider leaving Silicon Valley and move north.

And

Australia—despite having an economy 14 times smaller than America’s—will, as of Sept 1, offer as many employment-based green cards as the US.

Hmm….

The Recovery that Isn’t

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In a recent piece in The Wall Street Journal about post-Panic borrowing increases, James Sterngold and Matt Wirz had an interesting graphic showing the evolution of the US economy from just prior to that Panic to today.  Excerpted below is the part of that graphic indicating the jobs market evolution.

The graph is hard to read; here are some highlights:

  • More than 21 million Americans wanting a job at the 2010 peak, over 18 million still in that strait today.
  • Just under 16 million Americans out of work for at least 27 weeks (over 6 months), still nearly 12 million in that strait today.
  • Dropping out of the market due to discouragement in finding work—of any sort—peaking at over 1 million per year and still nearly that today.
  • Labor force participation rate near a 35 year low.

And there’s this, which takes a longer look at that last bullet:

Notice that bit on the right: after the Panic’s official end, participation rate continued to plummet.

As the WSJ points out,

If the participation rate merely returned to what it was at the end of the recession, nearly four million more Americans would be collecting a paycheck.

Had our recovery progressed as a normal one does, we’d be here:

A normal recovery coming out of a downturn as deep and steep as the Panic of 2009 typically sees growth rates of 5%-6% per year, or more.  This Obama recovery has been 6.7% over the entirety of his term in office—nearly five years.  Had we seen a normal recovery (and using a pessimistic 5%/year growth rate), we would have reached today’s unemployment rate after a bit over one year—late 2010—and we would have been back to full employment (in the range of 4.8%-5.5%) in just under 2 years—two years ago.

Had our recovery progressed as President Barack Obama promised it would when he was stumping for and signing the massive 2009 Stimulus Bill, we’d be here:

He promised in 2009 a 5.5% unemployment rate by a couple of years ago.  How many new jobs would have been created had we actually reached his promised number?  In December 2009 (some six months after the nominal end of the Panic of 2009), the civilian labor force was 153 million, of which 137.8 million Americans were employed, a 10% unemployment rate, according to BLS statistics, and using round numbers.

In August 2013, again using BLS numbers, the civilian labor force was larger, at 155.5 million (and it had a smaller participation rate than in 2009, but we’ll gloss over that for now).  There were some 144.2 million Americans actually employed.

However, a 5.5% unemployment rate corresponds, if my 1st grade arithmetic serves me well, to 94.5% of the civilian labor force actually employed: 146.5 million Americans.  Again consulting my 1st grade arithmetic book, there are some 2.3 million Americans that should be employed but aren’t—because Obama’s proudly proclaimed policies have come up short, and we aren’t anywhere near 5.5% unemployment.

Finally, there’s this:

Current population: 313.9 million
Current civilian labor force: 155.5 million
Current labor force participation rate: 63.2
Current unemployment rate: 7.3%
Employed Americans: 144.2 million
Unemployed Americans: 11.3 million of those looking for work

2007 population: 301.1 million
2007 civilian labor force (last full year before the Panic): 153.1 million
2007 labor force participation rate: 65.8%
2007 unemployment rate: 4.6%
2007 Employed Americans: 146 million
2007 unemployed Americans: 7.1 million

Over the last six years, our population grew by 4.3%; our labor force population grew less than that, at 1.6%; our employed population shrank by 1.2%; and our unemployed population grew, a lot.  We’re not even keeping up.

Yet despite these obvious failures of Progressive policies, Obama and his Senate counterparts threaten to shut down our government and blow up our national credit rating and with it our economy, if he’s not allowed to have more spending increases, yet higher taxes, and a yet higher debt ceiling so he can borrow to pay for his spending (because he knows higher taxes won’t cover it; he just wants the higher taxes because…well, just because).

Some Employment Numbers

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Here are some graphs of our nearby employment history, from Express Employment Professionals, a 30-year-old provider of professionals for temporary employment.

This first graph shows the labor force participation rate since its peak in 2007.

This second graph shows the unemployment rate over the same time period.

There are two items of interest in these two graphs.  The first is that although participation rate was starting to drift down from its early 2007 peak, it didn’t get going in earnest until late summer 2008—with the unemployment rate peaking just a few months later.

The other takeaway is that the unemployment rate began drifting back down from that peak, and fairly steadily so, in concert with the labor participation rate drop-off.  While the unemployment rate has fallen by roughly 2.5 per centage points, the labor force participation rate (the denominator of the unemployment fraction) has also fallen by almost 2.5 per centage points.

Folks just aren’t able to get back to work.  More than 4 million Americans have been out of work for more than 6 months, and that number hasn’t shrunk much over these last 4, and more, years.

What kinds of jobs are being had?  Americans working part-time workers for economic reasons (they would work full-time if they could, but full-time work isn’t available) numbered some 8.2 million as recently as last July.  That’s “only” some 5.5% of those employed that month, but so far this year, there have been nearly 4.5 part-time jobs created for every full-time job.  Last year, that ratio was reversed: 0.2 part-time jobs were created for every full-time job.

We have to think about whether this is a structural change to our work environment and our labor force composition, or whether this is “just” an aspect of the continuing failed economic recovery.

A Thought on Minimum Wage

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The current minimum wage is $7.25/hr, and under the guise of that being not enough to live on (it works out to about $15,000/yr before taxes), there’s move afoot to raise the minimum—to anywhere between $9/hr and $15/hr.

I’ll ignore in this post the fact that the jobs that get minimum wage are low-skill and/or entry-level jobs whose product simply isn’t worth very much money.  I’ll ignore, also, the fact that very few minimum wage earners have this job as their sole source of income—it’s a second job, intended to supplement the income from the primary job.

I want, instead, to propose a wholly radical idea: how about reducing regulations, especially for small businesses (the ones hardest hit by minimum wage laws) and lowering tax rates (of which min-wage earners aren’t paying much, but which taxes contribute to the cost of the goods min-wage earners are trying to buy)?  Those tax and regulatory costs drive up our (which includes min-wage earners) cost of living, as the cost of the things we buy is driven by those regulatory and tax costs of doing business.

Here’s a brief look at (aggregated) regulation costs for small businesses.  Daniel Sutter, a Professor of Economics at Troy University, had this information in a recent piece in the Troy Messenger:

…compliance [with Federal regulations] often requires spending on new equipment, signs, or other changes to workplaces.  Both the Competitive Enterprise Institute and Small Business Administration estimate the cost of regulations at around $1.8 trillion.  …this $1.8 trillion (largely hidden) cost of [Federal] regulatory compliance exceeds the revenue from Federal individual and corporate income taxes combined.  It represents almost 12% of GDP, or nearly $15,000 per family, annually.

There’re those $15,000, again.  Also, that aggregate cost equals 10% of the current national debt.

Sutter also had this:

Automobile dealers, for example, must comply with over forty Federal regulations affecting every aspect of their business, from the showroom to the service bays.

They aren’t even allowed to run their own businesses without the Feds looking over their shoulder, telling them how to do so.

And it goes beyond compliance costs.

Regulation reduces the freedom of individuals and businesses to innovate or create new products.  Regulation reduces productivity growth, ultimately reducing standards of living, and particularly burdens small businesses, which are the source of many new jobs.  The greatest cost is likely the new products, services and businesses that are never created because of regulation.

Now, about those taxes….

The small business owner, rather than the business itself, typically pays the taxes on the business’ income, as that, and its costs, typically are passed through to him.

A small business might have an annual income of, oh, say, $500,000—and if it’s really successful, that’ll generate a profit of $50,000.  Any salary he might take out of the business is on top of that, but let’s ignore salary and only concern ourselves with the income tax on that profit.  On those $50k, he’ll pay roughly $8,400 in ordinary income tax—nearly 17% of that profit ultimately lost to the government—at 2013 single rates.  At married, filing jointly, the bite will be roughly $6,600—13% of his profit lost.

Rather than raising the minimum wage, and pricing the worker out of the labor market, it’d be better to enable the existing wage to go farther by getting rid of all those Federal regulations, and their costs, and lowering tax rates.