Low-Skilled Workers Flee the Minimum Wage

What happens when, in a country where workers are free to move, a region raises its minimum wage? Do those with the fewest skills seek out the regions with the highest wage floors?

New minimum wage research by economist Joan Monras of the Paris Institute of Political Studies (Sciences Po) attempts to answer that question. Monras theoretically shows that there should be a close relationship between the employment effects of raising the minimum wage and the migration of low-skilled workers.

When the demand for local low-skilled labor is relatively unresponsive (or inelastic) to wage changes, raising the minimum wage should lead to an influx of low-skilled workers from other states in search of better-paying jobs. On the other hand, if the demand for low-skilled labor is relatively responsive (or elastic), raising the minimum wage will lead low-skilled workers to flee to states where they will more easily find employment.

To test the model empirically, Monras examined data from all the changes in effective state minimum wages over the period 1985 to 2012. Looking at time frames of three years before and after each minimum wage increase, Monras found that

  1. As depicted in the graph below on the left, those who kept their jobs earned more under the minimum wage. No surprise there.
  2. As depicted in the graph below on the right, workers with the fewest skills were having an easier time finding full-time employment prior to the minimum wage increase. But this trend completely reversed as soon as the minimum wage was increased.
  3. A control group of high-skilled workers didn’t experience either of these effects. Those affected by the changing laws were the least skilled and the most vulnerable.

These results show that the timing of minimum wage increases is not random.

Instead, policy makers tend to raise minimum wages when low-skilled workers’ real wages are declining and employment is rising. Many studies, misled by the assumption that the timing of minimum wage increases is not influenced by local labor demand, have interpreted the lack of falling low-skilled employment following a minimum wage increase as evidence that minimum wage increases have no effect on employment.

When Monras applied this same false assumption to his model, he got the same result. However, to observe the true effect of minimum wage increases on employment, he assumed a counterfactual scenario where, had the minimum wages not been raised, the trend in low-skilled employment growth would have continued as it was.

By making this comparison, Monras was able to estimate that wages increased considerably following a minimum wage hike, but employment also fell considerably. In fact, employment fell more than wages rose. For every 1 percent increase in wages, the share of a state’s population of low-skilled workers in full-time employment fell by 1.2 percent. (The same empirical approach showed that minimum wage increases had no effect on the wages or employment of a control group of high-skilled workers.)

Monras’s model predicts that if labor demand is sensitive to wage changes, low-skilled workers should leave states that increase their minimum wages — and that’s exactly what his empirical evidence shows.

According to Monras,

A 1 percent reduction in the share of employed low-skilled workers [following a minimum wage increase] reduces the share of low-skilled population by between .5 and .8 percent. It is worth emphasizing that this is a surprising and remarkable result: workers for whom the [minimum wage] policy was designed leave the states where the policy is implemented.

These new and important findings reinforce the view that minimum wage increases come at a cost to the employment rates of low-skilled workers.

They also pose a difficult question for minimum wage proponents: If minimum wage increases benefit low-skilled workers, why do these workers leave the states that raise their minimum wage?

Corey Iacono

Corey Iacono is a student at the University of Rhode Island majoring in pharmaceutical science and minoring in economics. He is a FEE 2016 Thorpe Fellow.

This article was originally published on FEE.org. Read the original article.

Ayn Rand Predicted an American Slide toward Fascism

In a letter written on March 19, 1944, Ayn Rand remarked: “Fascism, Nazism, Communism and Socialism are only superficial variations of the same monstrous theme—collectivism.” Rand would later expand on this insight in various articles, most notably in two of her lectures at the Ford Hall Forum in Boston: “The Fascist New Frontier” (Dec. 16, 1962, published as a booklet by the Nathaniel Branden Institute in 1963); and “The New Fascism: Rule by Consensus” (April 18, 1965, published as Chapter 20 in Capitalism: The Unknown Ideal [CUI] by New American Library in 1967).

The world conflict of today is the conflict of the individual against the state.

Rand knew better than to accept the traditional left-right dichotomy between socialism (or communism) and fascism, according to which socialism is the extreme version of left-ideology and fascism is the extreme version of right-ideology (i.e., capitalism). Indeed, in The Ayn Rand Letter (Nov. 8, 1971) she characterized fascism as “socialism for big business.” Both are variants of statism, in contrast to a free country based on individual rights and laissez-faire capitalism. As Rand put it in “Conservativism: An Obituary” (CUI, Chapter 19):

The world conflict of today is the conflict of the individual against the state, the same conflict that has been fought throughout mankind’s history. The names change, but the essence—and the results—remain the same, whether it is the individual against feudalism, or against absolute monarchy, or against communism or fascism or Nazism or socialism or the welfare state.

The placement of socialism and fascism at opposite ends of a political spectrum serves a nefarious purpose, according to Rand. It serves to buttress the case that we must avoid “extremism” and choose the sensible middle course of a “mixed economy.” Quoting from “‘Extremism,’ Or The Art of Smearing” (CUI, Chapter 17):

If it were true that dictatorship is inevitable and that fascism and communism are the two “extremes” at the opposite ends of our course, then what is the safest place to choose? Why, the middle of the road. The safely undefined, indeterminate, mixed-economy, “moderate” middle—with a “moderate” amount of government favors and special privileges to the rich and a “moderate” amount of government handouts to the poor—with a “moderate” respect for rights and a “moderate” degree of brute force—with a “moderate” amount of freedom and a “moderate” amount of slavery—with a “moderate” degree of justice and a “moderate” degree of injustice—with a “moderate” amount of security and a “moderate” amount of terror—and with a moderate degree of tolerance for all, except those “extremists” who uphold principles, consistency, objectivity, morality and who refuse to compromise.

In both of her major articles on fascism (cited above) Rand distinguished between fascism and socialism by noting a rather technical (and ultimately inconsequential) difference in their approaches to private property. Here is the relevant passage from “The New Fascism: Rule by Consensus”:

Observe that both “socialism” and “fascism” involve the issue of property rights. The right to property is the right of use and disposal. Observe the difference in those two theories: socialism negates private property rights altogether, and advocates “the vesting of ownership and control” in the community as a whole, i.e., in the state; fascism leaves ownership in the hands of private individuals, but transfers control of the property to the government.

Ownership without control is a contradiction in terms: it means “property,” without the right to use it or to dispose of it. It means that the citizens retain the responsibility of holding property, without any of its advantages, while the government acquires all the advantages without any of the responsibility.

In this respect, socialism is the more honest of the two theories. I say “more honest,” not “better”—because, in practice, there is no difference between them: both come from the same collectivist-statist principle, both negate individual rights and subordinate the individual to the collective, both deliver the livelihood and the lives of the citizens into the power of an omnipotent government —and the differences between them are only a matter of time, degree, and superficial detail, such as the choice of slogans by which the rulers delude their enslaved subjects.

Contrary to many conservative commentators during the 1960s, Rand maintained that America was drifting toward fascism, not socialism, and that this descent was virtually inevitable in a mixed economy. “A mixed economy is an explosive, untenable mixture of two opposite elements,” freedom and statism, “which cannot remain stable, but must ultimately go one way or the other” (“‘Extremism,’ or The Art of Smearing”). Economic controls generate their own problems, and with these problems come demands for additional controls—so either those controls must be abolished or a mixed economy will eventually degenerate into a form of economic dictatorship. Rand conceded that most American advocates of the welfare state “are not socialists, that they never advocated or intended the socialization of private property.” These welfare-statists “want to ‘preserve’ private property” while calling for greater government control over such property. “But that is the fundamental characteristic of fascism.”

A mixed economy is ruled by pressure groups. It is an amoral, institutionalized civil war of special interests and lobbies.

Rand gave us some of the finest analyses of a mixed economy—its premises, implications, and long-range consequences—ever penned by a free-market advocate. In “The New Fascism,” for example, she compared a mixed economy to a system that operates by the law of the jungle, a system in which “no one’s interests are safe, everyone’s interests are on a public auction block, and anything goes for anyone who can get away with it.” A mixed economy divides a country “into an ever-growing number of enemy camps, into economic groups fighting one another for self preservation in an indeterminate mixture of defense and offense.” Although Rand did not invoke Thomas Hobbes in this context, it is safe to say that the economic “chaos” of a mixed economy resembles the Hobbesian war of all against all in a state of nature, a system in which interest groups feel the need to screw others before they get screwed themselves.

A mixed economy is ruled by pressure groups. It is an amoral, institutionalized civil war of special interests and lobbies, all fighting to seize a momentary control of the legislative machinery, to extort some special privilege at one another’s expense by an act of government—i.e., by force.

Of course, Rand never claimed that America had degenerated into full-blown fascism (she held that freedom of speech was a bright line in this respect), but she did believe that the fundamental premise of the “altruist-collectivist” morality—the foundation of all collectivist regimes, including fascism—was accepted and preached by modern liberals and conservatives alike. (Those who mistakenly dub Rand a “conservative” should read “Conservatism: An Obituary” [CUI, Chapter 19], a scathing critique in which she accused conservative leaders of “moral treason.” In some respects Rand detested modern conservatives more than she did modern liberals. She was especially contemptuous of those conservatives who attempted to justify capitalism by appealing to religion or to tradition.) Rand illustrated her point in “The Fascist New Frontier,” a polemical tour de force aimed at President Kennedy and his administration.

There is no such thing as ‘the public interest’ except as the sum of the interests of individual men.

Rand began this 1962 lecture by quoting passages from the 1920 political platform of the German Nazi Party, including demands for “an end to the power of the financial interests,” “profit sharing in big business,” “a broad extension of care for the aged,” the “improvement of public health” by government, “an all-around enlargement of our entire system of public education,” and so forth. All such welfare-state measures, this platform concluded, “can only proceed from within on the foundation of “The Common Good Before the Individual Good.”

Rand had no problem quoting similar proposals and sentiments from President Kennedy and members of his administration, such as Kennedy’s celebrated remark, “And so, my fellow Americans: ask not what America will do for you—ask what you can do for your country.” The particulars of Rand’s speech will come as no surprise to those familiar with her ideas, but I wish to call attention to her final remarks about the meaning of “the public interest.” As used by Kennedy and other politicians, both Democratic and Republican, this fuzzy phrase has little if any meaning, except to indicate that individuals have a duty to sacrifice their interests for the sake of a greater, undefined good, as determined by those who wield the brute force of political power. Rand then stated what she regarded as the only coherent meaning of “the public interest.”

[T]here is no such thing as ‘the public interest’ except as the sum of the interests of individual men. And the basic, common interest of all men—all rational men—is freedom. Freedom is the first requirement of “the public interest”—not what men do when they are free, but that they are free. All their achievements rest on that foundation—and cannot exist without them.

The principles of a free, non-coercive social system are the only form of “the public interest.”

I shall conclude this essay on a personal note. Before I began preparing for this essay, I had not read some of the articles quoted above for many, many years. In fact, I had not read some of the material since my college days 45 years ago. I therefore approached my new readings with a certain amount of trepidation. I liked the articles when I first read them, but would they stand the test of time? Would Rand’s insights and arguments appear commonplace, even hackneyed, with the passage of so much time? Well, I was pleasantly surprised. Rand was exactly on point on many issues. Indeed, if we substitute “President Obama,” for “President Kennedy” or “President Johnson” many of her points would be even more pertinent today than they were during the 1960s. Unfortunately, the ideological sewer of American politics has become even more foul today than it was in Rand’s day, but Rand did what she could to reverse the trend, and one person can only do so much. And no one can say that she didn’t warn us.

Republished from Libertarianism.org.

George Smith

This article was originally published on FEE.org. Read the original article.


Publius-Huldah's Blog

By Publius Huldah

The system we now use to elect presidents and vice presidents is unconstitutional. Our Constitution doesn’t permit political parties to hold primaries & national conventions to select nominees for their party.

Instead, the Electors of each State are to meet within their own State and THEY cast the votes for their State for president; and then in a second ballot, THEY cast the votes for their State for vice president. Then each group of Electors sends their list of persons voted for to the President of the Senate who, on a specified date, counts the votes.

The 12th Amendment specifies the procedures we are supposed to follow.

I have two papers on this: The most recent is here: https://publiushuldah.wordpress.com/…/trashing-the-12th-am…/

The earlier article I wrote on this topic illustrates with examples, precisely how the voting for president and vice president is to be done:  https://publiushuldah.wordpress.com/2012/02/09/national-popular-vote-goodbye-sweet-america/   and look…

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Commemorate the 15th anniversary of 9/11 by understanding what followed

Fabius Maximus website

Summary: On 9-11 al Qaeda scored one of the biggest wins in history, as our response put America on a new path. We’ve helped set the Middle East aflame and given up important rights, with no end in sight to either. On this 15th anniversary of 9/11 let’s learn from our mistakes and begin the long process of reforming the damage we have done to America.

Osama Bin Laden

“We were attacked on 9/11 by a group of Saudis, Emiratis, and a Lebanese, led by an Egyptian. Which is why we’re at war in Afghanistan, Pakistan, Somalia, and Yemen.”

From DuffelBlog, one of America’s few reliable source of insight.

How will future Americans see our time?

“He [VP Cheney] would have worked through the whole lot, Iraq, Syria, Iran, dealing with all their surrogates in the course of it – Hezbollah, Hamas, etc. In other words, he thought the whole world…

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Public Education Is Superior and Must Be Protected from Competition

Defenders of public education often point to data showing public schools to be as good as or better than private alternatives. A recent book celebrating such data is The Public School Advantage: Why Public Schools Outperform Private Schools.

Public schools, according to the authors, tend to outperform private rivals on a variety of metrics. Such groups as the National Education Association teachers’ union have used this research to make a case against “privatization.” (The book’s research has been criticized in some quarters for using flawed research methods, and other data show that private schools tend to outperform public ones.)

If competition from private education would doom public schools, then how confident can the public system’s proponents really be about the schools they’re defending? 

But when school choice proposals make legislative headway and threaten public school systems, this confidence seems to evaporate. People start fulminating about how school choice programs would effectively crush the public education system.

If competition from private education would doom public schools, then how confident can the public system’s proponents really be about the schools they’re defending? And if public education really is superior to private alternatives, why worry that people would prefer private schools if given a choice?

Spotting the Monopoly

Imagine that I am a spokesperson for the dominant car dealership in your area, and you’ve been hearing good things about a rival dealership. Not to worry, I convince you: our cars outperform theirs on a variety of metrics.

Now, imagine that that rival car company is about ready to open up a dealership down the street, and you hear me petition to the legislature not to allow it: “Permitting this other dealership to move in will surely spell the death of our company. Once people are allowed another option, it is only a matter of time before our profits dwindle to the point where we can’t sustain our business.”

“Wait,” you say, “I thought you just told me how confident you were in the superiority of your cars. Surely, if you are that confident, you wouldn’t be so worried about competition!”

You’d be right. And this situation is basically the one we are in regarding American public schools. Proponents point to data showing that, on several metrics, public schools fare no worse and sometimes better than private schools. Yet, when local governments entertain school choice programs, the public system’s defenders suggest that competition will spell the death of public schooling.

Either you’re confident that your product is the best choice or you’re not.

The Sky Is Falling!

Indiana, for instance, is entertaining two bills (House Bill 1311 and Senate Bill 397) that would allow students in the state to use money that would have been spent on their public education to receive private educational services. The Indiana State Teacher’s Association website declares that this change would “be a major blow to public schools.”

We see a similar lack of confidence in reactions to Arizona’s recent attempt to open up a very targeted voucher program to all students by 2018. “This is the end of public education in Arizona,” laments state senator Steve Farley.

Perhaps the fear mongering is just about rallying the troops. Maybe public school defenders know their product is superior but want to motivate their base with “the sky is falling” rhetoric.

But notice that such declarations about the “end of public school” share school choice advocates’ basic assumption: given the option, consumers will leave the public schools to the point where public schools need to be concerned for their financial viability.

Superior or Not — Which Is It?

Let’s go back to the example of the fictional car dealership. When shopping for a car, you certainly care what the research says on the cars you’re looking at. But would you be content if the car dealer told you, “You don’t need to look into that other car manufacturer. I assure you, lots of studies show that our cars are better than theirs on a variety of metrics”?

If public education really is superior to private alternatives, why worry that people would prefer private schools if given a choice?

My guess is that you’d keep the claim in mind but look at the other dealer’s cars anyway. Yes, you want the best car, but you also want the flexibility to decide which car is best for you.

When you then hear the car manufacturer’s lobbyists worrying to the legislature that allowing competitors into your area would surely spell the death of their employer’s company, it seems like cause for concern. The most plausible explanation — which the car manufacturer would never admit — is that they really are worried that consumers would prefer the competitors if given a choice.

When a car dealership, a school system or anyone else believes that competition will destroy their business, you can assume they aren’t confident about what they’re selling and wonder if their product or service is inferior.

Public school proponents can’t have it both ways. Under school choice programs like the ones Indiana and Arizona are considering, public schools will compete for funding with private educational services. Students who choose public schools will send their “tuition” money to their chosen public school. Therefore, the only way these choice programs could kill public schooling is if families en masse choose, and continue to choose, to direct public dollars away from the government’s school system and into private schools.

And if that’s what parents prefer for their children, then why shouldn’t they have that choice?

Kevin Currie-Knight

Kevin Currie-Knight

Kevin Currie-Knight teaches in East Carolina University’s Department of Special Education, Foundations, and Research. His website is KevinCK.net. He is a member of the FEE Faculty Network.

This article was originally published on FEE.org. Read the original article.