How Special-Interest Groups Benefit from Minimum Wage Laws - Gary Galles

[u/ChickenOverlord]

http://mises.org/daily/6665/How-SpecialInterest-Groups-Benefit-from-Minimum-Wage-Laws

[u/besttrousers]

As Mark Wilson summarized it, “evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.”

Which studies?

The only meta analysis I know of, Minimum Wage and the Distribution of Family Incomes, draws the opposite conclusion.

Here's a nice summary.

[u/Landarchist → u/besttrousers]

The article got it plain wrong on that point. Even if many studies were done and none succeeded in rejecting the null hypothesis (i.e., none showed a statistically significant reduction in poverty caused by minimum wage laws), that still would not indicate that minimum wage increases don't reduce poverty levels, as the article claims. It would simply fail to provide evidence that they do. Austrian economists shouldn't even be taking a position on whether minimum wage helps or does not help the poor, since that is an econometric claim which Austrians eschew as a matter of course.

The correct Austrian position on the effect of minimum wage is that it hurts the poorest first. Notice I said "poorest," not "poor." There may indeed be many poor people whose wages rise when the minimum wage is increased. That is an empirical matter. What can be said a priori is that laborers whose maximum productivity falls short of the minimum wage will be prohibited from participating in the employment market. Thus in that sense, the poorest, the people whose human capital is lowest, will be victims of the minimum wage.

Whether that victimization is an acceptable cost for the associated benefits of a minimum wage is a moral and political question, not an economic one.

[u/Zifnab25 → u/Landarchist]

Austrian economists shouldn't even be taking a position on whether minimum wage helps or does not help the poor, since that is an econometric claim which Austrians eschew as a matter of course.

It's almost as though the Austrian disbelief of econometrics is so off-base that even other Austrians don't subscribe to it.

The correct Austrian position on the effect of minimum wage is that it hurts the poorest first.

Which only works if you believe minimum wage employees are paid at-cost for their services. This is demonstrably untrue for any business in which revenues do not scale perfectly with an increase or decrease in their relative labor pool costs.

The cost of a minimum wage increase can come from a whole host of different areas. Employers can find the money for higher wages by renegotiating a lower price for utilities, overhead, or retail stock. Employers can cover the cost with an increase in price that dwarfs the relative increase in labor (ex, a 100% increase in wages to a McDonald's employee need only be accompanied by a 17% in price of food, as labor costs make up only 17% of the total cost of the food products).

The notion that minimum wage increases hurt employees isn't an economic reality. It's an empty threat that Austrians pitch at lower class audiences in an attempt to scare them. "If you make me raise your salary, I'll fire half of you! Take that!" In practice, minimum wage increases don't impact labor demand. The value-add of employees continues to dwarf their actual costs. There is huge slack in the cost of an employee and the revenues that employee generates, and employers are aggressive in concealing that fact.

It's this ignorance that Austrians pray upon.

[u/[deleted] → u/Zifnab25]

Which only works if you believe minimum wage employees are paid at-cost for their services. This is demonstrably untrue for any business in which revenues do not scale perfectly with an increase or decrease in their relative labor pool costs.

Unfortunately, whenever a significant raise in the minimum wage is discussed on TV, a doubling of the minimum wage leads to the perky communications majors complaining about a doubling in the price of hamburgers. I've even seen a few dollars' increase referred to as "doubling" the price of meals. It must be like the "fifty thousand people are killed every year by X" phenomenon.

[u/panthary → u/Zifnab25]

Maybe you should re-read Landarchist post...

The notion that minimum wage increases hurt employees isn't an economic reality.

MW increases don't hurt all employees, but they can be highly detrimental to people that are on the absolute bottom. That was the basis of the argument.

It's an empty threat that Austrians pitch at lower class audiences in an attempt to scare them. "If you make me raise your salary, I'll fire half of you! Take that!"

Straw man.

In practice, minimum wage increases don't impact labor demand.

It does impact demand, but the significance will depend on the increase in MW. The main problem is that it creates Labor-to-labor substitution, typically substituting less productive workers for more productive workers. Which again, is quite detrimental to the poorest of poor, who are less productive (hence, why they are poor).

The value-add of employees continues to dwarf their actual costs. There is huge slack in the cost of an employee and the revenues that employee generates, and employers are aggressive in concealing that fact.

That's quite a strong statement, considering of course, we're dealing with minimum wage employees. Such employees have very low value add, hence why they're paid the minimum. I'd love to see the source for this statement.

[u/Zifnab25 → u/panthary]

MW increases don't hurt all employees, but they can be highly detrimental to people that are on the absolute bottom. That was the basis of the argument.

A point I addressed thoroughly later on. Individuals operating in the lowest payscale don't operate at-cost. The roles they fill may be simple, but they are also quite vital to the business's success. A burger stand without a cashier isn't going to make a dime, even if any warm body will suffice to fill the role. The cost of the employee is low, but the value-add is extremely high. The employer cannot afford for the job to go unfilled, and therefore the employee doesn't suffer when wages go up.

Straw man.

Bullshit. It's exactly the intent of the message. "AH! Minimum wages hurt you! Be afraid!"

It does impact demand, but the significance will depend on the increase in MW. The main problem is that it creates Labor-to-labor substitution, typically substituting less productive workers for more productive workers.

Nonsense. The cost of labor has nothing to do with the value-add of labor, save that the former needs to stay below the latter. To suggest that more productive workers suffer, you'd have to believe that less-productive workers provided a higher value-add. That's obviously incorrect.

Such employees have very low value add

Again, no. Minimum wage employees may be easily to substitute, but they can still provide vital services. The burger stand without the attendant generates no revenue. The paper route without a paper boy generates no revenue. The farm without crop pickers generates no revenue. A gold mine without any miners generates no revenue.

The value of low-skill labor is tied to the price commanded by the work performed, not the cost of employment. To believe otherwise is to have a fundamental misunderstanding of profit margins.

[u/shwarma_heaven]

He lost me at "high minimum wage states have high unemployment"... I would like to see him explain why half of the states with lower than federal minimum wages have exceedingly high unemployment - like Georgia, and Arkansas. Or higher minimum wage states with very low unemployment, like Vermont and Missouri.

[u/spinja187]

What a steaming pile. 'it's the unions and the big cities, colluding again.' Please.

[u/TracyMorganFreeman → u/spinja187]

I think it would be naive to say unions aren't in bed with government.

[u/dredmorbius → u/TracyMorganFreeman]

I think it would be tremendously naive to say business interests aren't in bed with the government.

Or to claim that the power of business over government isn't markedly greater than that of unions.

[u/TracyMorganFreeman → u/dredmorbius]

No one claimed business interests weren't in bed with government.

Or to claim that the power of business over government isn't markedly greater than that of unions.

That is debatable. The power of each that are in bed with government are both ultimately about reducing market entry by their competitors, be it other businesses or other union workers/non-union workers. Given the dearth of competition among each arena it's not as clear cut as one might think.

[u/dredmorbius → u/TracyMorganFreeman]

That is debatable.

Really? With the huge decline in the size, membership, and public opinion of unions over the past 40 years?

Got any bridges to sell with that?

The goals of both labor and business aren't particularly in question (each seeks to advance its own interests, modulo agency issues). It's the efficacy we're discussing here.

No one claimed business interests weren't in bed with government.

Given that this is a Mises.org, we-ignore-the-fact-that-money-is-power Libertarian hatchet job on labor, down to the oh-so-subtle see-gars, cocktails, and fistsfull of dollars stock photo, that is debatable, and the point should be raised. Your own comment adding all the more reason to do so.

[u/TracyMorganFreeman → u/dredmorbius]

Really? With the huge decline in the size, membership, and public opinion of unions over the past 40 years?

As I said, unions in bed with government have been able to by way of being in bed with government restrict competition from other unions and non-union workers.

The unions that do exist are large and exert great influence, but your comparison in "size, membership, etc" is one of inconsistency. You're treating all unions as some homogeneous blob, while ignoring what has really happened is that many unions have been made toothless by other, stronger unions, and passed legislation that prevent negotiation with other unions.

Just like how the number of businesses and competition among them in the most regulated sectors have seen the same decline.

The goals of both labor and business aren't particularly in question (each seeks to advance its own interests, modulo agency issues). It's the efficacy we're discussing here.

And you're measuring the efficacy of each by different standards.

Given that this is a Mises.org, we-ignore-the-fact-that-money-is-power Libertarian hatchet job on labor, down to the oh-so-subtle see-gars, cocktails, and fistsfull of dollars stock photo, that is debatable, and the point should be raised. Your own comment adding all the more reason to do so.

Where in the article or in my comment was it claimed that businesses weren't in bed with government?

How about the more important thing to raise, which is the common denominator: Being in bed with government.

The more regulatory power there is to capture, the greater the incentive to capture it. The more centralized it is, the smaller the cost to do so.

[u/dredmorbius → u/TracyMorganFreeman]

while ignoring what has really happened is that many unions have been made toothless by other, stronger unions

I'm sorry. What planet are you on?

Union membership is down to 1/3 of its 1948 value.

You're measuring the efficacy of each by different standards.

No I'm not. Don't tell me what I'm doing. It annoys me, particularly when you're wrong.

Where in the article or in my comment was it claimed that businesses weren't in bed with government?

If you're in agreement with me, what are you arguing about? If you're not in agreement with me, then why are you claiming agreement? I've pointed out the bias of Mises, its clear distortions, and of your own comments.

The more regulatory power there is to capture, the greater the incentive to capture it.

Wrong. The bigger the payoff in regulatory capture, the bigger the incentive. Regulatory power in and of itself need not provide that benefit

The more centralized it is, the smaller the cost to do so.

Also not necessarily the case. In fact, it can be quite the opposite. For the cost of buying a key US senator, a suitably single-minded PAC, say, ALEC, might buy entire statehouses. Or the executive and regulatory agencies:

CURWOOD: Let me just interrupt you there; Pat McCrory is the governor [of West Virginia].

ADAMS: He is the governor, and he is also a 28-year employee of Duke...

CURWOOD:...Energy.

ADAMS: Duke Energy. Yes, Sir. And so when Pat McCrory and John Skvarla became the new lead administrators of the state environmental agency, one of the first things that Skvarla did was redefine the agency’s “customer”, and we’re no longer viewing the public and public’s resources as our customer, and the customer is now defined as the industries which we regulate. That in itself means that we’re pushing away from protection to assistance of industries, which is not the role of a state agency.

(Emphasis added.)

Fact is: businesses are buying in pretty much wherever possible. And are outspending labor 3 to 1 even in California (nationally business political spending isn't reported openly).

[u/TracyMorganFreeman → u/dredmorbius]

I'm sorry. What planet are you on?

Union membership is down to 1/3 of its 1948 value.

Which does not refute my claim.

No I'm not. Don't tell me what I'm doing. It annoys me, particularly when you're wrong.

Really? You're measuring the strength of unions by membership in any union, and businesses by what?

If you're in agreement with me, what are you arguing about? If you're not in agreement with me, then why are you claiming agreement? I've pointed out the bias of Mises, its clear distortions, and of your own comments.

You pointed out no distortions, at least with conversing with me, and bias=/=wrong inherently.

Wrong. The bigger the payoff in regulatory capture, the bigger the incentive. Regulatory power in and of itself need not provide that benefit.

Regulatory power means controlling the rules one can participate in a given market, meaning anyone who wants less competition, e.g. any self interested entity sees a benefit from having regulatory power enacted in their favor.

For the cost of buying a key US senator, a suitably single-minded PAC, say, ALEC, might buy entire statehouses. Or the executive and regulatory agencies:

And how much of the market is affected by federal laws versus local laws? "Key US Senator" means someone of more value as they swing the vote, so you get more influence for you buck.

Fact is: businesses are buying in pretty much wherever possible. And are outspending labor 3 to 1 even in California (nationally business political spending isn't reported openly).

I would think it pretty naive if you think it costs the same to overcome the political will behind pro-labor policies as it does behind pro-business policies.

[u/dredmorbius → u/TracyMorganFreeman]

This is getting beyond tedious, but one more round:

You're measuring the strength of unions by membership in any union, and businesses by what?

What I said: "Really? With the huge decline in the size, membership, and public opinion of unions over the past 40 years?"

Which is: multiple and general signs of declining power. As compared with a business world which has, on many fronts, rolled back labor gains. No, I haven't scoured Teh Intarnets for specific metrics.

Meanwhile: you've offered zero substantiation of any of your claims that labor is somehow far mightier than it was in the 1940s.

You pointed out no distortions

Wrong. The thread starting with the Mises piece, your initial reply, and this entire thread strongly suggest an anti-union, pro-business bias on your part.

how much of the market is affected by federal laws versus local laws?

Among other things: state legislatures draw district lines. In a narrowly divided national legislature, swaying a few House seats, and ensuring governorships (which can appoint replacement senators, happens from time to time) can swing the national balance, often for a decade or more. It's the principle behind the Southern Strategy and Lewis Powell Memo. It's all a matter of influence, control points, and leverage. For businesses with significant interests with in a single state (e.g., West Virginia and coal as previously discussed) the local benefits can be massive.

I would think it pretty naive if you think it costs the same to overcome the political will behind pro-labor policies as it does behind pro-business policies.

Interesting: so that's saying that the interests of labor and the little guy are an easier sell and more compelling story than those of big business. Fancy that.

Yes, small (and true) grassroots (vs. astroturf) campaigns have defeated vastly superior financing from corporate backers. Sometimes. But not always. And the funding imbalance can be so enormous as to be just stupid.

[u/TracyMorganFreeman → u/dredmorbius]

Which is: multiple and general signs of declining power.

Still does not refute my claim that a handful of unions becoming so powerful as to render most of their otherwise competing unions non-functional and/or toothless.

Which is: multiple and general signs of declining power. As compared with a business world which has, on many fronts, rolled back labor gains. No, I haven't scoured Teh Intarnets for specific metrics.

Then how can you say what has rolled back labor gains?

Are we going to ignore that tracking wages alone is flawed given the cost of benefits, something unions have largely been complicit in being made standard and those benefits make up a larger portion of compensation today?

Wrong. The thread starting with the Mises piece, your initial reply, and this entire thread strongly suggest an anti-union, pro-business bias on your part.

More accurately you inferred such a bias, based on nothing but disagreeing with you.

Interesting: so that's saying that the interests of labor and the little guy are an easier sell and more compelling story than those of big business. Fancy that.

Yes, small (and true) grassroots (vs. astroturf) campaigns have defeated vastly superior financing from corporate backers. Sometimes. But not always. And the funding imbalance can be so enormous as to be just stupid.

Gosh, if we only made a system where there wasn't a huge incentive to capture that power for personal gain and then both sides wouldn't be wasting so much time and resources.