Month: May 2016

THE GOVERNMENT’S WAR ON JOBS

Bill Dunkelberg, Chief Economist

National Federation of Independent Business

There is one law that the Supreme Court and Congress cannot fundamentally alter and that is the law of demand: the higher the price of something, the less of it will be taken. Sometimes immediately, sometimes over a longer period as markets and firms adjust. The “price” of something is more than just the “tag price”, it also relates to the difficulty of acquiring it and all related costs. In the case of labor, it’s more than the wage, it’s all the associated search costs, paperwork, employment taxes, training costs and the mandated benefits that determine the cost of an employee.

There is a second important principle: firms cannot pay workers more than the value they bring to the firm (and stay in business). Every time the cost of labor is increased, whether by market forces, or increases in the minimum wage, or mandated family or sick leave, or more labor taxes or paperwork, the hurdle an employee must get over in order to have a job rises. The most damaging impact of a higher minimum wage on our economy is not the increased labor costs, but all the job opportunities that are eliminated forever for young and unskilled workers who want to enter the labor force and become productive workers.

Yet liberals can’t be more proud of all the measures they support, federal, state and local, that raise the cost of entry into employment, including supporting unionization, which is the power to use monopoly power to tax ordinary consumers by raising labor costs, imposing costly work rules, and adding red tape. Yes, auto workers lived very well (and retired well) in the good old days when $1500 in the price of a car went just to fund their medical insurance in addition to the excessive wages paid, all included in the price of the car. So customers paid a heavy tax so the union workers could live well. Competition ended that, GM failed and lives today only with a $10 billion dollar subsidy from taxpayers and continued profit tax breaks engineered by the Obama administration.

Competition has cut much of this “tax” on the customer, and unions now cover only about 7% of the private workforce. Their new “sweet spot” is in the public sector where “profit” is not measured and managers are not accountable for the bottom line. GM failed but your local city or state government is not likely to (although a few have managed even that). Here, 35% of the workers are unionized and often guaranteed jobs (tenure, civil service etc.) and their tactics are the same, inflict pain on the customers until the public sector mangers cave under pressure from constituents (no garbage picked up, schools not in session, buses don’t run etc.). Taxpayers take the hit here as well.

The Liberal’s push for a higher minimum wage is also a “tax” on customers. There is no new income in a market when the minimum wage is raised. Every dollar a minimum wage worker receives comes out of the pockets of customers and owners as prices rise to pass on the costs. Few poor people are helped, most officially poor people don’t work and would find it even harder to get a job at a higher minimum wage. Most of the earnings gains from a higher minimum wage go to families with above median incomes, not the poor. Meantime, job opportunities are destroyed and more and more unskilled and young are denied opportunities to get their first job (and on the job training) and become productive members of the workforce. Only people who don’t “think it through” believe that government wage setting is a good idea. A recent report from Professor Mark Perry at the University of Michigan illustrates the impact of a recently implemented $15 minimum wage in Seattle. You can bet that most of the decline in employment was concentrated among the young and unskilled. And those job positions are lost forever (as long as the minimum wage is at $15 or higher). Now Seattle’s city council is deliberating the setting of work schedules for private sector employees.

It is hard to be a member of the “middle class” if you don’t have a job. So, how are all of these “liberal” or “sounds really good”, “fair” policies working? Today, the percentage of the adult population (age 16 and over) with a job is 58%, down from 64% in 2000 (the record high) and 63% in 2007. The percent of workers working part-time that want a full time job is 20%. The black unemployment rate is 11%, 33% for 16-19 year olds. These people aren’t helped by a higher minimum wage, they find it even harder to get a job as it rises. The percent of the population receiving welfare payments is over 25%. Food stamp recipients are at record high levels. The poverty rate is the highest since the early 1990s. Having a job is a much better alternative, for the person and for the good of the country. President Obama wrote recently “Access to a job in the summer and beyond can make all the difference to a young person-..”