On June 27, 2017, Ben Shapiro writes on The Daily Wire:
Remember that time Seattle’s socialist city council member Kshama Sawant pressed for the city to increase its minimum wage to $15 per hour? I actually debated Sawant on the issue; I asked her if she would be in favor of raising the wage to $1,000 per hour. She misdirected from the issue.
Seattle actually ended up embracing $13 per hour, raising the minimum wage from $9.47 in 2014 to $11 in 2015 to $13 in 2016 under the theory that an increase wouldn’t throw people out of work, wouldn’t encourage part-time hiring, and would inflate salaries enough to allow more affordability in the Seattle housing market.
A new study demonstrates that, as usual, central planning of the economy leads to precisely the reverse of the results the planners seek to achieve.
According to a new paper from the National Bureau of Economic Research:
“Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.”
In other words, restaurants didn’t fire anybody, they just put them on part-time shifts and cut back their hours. That shouldn’t be a surprise, since that’s precisely what happens every time the government places an extra burden on employers. One of the great myths of minimum wage movement — and the central planning movement as a whole — is that business owners aren’t operating at a slim margin, but raking in dollars to hide in their Scrooge McDuck moneybins, depleting the potential income of their employees. But that’s not true. Thanks to competition — and competition is fierce in industries that employ minimum wage workers — profit margins are never enormous. Even in 2013, a booming year for the restaurant business, Capital IQ estimated the average profit margin for restaurants at 2.4%. Profitability varies by chain as well, and by local franchise.
Even leftists were taken aback by Seattle’s sizeable minimum wage increase. Jared Bernstein of the Center on Budget and Policy Priorities, a leftist himself, derided the minimum wage increases in Seattle as “beyond moderate” — extreme, in other words. But he admitted, “you [don’t] know what the outcome is going to be. You have to test it, you have to scrutinize it, which is why Seattle is a great test case.”
Or you could leave the market alone, since “testing” markets by cramming down interventionism puts people out of work, at least part-time. Here are the facts: Seattle barely had any jobs under the $11 threshold before the legislation passed. But that wasn’t true of $13 jobs. And the regulations essentially priced a good deal of full-time low-wage labor out of the market. Furthermore, the economy in Seattle right now is strong. What happens during a downturn, when businesses have to shed costs?
Government intervention isn’t the answer to the free market. The free market is. But don’t expect the Left to admit that they’re not merely punishing “evil” businessmen, they’re skewing the entire labor market and hurting a broad swath of people, including minimum wage employees.
http://www.dailywire.com/news/17933/study-seattles-13-minimum-wage-led-drop-1500-ben-shapiro#
Gary Reber Comments:
The squabbling debate between pro minimum-wage advocates and free market advocates continues.
The real issue we should be addressing is how to empower EVERY citizen to earn more income through ownership of the non-human factor of production – technological invention and innovation that results in more efficient “tools” (what economists call productive physical capital) that reduce or eliminate the necessity for human labor.
Just the other day I commented on a Harvard study (http://www.foreconomicjustice.org/?p=17155) that points to minimum wage increases resulting in worker layoffs, increased pricing and hour-cuts for existing workers, resulting in reduced employment. Furthermore, as profit margins are further squeezed, those with the ability to automate are doing so and those who don’t are closing their doors. All this is happening and yet the minimum wage of $15 set by some cities won’t become law until, at the earliest, July of 2018.
But raising the minimum wage was supposed not to kill jobs or create operational costs that would squeeze profit margins and result in business closures. Wasn’t it?
Using common sense, if raising the minimum wage will not kill jobs then why not raise the minimum wage to $25.00 or $50.00 or $100.00 per hour? Of course there are consequences that either are reflected in job elimination, increased prices or business closures. Virtually never are the OWNERS of corporations willing to reduce profits, which often are marginal.
Competition drives businesses to constantly figure out ways to reduce operational costs. Full employment is not an objective of businesses nor is conducting business statically in terms of geographical location. Companies strive to achieve cost efficiencies to maximize profits for the owners, thus keeping labor input and other costs at a minimum.
If wage levels were not a factor there would be also no reason for ANY company to exit production in the United States and move production to foreign lands with significantly less labor costs. Also, there is the impact on pricing levels, as any increases in the cost of production or service always results in pricing increases – inflation.
If this were not the case, then no companies would be compelled to seek other non-human more cost-efficient means of production or to move production to foreign countries whose workers are paid far less than Americans. Increasingly, companies are seeking more efficient and less long term costs that non-human technology can deliver to reduce their operating costs, provide higher build quality, automate service, and maximize profits for their OWNERS. As is virtually always the case, the OWNERS of companies do not want to reduce profits.
What the proponents of raising the minimum wage fundamentally are addressing is that low-paid American workers need to earn more income.
We need to begin focusing on the means for people to earn more income, and not solely dependent on earnings from jobs, which are being destroyed with tectonic shifts in the technologies of production. We need to implement financial mechanisms to finance future economic growth and simultaneously create new capital asset owners. This can be accomplished with monetary reform and using insured, interest-free capital credit (without the requirement of past savings, a job or any other source of income), repayable out of the future earnings in the investments in our economy’s growth.
But how, you ask, can such an OWNERSHIP CREATION solution be implemented?
We can and should do more to create universal capital ownership not only for workers of corporations but ALL citizens. What I believe is crucial to solving economic inequality and building a future economy that can support general affluence for EVERY citizen is to address concentrated capital ownership, the fundamental cause of economic inequality. The obvious solution is to de-concentrate capital ownership by ensuring that all future wealth-creating, income-producing capital asset formation will be financed using insured, interest-free capital credit, repayable out of the future earnings of the investments, creating ownership participation by EVERY child, woman, man. This should be about investment in real productive capital growth, not speculation as with the stock exchanges. But the problem is the vast majority of Americans have no savings, or at best extremely limited savings, insufficient to be meaningful as increasingly Americans are living week to week, month to month, and deeply in consumer debt. So forget about proposals for tax credits, retirement and health savings accounts. There is no feasible way that past savings can continue to be a requirement for investment if we are to simultaneously create new capital owners with the productive growth of the economy. The current economic investment system is structured based on the requirement of past savings used directly or as security collateral for capital credit loans. But past savings are not necessary as viable capital formation projects pay for themselves. This is the logic of corporate finance.
Capital acquisition takes place on the logic of self-financing and asset-backed credit for productive uses. People invest in capital ownership on the basis that the investment will pay for itself. The basis for the commitment of loan guarantees is the fact that nobody who knows what he or she is doing buys a physical capital asset or an interest in one unless he or she is first assured, on the basis of the best advice one can get, that the asset in operation will pay for itself within a reasonable period of time – 5 to 7 or, in a worst case scenario, 10 years (given the current depressive state of the economy). And after it pays for itself within a reasonable capital cost recovery period, it is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.
Still, there is at least a theoretical chance, and sometimes a very real chance, that the investment might not pay for itself, or it might not pay for itself in the projected time period. So, there is a business risk. This can be solved using private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept). On a larger scale, the path to solve the security issue, that is, the risk can be absorbed by capital credit insurance or commercial risk insurance. Thus, in order to achieve national economic democracy, we need a way to handle risk management in finance by broadly insuring the risks. Such capital credit insurance would substitute for the security demanded by lenders to cover the risk of non-payment, thus enabling the poor and others with no or few assets (the 99 percenters) to overcome the collateralization barrier that excludes the non-halves from access to productive capital.
One feasible way is to lift ownership-concentrating Federal Reserve System credit barriers and other institutional barriers that have historically separated owners from non-owners and link tax and monetary reforms to the goal of expanded capital ownership. This can be done under the existing legal powers of each of the 12 Federal Reserve regional banks, and will not add to the already unsustainable debt of the Federal Government or raise taxes on ordinary taxpayers. We need to free the system of dependency on Wall Street and the accumulated savings and money power of the rich and super-rich who control Wall Street. The Federal Reserve System has stifled the growth of America’s productive capacity through its monetary policy by monetizing public-sector growth and mounting Federal deficits and “Wall Street” bailouts; by favoring speculation over investment; by shortchanging the capital credit needs of entrepreneurs, inventors, farmers, and workers; by increasing the dependency of with usurious consumer credit; and by perpetuating unjust capital credit and ownership barriers between rich Americans and those without savings.
The Federal Reserve Bank should be used to provide interest-free capital credit (including only transaction and risk premiums) and monetize each capital formation transaction, determined by the same expertise that determines it today – management and banks – that each transaction is viably feasible so that there is virtually no risk in the Federal Reserve. The first layer of risk would be taken by the commercial credit insurers, backed by a new government corporation, the Capital Diffusion Reinsurance Corporation, through which the loans could be guaranteed. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.
The Federal Reserve Board is already empowered under Section 13 of the Federal Reserve Act to reform monetary policy to discourage non-productive uses of credit, to encourage accelerated rates of private sector growth, and to promote widespread individual access to productive credit as a fundamental right of citizenship. The Federal Reserve Board needs to re-activate its discount mechanism to encourage private sector growth linked to expanded capital ownership opportunities for all Americans (Section 13(2) Federal Reserve Act).
Until we address concentrated capital ownership and implement solutions to simultaneously broaden capital ownership by creating new capital owners with the growth of the productive economy, money power will reside in the hands of politicians and bankers, not in the hands of the citizens. That is why, to reform the system leaders and advocates for economic justice must focus on money, how it should be created and measured, how it should be controlled and why a more realistic and just money system is the key to universal and equal citizen access to future ownership opportunities as a fundamental human right. Then prosperity and economic democracy can serve as the basis for effective and non-corruptible political democracy, an ecologically sustainable environment, and global peace through justice.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the Capital Homestead Act (aka Economic Democracy Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/.
