- Refuting wage czar David Weil: “Employer Concerns About The New Overtime Exemption Rules Aren’t A Myth” [Bill Pokorny, Wage and Hour Insights] Federalist Society podcast on overtime rules with Tammy McCutchen and Elizabeth Dorminey;
- “The Customer Service Downside to the New Federal Overtime Rules” [Coyote] The “mass reclassification that will have to take effect by December 1 has the makings for an employee morale nightmare.” [Robin Shea, Employment and Labor Insider]
- “A $15 minimum wage will crush the retail industry” [Nicole Gelinas] “$15 minimum wage shutters old-school Brooklyn diner” [New York Post] “Minimum-wage increase sinks Roseville bookstore, owner says” [Sacramento Bee]
- Service sector even more susceptible to automation than manufacturing [McKinsey vs. Arnold Kling]
- Employers such as nonprofits that can call on the services of volunteers should not expect that to rescue them from new overtime mandate [Daniel Schwartz]
- “A worker-scheduling bill would be bad for business in D.C.” [Washington Post editorial; see also Seattle, February]
39 Comments
Why not view this as what it is: a government mandate to shift money from overpaid capitalists to underpaid workers? Redistribution of profits is certainly needed in our country, which became the economic behemoth it is as a result, at least in part, of its massive middle class. until conservatives come up with a method to ensure that the middle class booms again, we will be stuck with these types of pay mandates. I would argue that our government’s inability to do something to enlarge the middle class is directly related to the rise of Trump and the near-success of Sanders.
What delusion makes you imagine that all capitalists are overpaid?
Sorry Allan, but you seem to be under the illusion that a person is hired by a company in order for the person to earn money.
In fact, the person is hired to make the company money.
Actually, I agree with you 100%. As a society we have to determine whether companies should be allowed to hire workers and pay them little, or whether they should be required to pay them a minimum amount. This is about public policy. Should we rely on the invisible hand? Or should government give a helping hand?
If you agree that the company exists to company to make money, “society” (whatever that means) has no right to tell a company what they must pay an employee.
You seem to be making two opposite arguments in that the people that own the company owe no wage allegiance to the workers and then saying the workers (as part of “society”) have the right to demand through laws what the company must pay them.
You say this is about “public policy,” and that is not correct as well. This is about control.
Period.
Who has the right and the ability to control the destiny and direction of a company? The owner or the government?
“Who has the right and the ability to control the destiny and direction of a company? The owner or the government?”
They both do.
Public policy is about control. This is about how society is run.
And, yes, workers have the right to demand rights through laws. The businesses would not be able to work without laws. Anything else is Somali-like anarchy.
Finally, I think companies exist to make companies money. It does not follow that society cannot make laws regulating how they do so. If that were not the case, brothels, crack-houses, and casinos would be on every corner and (perhaps) thriving. “Society” certainly frowns on gangs and the mafia.
Admittedly, deciding what to pay workers is less a societal concern than mafia hits. But to say that society has no say in how a company is run is naïve.
” It does not follow that society cannot make laws regulating how they do so.”
Very true, but that does not make every conceivable regulation a good idea.
“If that were not the case, brothels, crack-houses, and casinos would be on every corner and (perhaps) thriving. “Society” certainly frowns on gangs and the mafia.”
And if they were legal probably not nearly the blight that those favoring prohibition would suggest.
Gangs and the mafia thrive only because of the prohibition of certain goods and services. Legalize those goods and services and organized crime perishes.
The Italian Mafia in the US has never since the repeal of prohibition(alcohol) been as powerful as it was at the height of prohibition.
katall,
No, they both do not have the same ability. The ability of a government to say “you can’t go in that direction” or “you can’t harm workers” is not the same as “you have to build here,” “you have to provide these services,” or just as bad “you have to submit to government oversight and report to people who have never run a business in their lives.”
The growth of American industry during WWII and the years following was greatest because of the lack of government intervention. Companies had to compete for labor which made wages grow and opportunities for workers to increase.
It was when the government started to increasingly step in to regulate and demand they control the direction a business must go is when the decline of American companies started. Time and time again we see how regulations have stymied businesses and their growth. If you want to argue that the lack of growth of the economy and businesses is “good for society,” I wish you well with that naive argument.
Gitacarver,
Really? No government intervention after WWII? What about the New Deal and other early 20th century programs, Social Security, SEC, TVA, rural power authorities, FCC, FTC, FDA, SEC… a veritable alphabet soup. That combined with empowerment of labor through unions certainly had a role. I would argue that a large reason the US flourished in the 1940s after the depression, unlike the 1880s after the depression, was government regulation made the playing field more even and enabled the consumer economy.
I do agree that we would be all be better off if businesses related to the mafia were legalized… If some entity is going to skim the cream off the top, I would rather it be paying its fair share toward the infrastructure (whatever a “fair share” might be).
Here’s one particular “overpaid capitalist” from whom the government needs to “shift money”:
“The minimum-wage law was the straw that broke the camel’s back. We’d need to raise the burger to $9 from $6.45. I don’t want to do that to my customers. They’ve been good to me. These are middle-class people,” said owner Larry Georgeton, 66.
I don’t dispute that. However, I wonder how much Mr. Georgeton earns from his business. Could he not have kept the cost of burgers the same by reducing his salary? I am not saying that that this is perfect. What I am saying is that this is a redistribution of income, for good or for bad. Any change in policy will produce winners and losers.
I do not pretend to have the answers. I do have what I believe to be the most important question: what policies can the US implement to make our middle class strong and robust again? What we have been doing since Nixon has apparently not worked.
At some point, the country will become so economically stratified with a huge lower class, a small middle class, and a tiny upper class (that owns everything). These are conditions that lead to revolutions.
“I wonder how much Mr. Georgeton earns from his business. Could he not have kept the cost of burgers the same by reducing his salary?”
Probably not.
1. Restaurants tend to be low profit margin. 3% or less.
2. Labor tends to be about 1/3rd of the cost of running a restaurant.
http://smallbusiness.chron.com/average-profit-margin-restaurant-13477.html
Given those two facts, absorbing a 50% increase in labor costs without raising prices would mean going from being moderately profitable to suffering devastating net losses.
Do you expect business owners to starve in order to give employees unearned raises?
“Do you expect business owners to starve in order to give employees unearned raises?”
If a business cannot make enough to pay its expenses, perhaps it should not be in business.
“absorbing a 50% increase in labor costs without raising prices would mean going from being moderately profitable to suffering devastating net losses.”
Not necessarily. It depends on a number of factors. But, surely that will be the case in many instances.
I was wondering if you ever thought that paying the minimum wage undervalues the cost of labor and that the business should not be charging such low prices in the first place. But to think that, you have to think of labor of more than just a commodity.
Ah, yes, “If a business cannot make enough to pay its expenses, perhaps it should not be in business.” Like American manufacturing, which has largely priced itself out of the world market. Or American Call Center customer service, which is int he process of pricing itself out of the world market. To which you would apparently add American “fast food” franchises (and potentially “fast casual” dining), mom and pop restaurants, local cell phone and inexpensive apparel stores, big box retailers (from Everything for a $ to Sears, Walmart, CVS/Walgreens, to Home Depot and Lowes), grocery stores, and gas stations (overnight at least, when two employees are usually required for safety).
What, Allan, do you have against the poor and lower middle class people who frequent those establishments, and (in many cases) seek their employment at such establishments? Surely you don’t think those still employed will use their doubled salaries to buy twice as many goods? None of the places I’ve listed have high profit margins – often they are low single digit with occasional years of losses. A substantial increase in their labor costs has to be reflected in markup of their goods. Their materials costs, to they extent they rely on “low paid” labor, will go up as well. Add the PPACA requirements, and it really encourages small business to use nothing but part time labor.
Effectively, all that has happened is that a massive minimum wage hike has created dramatic inflation for the poorest of us, diminishing meager savings’ purchasing power, making those unemployed even worse off, and raising the already unaffordable costs of the US social safety net. The very wealthy, of course, see next to none of that, as they aren’t frequenting those businesses with a significant portion of their purchasing dollars.
How very regressive of you.
“Not necessarily. It depends on a number of factors. But, surely that will be the case in many instances.”
It will be the rule, not the exception in the restaurant industry.
A 50% increase in a cost factor that is 30% of total operating costs, means a net increase of operating costs of 15%. And that’s without considering secondary effects such as the restaurant’s suppliers having to raise their own prices.
A 15% increase in operating cots when profits are only 3% of revenue is a recipe for disaster without a significant increase in revenue.
I wonder if you think paying labor more than the value it produces is sustainable? But then you would have to be ignorant of economics to think that.
The funny thing is that I do not disagree with Carlitguy or MattS, or even Mr. Olson. Raising the minimum wage is a panacea, not a utopia. Theoretically, a minimum wage will raise demand and supply of goods will go down. That means we either have rationing or inflation, neither of which is what we want. Inflation is especially pernicious, as, eventually, those at the bottom of the wage scale will end up where they started.
My goal is not to raise the poor or lower the wealthy, per se. My goal is to make a more robust middle class, without that we are more susceptible to a destructive revolution.
We need a system that is not a zero-sum game and is not a means for the wealthy to become even more elite and is not assured to result in the have-nots having less.
I say this as, arguably, one of the elites. I do not want to lose my perks. I believe that I am more likely to lose them with a lower minimum wage than with a higher minimum wage. I guess I am taking the macroeconomic view while others take the microeconomic view.
Sorry Allan, but your view is neither macroeconomic nor microeconomic, it is economic illiteracy.
A minimum wage can’t increase net demand.
Yes, some will see an increase in income and demand from those individuals will increase.
However other minimum wage earners will be priced out of the labor market completely because their labor does not provide sufficient value to their employer or the employer’s customers to justify their employment at the higher minimum wage. Those people will see their incomes and the demand that they generate drop. In the end, at best in macroeconomic terms a minimum wage increase is a net wash.
You goal of a more robust middle class is laudable. The means you propose to get there on the other hand are counterproductive to your goal.
I’m not seeing an arbitrary minimum wage hike as a “panacea”. Worse than doing nothing (as it will for categorizing people as “lower class”, middle class” etc), I think it will actually hurt by raising unemployment, putting considerable inflationary pressures on services and commodities frequented by those of lower and lower middle class, increase budget deficits associated with the social safety net, and destroy the purchasing power of savings for those individuals – rendering them more, not less, vulnerable to significant losses in the face of temporary financial setbacks. Where perhaps they might “ride out” being between paychecks for a couple weeks to a couple months to pay some large fine or small medical bill, they now need to choose between car payment, house payment, the new bill, or their credit worthiness…
That sounds far more likely to bring on the revolution you so fear than leaving minimum wage alone.
One of the things that strikes me about the minimum wage arguments is that they don’t include, in the minimum wage figure, the cost of Gov’t mandated benefits (like PPACA minimum coverages) in the eventual figure. Of course, it makes sense in that many of those benefits only accrue to “full time” workers, where the minimum wage applies to essentially all workers, but I think that a more reasonable discussion of effective wages over time could be had if those figures were in use – inflation-adjusted (core CPI) part time minimum wage, and core-CPI inflation adjusted full time wages including all gov’t mandated employer paid benefits.
Of course, that’s too complex for a 30second sound bite from our political classes…
High minimum wages as a strategy for redistributing wealth upward are peculiarly ill-conceived. Most minimum wage jobs are held by persons living in families that are not poor, while many of the services whose price will have to rise when the minimum wage rises, such as fast food, are heavily used by lower-income consumers. Jeffrey Dorfman: “In fact, after accounting for both gains in pay and losses from the inflation caused by businesses that will pass on this cost increase to their customers through higher prices the CBO finds that only19 percent of the benefits go to households in poverty. In contrast, households that earn more than three times the poverty level capture 29 percent of the total gains.” Were assistance to the working poor the priority, tinkering with the EITC would be a far more promising method. But assistance to the working poor is not what this is about. http://www.forbes.com/sites/jeffreydorfman/2014/02/22/the-minimum-wage-debate-should-be-about-poverty-not-jobs/#3298de594e5c
Well, I would venture to say that, had the Republican congressional leadership tried, it could have done some good things with the EITC. But they did not. They left it to the Democratic executive branch and the only tool available was redistribution in the way they did it.
I do agree that raising the minimum wage will lead to inflation. The DOL rules will also. But, so would changing the EITC.
Assuming that redistributing wealth is a good thing, how do we best accomplish it? I make the assumption because we have to have a more robust middle class. Put another way, in the last 40 years there has been a distribution of new wealth to the already wealthy. And, arguably, some of the wealth of the middle and lower class has been redistributed to the most wealthy.
Why would one assume that wealth distribution is a good thing? Why would one think that taking from one person to simply give to another without the consent of the person from who the money is being taken is a good thing?
Secondly, you also make a false assumption that the “wealthy” are the same people from year to year. That is not true. People fall out of being wealthy by making bad decisions just as people become wealthy by making good decisions.
Third, you avoid Census Bureau statistics that show that people can get out of the lower class by working hard and making good decisions. The US is much more mobile and changing of wealth than other countries.
Finally, it seems that you fail to apply standards across the board equally. In the case of the restaurant failing or not being able to make enough to stay in business, you blame the owner. Yet when it comes to wage earnings and moving up the wage scale, you blame the owner as well.
We may well disagree on whether government-directed distribution of some wealth is better or worse than what happens in the market. Having a robust middle class is essential to our country’s continuance. That is my position. And, if the current system does not provide for it, we need another system.
BTW, everyone (except, maybe, communists) would agree that wealth distribution is a good thing. Even you. The question is how it should be distributed. And, to be clear, I am not talking about “wealth redistribution,” which would be taxing current wealth. I am talking about the proper distribution of profits between capital and labor.
” I am talking about the proper distribution of profits between capital and labor.”
Profits necessarily belong to capital in their entirety as they accrue only after all expenses, which would include labor costs are paid. Now if you want to talk about the distribution of gross revenue between labor and capital, that is a discussion we could have. Making that discussion about profits is economic illiteracy.
A unit of labor should be paid in accordance with the value it provides to the employer. No other formula to pricing labor is or can be sustainable.
Now, there are two different types of labor. Overhead labor does things that a business needs to function but does not directly contribute to gross revenue. Then there is labor that directly contributes to revenues. The value of these two different types of labor can not be judged by the same measures.
I’m sorry Allen, but you are talking about wealth redistribution. You are saying that an employer must take money from their pocket to give (at the point of the government sword) to someone else.
Your own point of saying that you want the “proper distribution of profits” shows that you are talking about wealth distribution. There is just no way around that.
Furthermore, “wealth distribution” is not always a good thing. Why would you ever think that a person who works hard should not reap the benefits of their labor, and especially more benefits over someone who works less or contributes less to society?
If labor wants to control where profits go, they have the same ability as others to either start their own company or buy into the company (ie stock.)
Otherwise, you are doing nothing but talking about stealing from people.
” I make the assumption because we have to have a more robust middle class.”
Sorry, that makes no sense. Government forced wealth distribution to the poor doesn’t and can’t make the middle class more robust. In fact, much of the wealth that the government redistributes from the poor comes from the middle class.
Matt try to follow:
1. A person is poor (lower class)
2. A person’s earnings go up (to middle class levels)
3. The person is now middle class.
What we need to do as a nation is figure out how to accomplish 2.
If “middle class” is defined as between 67% and 200% of median US income levels (a common definition), arbitrarily hiking the roughly 29% of the country who is “lower class” to the bottom of the middle class threshold does two things. First, it results in a lot of currently “middle class” people being reclassified as lower class, while all the existing “lower class” people remain lower class (since the median income has been markedly lifted), and second, it raises the inflation adjusted poverty threshold by a significant amount, likely continuing to include virtually all of those whose income was magically increased.
Aren’t statistically defined metrics wonderful? No matter what we do, the definitions ensure its never enough…
The US “War on Poverty” has done almost nothing to the % of the population meeting the various US definitions, though no reasonably aware person can honestly claim that the US standard of living, on average, hasn’t improved since the 60s.
If you want to pick some less fluid definitions, I’d be happy to discuss, Allan, but not if the game is rigged via the starting terms.
Allan try to follow.
Here is what happens if you try to do that by government forced income/wealth redistribution.
1. Taxes on middle class people go up.
2. Some marginally middle class people are pushed down to lower class be the reduction in their disposable income.
3. The number of middle class people reduced to lower class status will always exceed the number of lower class people
Part of the reason for this is part of the definitional games that CarLitGuy complains about.
When determining who is poor and who is middle class, the US government as a matter of policy categorically excludes government income/wealth redistribution payments.
So as a matter of definition and US government policy, welfare/redistribution payments can never raise anyone above the poverty line.
Allan, the other thing that you seem to be forgetting (in fairness, most do), is that our capitalist markets require big business to make a profit. No, not in the way most people think, but rather to allow dividend payments and encourage share price appreciation. Without those, the huge amounts of money currently tied up in public and private pension funds (CALPERS, CALSTRS, MNPERA, NYSTRS, KPERS, TRS Texas, etc) which are already floating huge, publicly guaranteed unfunded liabilities on their books will be that much more insolvent. (Wikipedia puts pension funds at $24.5 Trillion in 2014, roughly 60% private, 40% public)
Middle Class investors, on average, can lose their stock portfolio and be hurt badly, but not be completely devastated. They still have their jobs, their home and vehicle equity, and time to rebuild. Pension funds have none of the above. All they have is the theoretical value of their asset backed securities and dividend yields. The yields are some percentage of profits, and the value of the stock itself is usually some moderate multiple of expected future earnings (say, 20x +/-). When profits and earnings fall repeatedly, dividends get reduced or suspended, stock price drops, and those pension funds get drained that much faster…
When the pension fund collapses, it falls on the rest of us, already reeling from losing our retirement savings in the market. In short, those who prudently try to set a little away for the future so as not to be completely dependent on the government in our old age get hit twice – once in the market, and again in raised taxes as gov’t tries to cover the shortfall. Those already retired, whose pension payments get reduced when the liabilities get picked up by PBGC, also take big hits. In theory, this leads to middle-class and retiree “belt tightening”, thus job losses, and another depression. With interest rates being as low as they are world wide, and NIRP (negative interest rate policy) being tried by many 1st world countries with little apparent long term benefit to their economies, one has to ask what bullets the US Fed has left in its monetary policy gun – as its quite clear that US fiscal policy fixes are a political non-starter.
Sadly Allan will not be swayed by logic.
Redistribution is part of the market system, as a feature, not a bug. Allan’s overpaid capitalists only get that way by delivering a product. And product only rolls out the door when someone on the payroll designs it, produces it, markets it, boxes it, ships it, and sells it. The amount of redistribution is proportionate to the necessity of the service each individual supplies to the product chain. Inevitably, some services are more specialized, and in greater demand than others; they can command a greater share of the total. Those with less to offer the collective entity, the corporation, gain proportionately less.
The key is not forced Robin Hood economics, compensating folks more who do less, but rather should focus on allowing them to have the capacity to do more.
Gasman,
I understand fully what you and Carlitguy are saying and agree with it. Except the part about the market system being a panacea. Or at the least the market system in the US, where the big guys make rent-seeking an art form. If we could guarantee a standard of living for our poorest, I would not care one whit how the upper class (I am in that group).
Interestingly, what Gasman describes reminds me of the Communist creed: “from each according to his ability, to each according to his needs.” Instead it would be “to each according to his ability (from the market), from each according to the market’s needs.” In their purest forms communism and market capitalism might work. But we have neither in the purest form and they are always distorted by human failings. So, take out the human failings and I think the market-based approach might well work better. Absent that, society needs to pick up the slack for the fringes.
Allan.
“I understand fully what you and Carlitguy are saying and agree with it. Except the part about the market system being a panacea.”
No one is saying that the market system is a panacea. However, history shows that any government intervention in the market system no mater how well intentioned is far more likely to make things worse than to make things better.
“Or at the least the market system in the US, where the big guys make rent-seeking an art form.”
That rent seeking is only possible because of government interference in the market.
“history shows that any government intervention in the market system no mater how well intentioned is far more likely to make things worse than to make things better.”
Really? Western Europe’s economy seems to be working ok.
And which economy is better right now: California or Kansas?
Western Europe’s Economy seems to be doing OK???
Really? Take Germany out of the EU mix, and almost every country in Western Europe is deep in a downward spiral, with historically low (or negative) interest rates on Gov’t debt, large deficit spending, and sub 1% GDP growth. That’s a curious definition of “OK”.
I’m excluding the UK due to Brexit, which makes it damned hard to draw any conclusions. Ireland and Scotland exist on subsidies. Greece, Italy, Portugal, and to lesser extent, Spain, all have huge unperforming loans on their banking balance sheets and are looking for ways to recapitalize without running afoul of EU rules. Because of the single currency, they can’t deflate their way out of crisis (indeed, the poor performance of the other EU countries is depressing the value of the Euro, which helps Germany export – one of the reasons its economy isn’t tanking as badly as other large EU countries). Even France operates in perpetual violation of EU rules for deficit spending.
California and Kansas are hardly like states. There is little similarity in population, acreage, available ports, natural resources, and a host of other considerations that help determine where people have historically chosen to locate themselves and their businesses.
Take Germany out of the mix? Why don’t we take NY, California, and Texas out of the mix and see how the US would do?
Northern European countries, the most progressive of the bunch, are doing just fine economically. Belgium, Germany, Switzerland, Luxemburg, Denmark, Norway, Sweden, Finland. Even the Baltic states and Poland are doing better. And we (US citizens) are in no position to criticize France for deficit spending.
California and Kansas could not be more different, I agree. But 10 years ago, with conservatives shutting down the government like in Washington, California was a shambles. Now it is flourishing. Those same 10 years ago, with a relatively moderate Republican majority, Kansas was doing OK. Now it is a laughingstock. If your theory worked in practice, it would not be that way.
Also, the “red” states would be nowhere without the federal government subsidizing them. They take in more federal dollars than the “blue” states. Imagine what would happen if they lost their military bases. The Carolinas, Georgia, Alabama, Mississippi, Louisiana, and Oklahoma would be devastated. Texas (with its natural resources would hurt, but be ok). Purple states like Florida,, Ohio, and Colorado would take hard hits, but would likely do ok. Virginia would be devastated (but only because it is so close to DC). I am not sure if such an action would have as much impact in “blue” states, with the possible exception of Maryland.
So, yes, take Germany “out of the mix,” and Europe would be in trouble (as well as have a big hole in the middle). But the US would be in the same hole if you took out such a huge chunk of its economy.
I stand by my statement that government can be a positive catalyst for a better society.
Those “human failings” you describe (including “rent seeking” by the largest corporations/those politically favored) is only possible because Gov’t has intruded into virtually every factor of our lives, the marketplace most particularly. yet your solution appears to be “more government”??? I’m not sure how that is expected to work. If evil, rent-seeking, politicians and businessmen/women have together colluded to use the power of big government to better themselves at the expense of society, how is BIGGER gov’t supposed to remedy that?
What capitalism requires is capital that can be deployed to businesses. While our national system, CarLitGuy may operate the way you say, you should remember that big businesses start as small businesses and grow.
Bob
Sadly, Bob (and this is another topic), I fear that regulatory by “big business” has made it virtually impossible for 99.999% of the startups to ever get larger than a family business.
To your broader point, you are of course correct – I focused on “big business” in my illustration because that’s usually where I hear the most complaint from socialists of all stripes that “X made too much money” in raw $, without considering the % return on capital.
Apologies for my sloppiness, and the crudeness of my illustration. Markets are, of course, far more complex, and capitalism is not limited to just publicly traded corporations. Appreciate the correction.
[as an aside – hot topic. Walter must be buried in posts needing approval before they are added to the Comments]
Allan,
If the increase in the Minimum Wage is a good thing, then why are the Unions pushing for it, while at the same time trying to make their members exempt from it?
While you are at it consider this. If the Minimum Wage increases and as a result the cost of living increases proportionally, what good has come from the increase? Buying power remains the same or it may lessen.