But think about how a minimum wage increase would affect you if you were running a business. Perhaps the way to think about it is to line up current and prospective workers in order of how much value they create for your firm on an hourly basis. Imagine 10 workers and worker A produces $10 per hour worth of valuable things, worker B produces $9 and so on until worker J who can only produce $1 worth of valuable things for you.

If the minimum wage is $5.15, you at best will hire workers A, B, C, D and E paying each what they are worth to your firm. Thus worker A is paid $10, while worker B is paid $9, C is paid $8, D is paid $7 and E is paid $6. You’d like to pay each worker less, but if you do so, your competitors would be able to hire them away at better wages and make profits.

What do you do if the minimum wage is raised to $7.25 per hour? Do you simply raise the wages of worker E by $1.25 and worker D by $0.25? And if you do that, wouldn’t that be unfair to worker D who used to make more than E, but now makes the same? So would you respond by raising worker D’s wage to $8.25, and then C to $9.25 and so on, to maintain the “fairness” in your wage scale? It seems silly to be even asking the question doesn’t it? What you would likely do in the case of a mandated wage increase is to relieve workers E and D from duty (or otherwise reduce the costs of having them by $1.25 for E and $0.25 for D). Why? Because E and D cannot produce $7.25 worth of stuff for you.

I am not playing any fancy games here. If you don’t believe that this is how employers respond to mandated wage increases you would have to explain what forces would systematically keep wages below productivity. Because then and only then could firms sustain wage increases and maintain profitability. However, that is not the point I’d like to make. Suppose you do believe that low-skilled workers are active in markets for their services that are not uber-competitive, and that there is a reason to think that their wages are lower than the value of what they produce for firms (that still may be the proper outcome, as we would need to have a very long discussion on risk, the structure of production and interest/discount rates to get into an academic analysis of this), it cannot follow that all workers are systematically underpaid. That would produce such an enormous profit opportunity for other greedy employers that it is silly to even suggest it.

Thus, if at some point in the wage distribution workers are being paid their productivity, but at lower points in the wage distribution workers are not – then how can mandated wage increases at the lower end ultimately “spiral up?” They can’t … and some evidence for this is that the share of labor and the share of capital in national income has remained remarkably constant for the past 60 or so years. If mandates could alter the distribution of income in any way, then we should have observed times of better worker “treatment” by government to correspond to increasing labor shares and times like the radical free market 1980s through today to see labor’s share falling. But we do not see that.

The point is, mandated wage increases are like a pair of loppers, not the ladders that their promoters so often pronounce.

STOPPED HERE

Here is an excerpt:

But then, in 2007, Washington came to the “rescue.” As part of its efforts to provide a “living wage” for all Americans, Congress passed a law to step up the minimum wage to $7.25 per hour across all U.S. states and territories by 2009.[iii] Understanding that such a law would devastate American Samoa by raising canning costs past the point where the companies could maintain profitability, the non-voting Samoan member of the U.S. House of Representatives convinced Congress to allow an exemption for the islands. However, Republicans raised allegations that Speaker of the House Nancy Pelosi, in whose district both Chicken of the Sea and StarKist had corporate offices, had caved to pressure from big donors and was allowing the continued “exploitation” of Samoan workers. Facing a sticky political situation, the exemption was removed.

The Samoan representative desperately sought to fend off what he was sure would be an economic calamity. He asked the Department of Labor to issue a report examining the potential consequences of the law upon the islands’ economy. The report explained that “nearly 80 percent of workers covered by the FLSA earned under $7.25 per hour. By comparison, if the U.S. minimum wage were increased to the level of the 75th percentile of hourly-paid U.S. workers, it would be raised to $16.50 per hour.” Therefore, the study continued, “there is concern that [the tuna canneries] will be closed prior to the escalation of the minimum wage … and that production will be shifted to facilities outside the U.S.” Ultimately, the Department of Labor concluded that “closure of the tuna canneries will cause a total loss of 8,118 jobs – 45.6 percent of total employment.” (emphasis mine) [iv]

Despite this dire forecast, the law went through. Two years later, the results could not be clearer: Chicken of the Sea closed its cannery and moved its production to a largely automated plant in Georgia,[iv] while StarKist has reduced its workforce and is threatening to leave as well.[v]

If that were to occur, which seems likely, American Samoa would be left with no functioning industry.

And it goes on:

In the case of American Samoa, tuna canners simply could not deliver $7.25 cents per hour of productivity, so their jobs were eliminated. Rather than being employed at $3.26 per hour (the level prior to the minimum wage hike), they are now unemployed at $7.25 per hour. Which do you think is better?

Some would argue that life is better for the few that were able to keep jobs at $7.25 per hour. But that is fallacious – raising wages so far above market clearing rates will require that some other cost be imposed on workers in order to ration away the labor surplus – and that cost will rise so much that the effective wage workers receive is not only lower than the minimum wage, but lower than the wage they were getting before the minimum wage law was passed!.

Here’s a little of what is going on:

Among the unintended consequences of congressional “benevolence” are rapidly rising consumer prices, due to the higher shipping costs now necessary to bring consumer goods to the islands. Before the minimum wage hikes destroyed most of the canning jobs, lots of canned tuna were shipped from American Samoa to the U.S. (over 50% of the canned tuna in American markets came from American Samoa). One benefit of all the shipping traffic was a low cost of imports, as ships were coming to the islands anyway to pick up the tuna.

HT to my friend John B.

Low prices are excoriated because some view this activity as unfair to other businesses that cannot lower their costs as much. The worry is that Walmart will lower prices so low as to drive other companies out of business, and then when all of the other competitors are gone, then Walmart will jack up the prices of everything and take us for a serious ride. Nevermind that this has never been proven to have happened, and nevermind that consumers are big winners here, let’s just look at why Progressives are upset about these policies. It seems to me that they think it is unfair to inefficient, high cost, unprofitable competing businesses. And gosh, we just can’t have them go out of business.

Here is the pretzel twist: how come when these evil, large, greedy, price cutting firms compete in the labor market by offering high wages to workers the same arguments are not levied against them? Seriously. If the University of Rochester really wants me to teach here (for whatever reason) they bid up my wage. And they might bid it up so high that nearby competing institutions have no chance to secure my services. So, Rochester gets the good students, and gets high quality economics courses offered, while Nearby U. gets worse students and lower quality economics courses taught. This has the same competitive impact as U of R charging “cut rate” prices for students to enroll.

So I ask my dear enlightened progressives why is not OK for firms to outcompete other firms by making the lives of consumers better off, and at the same time it IS OK for firms to outcompete other firms by making the lives of other workers better off? You can’t have it both ways, can you?

The typical argument supporters make for the minimum wage is that “employers could just pay a little more, they can afford it, or what prevents employers from paying workers even $4 or $3 or $2 or less?” As I said above, I’ll not argue the economic case here, no one cares to listen to it. Just one economic thought before my ethical question:  f this is so logically true, then why is it that over 98% of employees in the labor force earn more than the minimum wage? And why don’t your employers cut your wages right now. The answer is related to the mirror question, “why isn’t the price of every good you consume sky high, or even a little higher than it is now?” You cannot answer each of these questions differently.

But the moral case against the minimum wage is just as solid, or so I once thought. If the populace believes that “we” have a moral obligation to help the poor, then how come we pass minimum wage laws requiring only a small subset of the population to take up this responsibility? What is moral about that? Why is not the responsibility falling on the shoulders of all of us? And did anyone ever stop to think of who it is that pays the minimum wage? If you think you are sticking it to Walmart, you have another thing coming … in fact, Walmart is very likely to be made better off when minimum wages increase the price of low skilled workers. Similarly, did you ever wonder why unions and their workers support the minimum wage so ardently? Isn’t the point of being in a union to be paid substantially more than the minimum wage and to improve workers’ bargaining position? Don’t most union workers earn more than the minimum wage? Then why the heck would they care so much about it (and don’t go screaming morals and ethics at me, if that were the case, why the minimum wage is the moral horse people should be riding is not clear at all to me, why not rise the death penalty moral horse, for example?). The plain fact is that when the minimum wage is raised, it makes the relative price of union workers (and Walmart workers) lower – thereby making it more attractive for companies to use union labor and not the now higher paid non-union workers. Parading around on your moral high horse when this is an underlying motivation seems a little disingenuous, no?

That’s right. Most minimum wage workers (who are not themselves poor, but leave that inconvenient truth aside) work at smaller companies, mom and pop shops, and the like. These places are not rich, and they cannot sustain wage increases without doing damage to their existence. These folks used their savings, their blood, sweat and tears, and took an entrepreneurial risk … and as a reward for that risk taking (to serve us) we … force them to pay workers more than they are currently being paid. Where is the morality in that?

Consider a thought experiment. There are two people, Amelia and Bedelia who are identical in every regard. Amelia decides to work for a hospital as a pathologist and earns $70,000 per year. Bedelia has the same skill set, but prefers to make her own hours, and wishes to be entrepreneurial about how do deliver pathology services to her customers. So she starts a little independent testing lab down the street from Amelia’s office. Bedelia has to hire to low skilled workers to process paperwork and deliver results to clients, Bedelia herself takes no salary, but keeps whatever profits she makes for herself. Each year those profits amount to $70,000. However, because she decided to start a business, she is now asked to pay her two workers just a little bit more – say 50 cents an hour over the market wage. Well, 2 workers earning 50 cents more per hour over a year amounts to $2,000 in additional expenses.

So now Bedelia, doing the same work as Amelia, but taking on more risk, is being asked to contribute $2,000 to the well being of two workers that she never had to hire in the first place. Let’s push this further. Suppose Bedelia managed to run the business all by herself with no workers. Since folks think it is morally fine to impose the costs of paying minimum wage workers more wages solely on Bedelia, does it them follow that just by going into business yourself that you are obligated to hire low wage workers? No you say? I have no idea how you could justify a no answer, and then argue that if she decides to actually hire people, and they voluntarily agree to take the position, that somehow she incurs an additional moral responsibility to help the poor.

Nothing prevents “us” from helping the poor and low wage workers. That we don’t perhaps says something about our moral code. That we legislate and force by point of a gun this responsibility on a select group of comparatively unwealthy risk takers says even more about our moral code. Consistent and honest thinking about the moral case for the minimum wage at least should raise the question of if it is the right thing to do. But that kind of thinking seems to be beyond the reach of knee-jerk religious supporters of “labor” policies. But if both the moral approach and the economic approach lead us to the same conclusion, how can one still strongly support policies like this?

The two most egregious points are these:

(1) We really are hoping people go on the honor system and let us immunize people in the priority groups,” Southern Nevada Health District spokeswoman Stephanie Bethel said. “I think, for the most part, it’s working.”

… “We assertively asked those who were not in the priority group to move to the end of the line, so when we ran out of vaccine, those people who were left were those who were not at risk,” said health officer Dr. Gary Oxman. “And people have responded well to it.”

(2)If vaccine demand is low in some locations, it makes sense for non-priority groups to get it instead of wasting the supply. “I don’t consider it a problem,” said Schaffner. “I consider it more of a problem if vaccine is left unused.”

Yup, the honors system and assertively asking folks, that’s the ticket. And low demand as “wasting” supply. What?

The beauty of markets and the price system is that you do not need “vaccine police” to take care of all of these problems. “We” are the vaccine police when production, consumption and allocation decisions are informed by the price system. Let’s think of an analogy – when your city faces water shortages during a hot, dry, summer.

Since city water is not really priced in the market, water shortages are inevitable when water supplies are threatened. This is entirely avoidable. And let’s see why. Think of what usually happens when there is a water “shortage” … the city council often places restrictions on water use, such as how often you can water your lawn, or making it illegal to wash your car. (and by extension, you need water police to monitor these actions – once again the guns come ablazing). Some people might listen, but not all. Further, as the shortage gets “worse” the mayor comes trotting out with a big prime time speech, “assertively urging” people to be considerate in their water use. “Don’t run the water while brushing your teeth,” or “take your dog swimming instead of giving him a bath,” and so on. The mayor may even encourage us to, “think of our neighbors” when using water ourselves.

And that never works. The shortages persist. Why? Because no amount of moral suasion is a powerful enough incentive to encourage water users to cut back and economize. If I use water, there is no cost to me. The only cost is that there is a little less to go around for my neighbors. But not that much – after all, I am only one person in a city of a million. Of course, everyone makes the same decisions for themselves, and pretty soon this “little bit less” for everyone else becomes a lot less for everyone else. In fact, since the water is not priced, when I hear that there is a shortage, I might even increase how much water I use (and store) now, just “in case” water becomes less available in the future. These behaviors combined make the shortages even worse. And then the mayor comes back out and begs us to be more prudent.

So, we don’t realize the full costs of our water use – and therefore anyone and everyone continues to use water regardless of how much they really need it. There is no way to recognize the strength or weakness of people’s preferences over water. What would you do? Take a survey of people and ask them how much they value using water? Hold a “town hall” meeting where you excoriate the “astro-turfers” for arguing there is no need for the mayor to even be involved in water distribution. There is simply no way to get around this problems.

But consider what happens in a world when water is priced and that price is free to fluctuate based on the relative scarcity of water. During times of reduced supply, the price of water rises, and can rise fairly substantially. What happens when consumers see prices instead of having goods allocated by waiting in line or rationing?Well, prices force users of water to do two things. First, it makes them do a value-cost tradeoff in their head. They will only use water when and in the uses that they find most valuable. If water is pennies for hundreds of gallons – sure you water your lawn and wash your car and take 30 minute showers. If water is dollars per gallon, you then ask yourself – which uses of water do I get the most value out of and which do I get the least value out of? You naturally would give up the least valued uses first. And the amazing thing is that you don’t need anyone to direct you to do it, nor does anyone need this knowledge to figure out the best way for you to use water. You may actually get more pleasure from watering your lawn than from a long shower, or from bathing at all. So under the price system, you are free to keep watering your lawn, while you can cut back on your shower lengths. Under the government system, you must, MUST, stop watering your lawn, even if you find that use the most important for you. And that might be true, no? You could be a sod farmer, or a professional gardner, or someone who grows lots of fresh food for their family. Or you might just really like a green lawn.

The second thing the price system does better than preachy moralizing is that it forces you to consider the value that OTHERS place on using water. That is in fact the most ethical and fascinating feature of the price system as compared to other systems that are apparently more “just.” When the price of water jumps to $10 per gallon or some obsence number like that, what that price is telling you is that there is someone out there who is willing and able to pay $10 for that last gallon of water. If you do not value water in your next use for at least $10 per gallon, then you will “share” that water with everyone else. You will make the decision to not buy the water, leaving it for someone else that “needs” it more than you do. Without this price mechanism, there is no way for you to know about, or to act on, other people’s preferences. Imagine the information the mayor would have to accumulate to be able to do the same thing. If you happen to value your longer shower far more than someone values washing their car, you will bid away that last gallon of water and water will end up in its highest value use. If you don’t value any use of water at $10 per gallon, then you will choose not to consume it, and water will be “saved” for the future when perhaps people will value it more.

That is pretty powerful stuff. You don’t need anyone to beg you to use less water. You have an incentive to do it yourself. But what if in your city, lots of people don’t wish to use water, but the shortage persists in a nearby city? The price system really kicks into gear here. Since there is low demand where you live, and high relative demand somewhere else – if prices are free to adjust, then there would be an enormous incentive for someone to figure out a way to get the water from your (low demand) neighborhood and over to the higher demand neighborhood elsewhere. The reason this happens is because there is an opportunity for people to gain from this transaction. So, under a price system, it never makes sense for everyone in the low demand neighborhood to simply “water their lawns” so to speak just because that is “better” than some of the water not get used up. That is not a decent idea, that is a morally and economically bankrupt idea. But that is the kind of thing that sounds like good reasoning among the vaccine policemen.

Furthermore, if you price water, and its price rises – this provides strong incentives for suppliers of water to come up with ways to produce more. Maybe it makes sense to desalinate it. Maybe firms will create new rainwater collection technologies. Maybe entrepreneurs from other cities will figure out a way to bring water to you. Absent prices, relying on the “brotherhood” of men will never, never, never result in these sorts of things happening. So in the vaccine police world, you get a limited amount of water to be rationed. In the price world, you get rationing by individual choice, but you also expand the future amount of water that will become available. So again I ask, which of the two systems is morally and economically bankrupt?

There’s lots more to this story too, and perhaps we shall explore it in future posts. But by now I hope the analogy to the vaccine problem is clear. It should not come as a surprise to anyone with even a passing understanding of how economics works that “non-targeted” people are using the vaccine. And it should not come as a surprise that low-demand users are using it. And perhaps it should not come as a surprise that you only hear horrific Orwellian terms like “vaccine police” when the government is involved in the allocation of goods. When the price system is used, rather than the political system or some other “fairer” method of allocation, the only policeman you need to deal with is yourself. Find me a person who prefers to deal with the real police.

So, without prices, there is virtually no way to insure that those who most want to get the vaccine are going to get it. And no, talking about prices and income are not the same thing. If you wish to argue that lower income or otherwise income constrained individuals “really” want the vaccine, but simply cannot afford it – that is not a reason to indict the use of the price system. At best, that is a suggestion that income transfers are in order. But I’d even settle for redistribution that works this way: give tickets to get the “free” vaccines to all people below a certain income level, and then allow those tickets to be sold. Both problems solved without the need for vaccine police (by the way, I do NOT support that idea, but it should be one that is appealing to those who argue that the price system is somehow less fair or just than a lottery system).

I am a female in my mid 60’s and I am looking for a room mate. Times are tight and I need some extra money.
I am willing to rent out my bathroom in my 1 bedroom east village home.My bathroom is large. You can easily put a twin air mattress in there. I only ask that when I need to use the bathroom, you or your air mattress are not in it.

I do ask that when you are in the apartment, you confine yourself to the bathroom. I do not feel comfortable with a stranger walking around my living room. This might change as I get to know you better.
You may have guest over as long as they are cnfined to the bathroom as well. This might seem a bit odd but please remember the rent is $400 and the bathroom is large.

I don’t know if it is a hoax, but when I lived in NYC, I used to scour the obituaries when I was thinking about moving. HT: Katie Blundell.