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Thursday, February 28, 2013

Song of the Moment: Bruno Mars - When I Was Your Man

Just a solid song. Strong 60s Soul (lots of Sam Cooke and Ray Charles, note the tribute) influences, so it has to be good, right?

Saturday, February 23, 2013

Bob Murphy on "Obama's $9/Hour SOTU Minimum Wage"

I know I've posted on this already and you're probably tired of hearing about it, but if you don't feel like reading or want to hear a more eloquent argument, here is economist (and noted foe of Paul KrugmanBob Murphy:

Thursday, February 21, 2013

Teen Employment

Not to harp on the ill-effects of minimum wage, but it's all related...

The Boston Globe just published an article covering the fact that "Teen employment falls to 45-year low".
"Just 27 percent of teens held jobs last year, half the rate of decade ago when 54 percent found work, according to the report by the Youth Jobs Coalition, which represents more than 20 nonprofits that work with teens. That’s the lowest rate of employment for 16- to 19-year-olds in Massachusetts since 1968, when the Census Bureau began collecting such data.

The Massachusetts teen employment rate ranked 31st among states; even Michigan, one of the states hit hardest by the recession and joblessness, had a higher teen employment rate at 31 percent. “We are no longer a national leader in putting young adults to work,” the report said."
This is especially surprising given the fact that the Massachusetts economy is recovering fairly well and we are among the better performing states in the nation. (And to reward our hard work, Gov. Deval Patrick wants to give us all a nice big tax increase! but that's another issue).

Side note: Don't even get me started on this...
"The coalition also cited St. Elizabeth’s Medical Center in Boston, which was bought by the for-profit Steward Health Care in 2010, saying the hospital significantly reduced the number of teens it hired through the Private Industry Council in recent years.

Hospital spokesman Chris Murphy said the reduction was due to a new program designed to give jobs to the teenage children of hospital union members.
Cronyism and nepotism working hand-in-hand! (Another issue to discuss).

Of course, the current status of the economy does not help and is likely a major factor, but a lower minimum wage would certainly enable businesses to hire more workers..
"Jon Hurst, president of the Retailers Association of Massachusetts, blamed the state’s high minimum wage of $8 an hour, saying retailers would be more willing to hire teens if it was lower. Unlike some states, Massachusetts does not have a “teen wage” that is lower than the minimum wage, he said."
One piece of data I do not have is the teen employment rates of every other state. (Anyone want to find this for me?)
It would be interesting to compare Minimum Wage with Teen Employment Rates and rank them by state.

As was stated in the Globe article, Massachusetts ranks 31st for teen employment and, as can be seen in the chart below, has one of the highest minimum wages in the nation. (Tied for 8th with CA, including DC, by my count).

As I previously stated, minimum wage increases tend to hurt those most in need of minimum wage jobs. Included are low-skilled workers, part-time workers, and teens.
"Eighteen-year-old Princess Mansaray of Dorchester faces a similar situation. A junior at Charlestown High School, she has looked for an after-school job for nearly two years. While her academic record is impressive — Mansaray said she takes Advanced Placement classes and belongs to a debate league and Outward Bound — she cannot find a job to help pay for basics, such as clothing and toiletries, or contribute to the monthly rent."
What do you think, would Princess prefer a $5 or $6/hr job to help pay the bills or no job at all?

There are a lot of sources covering this topic, something that seems to come up year-after-year despite all the evidence refuting its "benefits".

A quick search yielded these:
New York Times: The Minimum Wage and Teenage Jobs (11/18/2009)
Wall Street Journal: The Lost Wages of Youth: Raising the minimum wage has put teens out of work (3/5/2010)
The Hill: Minimum wage myths that keep our teens out of work (07/20/2012)
Forbes: Obama's Minimum Wage Hike: A Case Of Zombie Economics (2/20/2013)

Tuesday, February 19, 2013

Minimum Wage

It's been a while since I wrote a post of any substance, so I figured one was due.

In last week's State of the Union, President Obama announced his proposal of raising the national minimum wage from $7.25 to $9.00/hr, and indexing it to inflation (i.e. guaranteed raises of 1-3% every year for minimum wage earners). He touted the fact that this would help the low-income and those at the bottom rung of the economic ladder.

A quick look at minimum wages in the US shows that, adjusted for inflation, minimum wage workers are earning less than they were 30 years ago. What better way to combat this than raise the minimum wage?

While this sounds like a good idea on the surface, there is evidence that suggests raising the minimum wage actually hurts those it is intended to help and its ill effects are felt far beyond the immediate targets.

A piece in The Washington Post notes this and more:
UC Irvine’s David Neumark and the Fed’s William Wauscher conducted a literature review in 2007 that found a majority of studies found negative effects on employment — that is, a higher minimum wage meant fewer jobs. They found this was particularly true among low-skilled workers. (Washington Post)
As stated, it is only the "majority" of studies that negatively associate raising minimum wages and employment rates so it is by no means the rule, but there are some simple reasons behind

Let's assume the "majority" is correct. Why?

1. Labor value vs labor cost

Like all goods, every type of labor has a value and given a monetary equivalent.
Say you want to buy a piece of cheese pizza that you value at $2/slice. If you're suddenly required to be charged a minimum of $5/slice, you're not going to be too happy about it and you may even decline to purchase the pizza at all. However, there's a meat lover's slice valued at $5/slice. To get full your money's worth, you'll likely purchase the meat lover's over then cheese slice.

Similarly, an entry-level job at a fast food company is valued at $7.25 by management. This is due to the fact that the worker is able to perform duties that enable the company to recoup slightly more than $7.25/hour, thus pay for the worker's wages and other basic costs. If the minimum wage is raised to $9/hr, rather than hiring an entry-level person (likely uneducated or teen) that can only perform tasks worth $7.25/hr, the company will likely hire a more experienced person who's work is "worth" $9/hr.

Murray Rothbard addressed this issue way back in 1988:
If the minimum wage is, in short, raised from $3.35 to $4.55 an hour, the consequence is to disemploy, permanently, those who would have been hired at rates in between these two rates. Since the demand curve for any sort of labor (as for any factor of production) is set by the perceived marginal productivity of that labor, this means that the people who will be disemployed and devastated by this prohibition will be precisely the "marginal" (lowest wage) workers, e.g. blacks and teenagers, the very workers whom the advocates of the minimum wage are claiming to foster and protect. (mises.org)
In layman's (and today's values), this increase will actually cause those earning between $7.25 and $9.00 to lose jobs.

2. Companies like profit

Perhaps this is stating the obvious, but for a company to be solvent, they will do whatever they can to ensure they turn a profit and then maintain it.

Suppose the current minimum wage is $7 (for easier numbers) and that the Acme Fast Food Company makes an average of $100/hr.
The company uses 5 full-time employees, earning minimum wage. Food costs are 30%, and utilities/taxes/other costs are $25.
This results in a profit of 10%, or an average of $10/hr.
Breaking down the math: 
5 employees X $7/hr = $35/hr
+ 1 manager X 10/hr = $10/hr
+ Food costs = 25% ($25/hr)
+ Utilities/taxes/other = 20% ($20/hr)
= $90/hr (90%) costs  
If the restaurant is making an average of $100/hr, their profit is $10/hr (10%)
These numbers are obviously fictional and rounded for easy calculations, but they are on par for an average restaurant.

Suddenly, they are required to pay workers $9/hr.
What happens to their numbers?

Employees get an additional $2/hr each, food costs stay the same, utilities and other costs remain the same.
5 employees X $9/hr = $45/hr
+ 1 manager X 10/hr = $10/hr
+ Food costs = 25% ($25/hr)
+ Utilities/taxes/other = 20% ($20/hr)
= $100/hr (100%) costs  
As you can see, the restaurant owner is now making $0 profit.
While some people may say this owner and businessman should remain noble and keep all his workers employed, the owner is in the business to turn a profit.

The likely response? Fire a worker and recoup the lost profit from the employee's wages.
4 employees X $9/hr = $36/hr
+ 1 manager X 10/hr = $10/hr
+ Food costs = 25% ($25/hr)
+ Utilities/taxes/other = 20% ($20/hr)
$91/hr (91%) costs  
The owner is still making less of a profit than he was with the lower minimum wage (although if he had to pay for healthcare and other employee benefits, he might make that 1% back), and he is also down a worker.
This would result in more work for the remaining employees and potentially worse service for his customers.

Imagine, if this was the model across all industries, an additional 20% (1 out of 5) of minimum wage workers would be unemployed.

Those already earning above minimum wage?
Their wages would likely be frozen (or even reduced) to account for the increase of the other workers, but it's unlikely they'd be released. Thus, the effects of an increase in minimum wage affects those earning the least much harder than those further up the ladder.


Obviously these are simplified examples and much more could be said about each, but they give a brief summary into the detriments of raising minimum wage and its unintended consequences:
Minimum wage increases hurts those it tries to aid, specifically teens, part time workers, unskilled workers, and those generically on the bottom rung of the economy.
This is my opinion on Minimum Wage, backed by facts and numbers that I have gathered.
I would love to know if your opinion differs and any examples that can be given to prove the contrary.

Thursday, February 14, 2013

Happy Valentine's Day!

Just in time for Valentine's Day (actually a couple weeks earlier), Disney Animation uploaded this animated short entitled 'Paperman'.

It is also the directorial debut for animator John Kahrs ('Tangled' and 'Ratatouille').
I'm no expert, but I think he has a future in this business...

Introducing a groundbreaking technique that seamlessly merges computer-generated and hand-drawn animation techniques, first-time director John Kahrs takes the art of animation in a bold new direction with the Oscar®-nominated short, "Paperman." Using a minimalist black-and-white style, the short follows the story of a lonely young man in mid-century New York City, whose destiny takes an unexpected turn after a chance meeting with a beautiful woman on his morning commute. Convinced the girl of his dreams is gone forever, he gets a second chance when he spots her in a skyscraper window across the avenue from his office. With only his heart, imagination and a stack of papers to get her attention, his efforts are no match for what the fates have in store for him. Created by a small, innovative team working at Walt Disney Animation Studios, "Paperman" pushes the animation medium in an exciting new direction.
(via THD)

Monday, February 4, 2013

Song of the Moment: Elton John - Bennie and the Jets

I was just listening to this song and realized, despite having heard this song my whole life, I've never actually known all the lyrics to it.

Elton John and Bernie Taupin are geniuses.

Hey kids, shake it loose together
The spotlight's hitting something
That's been known to change the weather
We'll kill the fatted calf tonight
So stick around
You're gonna hear electric music
Solid walls of sound

Say, Candy and Ronnie, have you seen them yet
But they're so spaced out, B-B-B-Bennie and the Jets
Oh but they're weird and they're wonderful
Oh Bennie she's really keen
She's got electric boots a mohair suit
You know I read it in a magazine
B-B-B-Bennie and the Jets

Hey kids, plug into the faithless
Maybe they're blinded
But Bennie makes them ageless
We shall survive, let us take ourselves along
Where we fight our parents out in the streets
To find who's right and who's wrong

Say, Candy and Ronnie, have you seen them yet
But they're so spaced out, B-B-B-Bennie and the Jets
Oh but they're weird and they're wonderful
Oh Bennie she's really keen
She's got electric boots a mohair suit
You know I read it in a magazine
B-B-B-Bennie and the Jets

Say, Candy and Ronnie, have you seen them yet
But they're so spaced out, B-B-B-Bennie and the Jets
Oh but they're weird and they're wonderful
Oh Bennie she's really keen
She's got electric boots a mohair suit
You know I read it in a magazine
B-B-B-Bennie and the Jets