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.

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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.

For Pot, Inc., the Rush Begins – and so does the Crony Capitalism


Basic economics dictates how the market can be controlled by politicians and big business to benefit the few at the expense of the many, and that’s exactly what’s happening as New York begins the process of legalizing medical marijuana. Who are the few that will reap the biggest rewards?

In order to implement market controls (note: this is NOT free market capitalism), you must restrict access. From the New York Times story (emphasis mine):

The State Health Department, she said (State Senator Diane J. Savino who was a sponsor of the bill passed last summer), had not yet written guidelines for the medical marijuana program, and the licenses available for companies keen to participate would be few and costly.

That way, only the most well-connected and wealthy can participate.

You tax it heavily:

We can probably take in a couple hundred million dollars a year, minimally,” she said, referring to potential tax revenue.

Um… who do you think is paying those taxes? Consumers who have medical needs. How considerate!

You restrict supply to artificially inflate prices:

When Gov. Andrew M. Cuomo signed the Compassionate Care Act in July, it gave the Health Department 18 months to come up with regulations and choose up to five companies to grow and dispense medical marijuana.

Application costs alone could run to several hundred thousand dollars; start-up costs could top $20 million.

Oh, and did I mention price fixing?:

New York’s health commissioner will set the price of the drug, probably based on the street value.

Which of course means that the street value will adjust dynamically to keep as many black-market customers as possible, and the centrally planned and controlled pricing will never catch up due to bureaucratic lag. This means the black-market will continue to thrive whilst the “legal” market will be strangled and uncompetitive. Capitalism is responsive to market drivers, such as demand vs. price. Socialism (central control by so-called authorities) abstracts the supply from the consumption, which means critical market indicators are disconnected.

And the cronies are all lined up:

Now, for the state’s would-be growers, private equity investors, labor unions, lawyers, lobbyists, consultants, branding firms, suits, stoners and hucksters, the rush is on.

This is the moment when old-guard legalizers meet a new breed of capitalist.

Yep! That new breed? Crony-capitalists!

  • Patrick McCarthy, a lobbyist & once an aide to Gov. George E. Pataki and executive director of the New York Republican State Committee
  • Dean Petkanas, was chief financial officer at Stratton Oakmont
  • Derek Peterson, a former senior vice president at Morgan Stanley Smith Barney (who hired Senator Harry Reid’s son Rory as a lobbyist)
  • The Governor of NY

    Richard N. Gottfried, a Democratic state assemblyman cited an unwritten formula of government regulation:

    “When you make a statute very restrictive — and the governor did that in the last hours — you raise the stakes and create a need for more lawyers and consultants

  •  Cannabis industry cash has begun to flow into New York. Ms. Savino said her campaign donations from out-of-state growers were “around $10,000 or $15,000 — not much.” (But it’s the thought that counts, right?)
  • Unions have also claimed a share. In New York, all licensees will be union shops, a result of two years of lobbying by the United Food and Commercial Workers International Union

And one last big crony-capitalist play – use government regulations to control unwanted competition:

…at the Cannabis and Hemp Association meeting, the aspiring moguls had a regulatory request for Ms. Savino. They wanted more regulation, not less (talking about over-the-counter remedies being sold as non-psychoactive hemp oil or CBD oil)  … Such products are largely unregulated and sell for as much as hundreds of dollars for a small amount. Could the state crack down on them?

Most telling quote in the whole article:

Ms. Savino pulled a bottle of something called Green Cures CBD Oil from her purse, eying it skeptically. “People believe what they want to believe,” she said. “It’s hard to protect people from what they think will help.”

And people thinking that this crony-capitalist “legalization” will help anyone in New York will find that in the long-run it helps no one except those who exploit the voters, tax payers, and consumers, such as politicians, lobbyists, bankers, and union bosses.

 

 

Public Pensions $2 Trillion Short of What They Owe Retirees


“A new report by Moody’s Investors Service finds that public pensions are $2 trillion short of the amount they owe current and future retirees.  “Combined with large unfunded liabilities, aging plan demographics effectively transfer costs incurred by a previous generation onto the present one, increasing the burden on current government operations,” the report stated.”

So what does this mean? Higher taxes to fund the liabilities, cutting of public services (aka austerity), and insolvency. Most likely all three. This is what happens when you pair public employee unions and the politicians who feed off of them.

The next time a union endorses a politician, you can be sure they are in league to fleece the tax payers.

http://feedproxy.google.com/~r/BigGovernment/~3/hatnDRG2fmE/story01.htm

3 Business Lessons From The Sinaloa Drug Cartel (Revisited)


English: Money seized during "Project Cor...
English: Money seized during “Project Coronado” by the DEA. Going in “La Familia Michoacana” article. (Photo credit: Wikipedia)

An article posted by Devin Liddell on  Co.Design has a sub-title “Innovate Like a Syndicate”, but the conclusions of the article show a huge leap in the application of legitimacy to a business model that is wholly illegitimate.

To sum-up the articles main points:

  • There are cartels that have out-lasted traditional brick-and-mortar business for generations
  • Cartels have insanely high margins on products
  • Individuals working for cartels have a huge profit per employee when compared to traditional businesses
  • Profits happen despite efforts of governments and law enforcement to shut down cartels
  • Cartels achieve all the above due to a superior culture when compared to Fortune 500 companies

Let’s address these points using some basic economics and common sense.

Cartels, much like monopolies, are in business due to government participation, not in-spite of it. Were it not for the State restricting competition, as well as restricting the supply of products, prices and profits would plummet. Therefore it’s in the best interest of the cartels to persist the adversarial role of the State. The State restricts competition by making it extremely costly to get involved in illicit businesses, and winnows out the weak by raising the cost of entry into the marketplace through police power. This serves to maintain the established cartels position of power and prominence.

Cartels don’t have the compliance burdens imposed by the State, nor the tax burdens – giving them a much greater profit margin potential only dreamt of by most brick-and-mortar companies.

But lets talk about the main points of the article, ” these culture-driven brands have three key attributes”:

  1. Credo: “Actionable and authentic values” whereby these cartels “have distinctive rituals, symbols, and artifacts to express their credos”, giving them some kind of supposed “authenticity” (unlike corporate motivational posters). Like most hierarchical models of business, the corporate culture is designed to insulate those at the top from competition from those below, while at the same time concentrating wealth and power in the hands of the few at the top. It’s the same for cartels that exist outside of traditional law and cultural mores. Unlike traditional corporations, violation of these “Credos” is not just fatal to your career, but to you and your family. Very motivational!
  2. Improvisation: To sum up, find ways around impediments to your distribution network, then diversify your income streams. Sounds like basic business strategy to me.
  3. Small-but-big: While I agree that small and agile is good given my background managing software development and agile methodologies, the structure implemented by cartels is more likely due to risk mitigation. When the police show up and bust your operation, they only capture an isolated cell, leaving the vast bulk of the operation intact and productive. It’s merely a byproduct that this structure can also very efficient.

In  summary, Mr. Liddell makes the following statement, ” legitimate businesses wish they had the cultural clarity and business results of these underworld organizations”, and I’m sure some do. More to the point, it’s about results. To get similar results, but to do it in a fashion that does not use the illegitimate power of cartels (or the State) will require an environment for business close to what the cartels operate under. How about the following as a start:

  • Minimize or repeal all corporate taxes
  • Relieve businesses of the incredibly burdensome compliance requirements from all the alphabet-soup of state and federal agencies
  • Understand that cultural values are inculcated from society, not corporations, and good citizens and workers become so because they are raised that way – not at the point of a gun
  • Get the State out of business, as it creates massive economic distortion wherever it interferes

Oh, and there’s only one way to defeat those pesky cartels, and that’s to take away their government enforced monopoly.

The original article is here.

Australia Repeals Carbon Tax


Anti Carbon Tax Rally, Melbourne
Anti Carbon Tax Rally, Melbourne (Photo credit: mugfaker)

More evidence that lawyers should not pretend to be economists. Taxes imposed on manufacturers of anything are invariably passed on to consumers. This includes co-called “carbon offset” taxes. In the process, the money is laundered through exchanges and the state bureaucracy, enriching the non-productive leach sector of the economy at the expense of the middle-class.
You liberals whine about the inequality between the 1% & the 99%, then want to impose even more draconian financial policies that exacerbate the problem!
OH NO! THERE’S A CLIMATE CRISIS (there’s always a crisis) so we need to TAX MORE to CONTROL PEOPLE and SAVE THE WORLD! Ad nauseum.

JONATHAN TURLEY

200px-Tony_Abbott_-_2010220px-AlfedPalmersmokestacksIn a major setback to effort to combat climate change, Australia’s Abbott government has secured a repeal of the carbon tax. It is the first major country to rollback on the basic environmental protection. Abbott’s government is suggesting that it will pay corporations not to pollute — a proposal that would cost a huge amount and environmentalists insist is unlikely to be successful.

View original post 191 more words

Defining Socialism


The prevailing illusion of our age is that it is possible to enrich all classes at the expense of one another—to make plunder universal under the pretext of organizing it. Now, legal plunder can be committed in an infinite number of ways; hence, there are an infinite number of plans for organizing it: tariffs, protection, bonuses, subsidies, incentives, the progressive income tax, free education, the right to employment, the right to profit, the right to wages, the right to relief, the right to the tools of production, interest-free credit, etc., etc. And it is the aggregate of all these plans, in respect to what they have in common, legal plunder, that goes under the name of socialism.

Frédéric Bastiat – Selected Essays on Political Economy – The Law (1848)

Social Security–So Simple A Caveman Could Understand


Bernard Madoff's mugshot

Image via Wikipedia

Why did Bernie Madoff go to prison? To make it simple, he talked people into investing with him. Trouble was, he didn’t invest their money.  As time rolled on he simply took the money from the new investors to pay off the old investors.  Finally there were too many old investors and not enough money from new investors coming in to keep the payments going.

Next thing you know, Madoff is one of the most hated men in America  and he is off to jail.  Some of you know this. but not enough of you.

Madoff did to his investors what the Congress has been doing to us for over 70 years with Social Security.  There is no meaningful difference between the two schemes, except that one was operated by a private individual who is now in jail, and the other is operated by politicians who enjoy perks, privileges and status in spite of their actions.

 

 Do you need a side-by-side comparison here?  Well here’s a nifty little table:
 

BERNIE MADOFF

SOCIAL SECURITY

Takes money from investors with the promise that the money will be invested and made available to them later.

Takes money from wage earners with the promise that the money will be invested in a “Trust Fund” and made available later.

Instead of investing the money Madoff spends it on nice homes in theHamptons and yachts.

Instead of depositing money in a Trust Fund the politicians use it for general spending and vote buying.

When the time comes to pay the investors back Madoff simply uses some of the new funds from newer investors to pay back the older investors.

When benefits for older investors become due the politicians pay them with money taken from younger and newer wage earners to pay the geezers.

When Madoff’s scheme is discovered all hell breaks loose. New investors won’t give him any more cash.

When Social Security runs out of money they simply force the taxpayers to send them some more.

Bernie Madoff is in jail.

Politicians remain in Washington.

“The taxpayer: That’s someone who works for the federal government but doesn’t have to take the civil service examination.” – Ronald Reagan


  “If you put the federal government in charge of the Sahara Desert, in five
years there’d be a shortage of sand.”
      Milton Friedman

PASS THIS ON

AND REMEMBER THAT AS ABORTION CONTINUES, SO CONTINUES THE EVER SHRINKING TAX BASE. EVEN IF YOU DON’T TAKE INTO CONSIDERATION THE RELIGEOUS ASPECTS OF THIS ISSUE (WHICH YOU SHOULD), IT SHOULD BE CONSIDERED IN THESE TERMS AT THE VERY LEAST…

Talking about WorldNetDaily: Sheep’s clothing and Adam Smith


Vox Day again shows his insight in an area that seems to invisible to most people indoctrinated in popular economics.

Slaves may have some freedoms, but they are still slaves. What’s more important than security (a question that seems to be popping up everywhere – especially my workplace now-a-days) along with prosperity? How about Liberty.

Quote

WorldNetDaily: Sheep’s clothing and Adam Smith