Friday, October 23, 2009

An unlivable wage: teenage unemployment


Mark Perry, on the great "teencession."

25 comments:

Lee said...

Shhh. It's not polite to bring up facts, Martin.

The Left has never caught onto this whole "employment is a voluntary arrangement" thing. An employer hires an employee because he wants to; an employee works for an employer because he wants to. So if the government tells the employer he must pay more for the employee, the government thinks the employer has only one choice: to pay more.

In fact, the employer has two choices: pay the amount demanded, or lay off the employee. And that is, in fact, what happens to the lowest skilled, the lowest experienced, the most marginal employees. Minimum wage cuts off the bottom rungs of the economic ladder. The government can dictate a minimum wage, but it can't dictate that all workers are worth the ostensible cost of that wage to the employers.

But shhh. Don't tell liberals. They think they're doing a noble thing. That's the whole point, isn't it? For policy advocates to feel good about themselves? And if the policy hurts the ones you're supposed to be helping? Shhh. You're such a killjoy.

Anonymous said...

Sssh, Martin, what a lovely statistical correlation, infinitely extendable almost. The less you pay the less the number unemployed. The less you pay the closer you are to zero pay, and full employment right? Forget the fact that the evidence does not lead to this conclusion. So at zero pay you have 100% employment, right? Guess what, we've already been there, but thanks to the Emancipation Proclamation, we can't return there.

And of course, not to forget, there is that little matter about being employed to the max 40 hours/week and still being unable to pay the bills. We call them the working poor. Another American innovation we must thank the conservative reactionaries for.

Truti

Kycobb said...

Martin,

Looking at your graph, there is a much stronger correlation between teen unemployment and recessions than there is with teen unemployment and the minimum wage. Besides, if you allow employers to pay teens a sub-minimum wage, how many adults will lose their jobs and be replaced by teenagers?

Lee said...

Let's try a thought experiment.

If a sign at the butcher shop says, "Special Today! $3.99/lb!", what would your reaction be?

Is that enough information for you to make a decision about whether the so-called special is in fact a good deal?

No. Don't you also need to know what item is on sale? Some items are worth $3.99/lb, and others aren't.

If filet mignon is on sale for $3.99/lb, almost 100% of the steak-loving public would want in on that action, because it tends to sell much higher. However, if the sale item happens to be chicken necks, most people would be much less willing to participate in that bargain. That's why they tend to sell for much less than $3.99/lb.

But what if the government walks in and says it's unfair to sell chicken necks for only $1.29 a pound, so henceforth, all meat, regardless of type, will be sold for no less than $3.99/lb -- the legal minimum price of meat.

My prediction is that the butcher shops would find surpluses of unsold chicken necks on their hands. Or tripe. Or cheap hot dogs. Or pork livers. Or any meat for which customers refuse to pay $3.99/lb.

The same thing happens to unskilled and inexperienced labor when the minimum wage is hiked. If the minimum wage is raised higher than the prospective employer's perception of a worker's value, the employer will not hire the worker. There arises a surplus of unsold labor -- we call it "unemployment". Since teens, and minority teens in particular, tend to be the least well-educated and skilled, they are on the chopping block first. They are the chicken necks of the job market. They suffer first.

> And of course, not to forget, there is that little matter about being employed to the max 40 hours/week and still being unable to pay the bills. We call them the working poor.

There's certainly nothing preventing you, or anyone else, from doing something about that, and you don't even need Uncle Sam's help. The next time a worker changes your car's oil, slip him a $10. The next time a kid helps you out to the car with your groceries, slip him a $10, too. The next time a home-improvement guy contracts to put in a new bathroom floor for $2000, kick in another $500.

Customers are employers, too. If you believe it's an employers' responsibility to ensure that workers make a "livable wage", surely some of that responsibility rubs off on you, the customer.

You don't need the taxpayers' cooperation to do your part.

> Another American innovation we must thank the conservative reactionaries for.

Sure. American conservative reactionaries invented poverty. Sorry, wrong answer. Poverty is man's natural condition. No explanation for it is necessary. What needs to be explained is wealth.

Conservatives have the thankless task of preserving those institutions that help our society to acquire wealth so that we and our loved ones can hope to live in something other than our natural state.

All too often, it means fighting those individuals who benefit from those same institutions, but cannot see economic cause and effect, and refuse to learn how the world works.

Lee said...

> Besides, if you allow employers to pay teens a sub-minimum wage, how many adults will lose their jobs and be replaced by teenagers?

Kycobb actually hits the nail on the head... or let's the cat out of the bag, depending on one's agenda.

The biggest proponents of minimum wage hikes are labor unions, for precisely this reason. The typical union worker makes more than minimum wage -- generally far more -- so raising minimum wage usually doesn't help the unions' clientele directly.

But it does help indirectly, because of the economic phenomenon known as "substitution."

Let's say a contractor needs to hire two electricians for a job. I don't know what electricians make -- let's just say $30/hr for the sake of argument. Cost to the employer for two electricians: $60/hr.

But somehow, let's say the contractor learns he can get as much productivity from one electrician and three helpers, at minimum wage. If minimum wage is $8/hr, that's $24/hr for the three helpers, and $54/hr when you add that to the cost of one electrician.

The employer pays $54/hr and still gets the same job done -- that's six bucks in his pocket.

So the electricians figure out what's going on and complain to the union, who hire lobbyists and get Congress to raise the minimum wage. If it's raised to $10, the cost of the cheap labor is now even with the skilled electrician; and if it's raised even higher, then the electrician once again becomes the competitive option.

There seem to be two types of liberals. One type is unaware of how economics works and sees everything at face value: poor people aren't making enough money, let's make employers pay more, problem solved, end of story. Others are aware of the complexities, but they're certainly willing to go along with simplistic solutions for their own purposes.

Art said...

So higher minimum wages promote teen employment. At least that's what this graph shows, once a correction for the effects of recession is made.

Undoubtedly, conservatives want to do the inverse experiment - cut the minimum wage to, say, $1 per day, and see what that does to teen employment.

Lee said...

> Undoubtedly, conservatives want to do the inverse experiment - cut the minimum wage to, say, $1 per day, and see what that does to teen employment.

Let's speak in mathematical terms.

Do you think there is a wage X which would be so low that nobody would work at it?

Or do you think teenagers would flock to work at McDonalds for free?

Better yet: would they pay McDonalds for the privilege of slinging burgers?

Removing the minimum wage restrictions would simply leave employers and employees to their own devices regarding what wage is expected/paid.

I remember when liberals used to believe that any arrangement worked out between "consenting adults" was okay.

What proponents of minimum wage are actually saying is that workers are not capable of making decisions in their own best interests, they need the government to step in.

It's a very elitist viewpoint.

One Brow said...

Looking at your graph, there is a much stronger correlation between teen unemployment and recessions than there is with teen unemployment and the minimum wage.

No responses to this point? For example, the fairly substantial hike in 1997 did not seem to change the direction of unemployment at all.

Lee said...

> No responses to this point? For example, the fairly substantial hike in 1997 did not seem to change the direction of unemployment at all.

Speaking for myself, I didn't see the need to respond. I don't recall anyone making the argument that minimum wage hikes are the sole determinant in teenage unemployment.

It stands to reason that the least skilled and experienced workers are the most at-risk in any recession, particularly if wages are inflexible in the "down" direction.

But I think it's important to note that surpluses and shortages are functions of price. Unemployment can also be expressed as a surplus of labor. There is really no such thing as a surplus; there is only a surplus at a particular price.

Milton Friedman used to say that economists don't know much, but they do know how to create surpluses and shortages. If you want a surplus, over-price a commodity, and if you want shortage, under-price it. In terms of today's market, if you want a surplus of gasoline, set a legal minimum price of $10/gal; if you want a shortage, price it at $1/gal.

The same holds true of any commodity, including labor. In any pricing scheme enforced by outside parties to a transaction, they always hit a wall when they try to enforce prices outside what people were willing to pay.

I'm old enough to remember the horrific Nixon wage & price controls -- in more ways than one, Nixon was our first Fascist president. (Okay, our second -- Woodrow Wilson being the first.) One of the most visible effects was the price of meat, particularly beef. Under the circumstances, farmers could not sell their cows and make a profit, so they chose not to sell. So you could still buy an occasional piece of steak if you were good friends with the grocer, but any that came available was scarfed up in a hurry.

I happened to be in ROTC camp in the summer of '73, and at the end of the camp, we had a big cookout -- we paid $4 each, and had as much grilled steak as we could eat. I was chowing down on my fourth steak, standing next to the grill and chatting with the Colonel, and the economics of the situation suddenly hit me. I asked, "Isn't the beef shortage still on?" The Colonel nodded and said, "You bet." So then I asked, "This isn't beef, is it?" He said, "Sure isn't. It's horse."

You can see the effects of substitution anywhere you see a price-controlled commodity. You can even see the loss of America's manufacturing capability as substitution. Labor unions serve as a cartel, controlling the price of their labor. That's one of the reasons Detroit could not keep up with the Japanese and the Koreans in the auto market, even though manufacturers in the right-to-work states can still make a competitive product. It's why so much capacity has gone overseas. (There are other factors, too -- e.g., in China, they can make products to American specifications without having federal eco-regulations and OSHA breathing down their necks.)

Employers simply will not pay more for labor than they judge that labor to be worth. It's a fact. All the progressive rhetoric on the planet won't change it. Paul Krugman would tell you the same thing, if you were to fill him up with cognac and sodium pentothal. Us heartless conservative reactionaries aren't making this up, we're just getting shot as the messengers.

One Brow said...

Speaking for myself, I didn't see the need to respond. I don't recall anyone making the argument that minimum wage hikes are the sole determinant in teenage unemployment.

Given just the graph, it's difficult to make an argument it's even a principal determinant.

It stands to reason that the least skilled and experienced workers are the most at-risk in any recession, particularly if wages are inflexible in the "down" direction.

Why particularly then? Before you answer based just on how you think it should work theoretically, does the historical record of the US economy bear this out? Is there any good evidence that unempoyment of the less-skilled was is any way mitigated by the ability to drive wages downward?

As an employer, if I can get the job done with one worker, I'll hire one worker regardless of what I need to pay him.

Employers simply will not pay more for labor than they judge that labor to be worth.

Unless rthe alternative is to hire no labor at all.

Lee said...

> Is there any good evidence that unempoyment of the less-skilled was is any way mitigated by the ability to drive wages downward?

I'm not really making that argument, though it ought to work in theory, yes. I don't think we've had many extended periods in American history where wages went down, except perhaps the Great Depression, and I don't know what kind of statistics they collected.

Nor would I ever argue that wages ought to be forced down, presumably by government. I see employment as a voluntary arrangement. All I would argue for is that employers and employees ought to be allowed the freedom to work it out themselves.

> As an employer, if I can get the job done with one worker, I'll hire one worker regardless of what I need to pay him.

To debunk that argument, all I have to do is ask, would you pay someone $1 million/hr to sweep the floor? If the answer is no, then we have established there is a limit to what you are willing to pay. Now the only thing left to do is to find the point on the pay chart that you would be willing to pay.

One Brow said...

What happens if the floor doesn't get swept? I'll weigh the consequences of that against the million dollars. I won't allow a business that turns a $3 million profit to close because I refused to pay a floor sweeper a third of that.

One Brow said...

By the way, are you going to respond tomy question in the 'survivability' thread?

Lee said...

So you are denying that there exists a top dollar that you, as an employer, would pay to have menial tasks performed. Is that a fair statement?

If so, then, why wait for the government to tell you what's fair? Start a business, pull in a teenager from the street, and pay him $1 million/hr to sweep your floor. You don't need every other employer to be forced to do it for you to perform your part. Presuming you have the million, that is, or can borrow it, what's stopping you?

Heck, make it $10 million, while you're at it. As long as there is no upper limit, that is. You can solve the poverty problem, at least for one young employee.

One Brow said...

So you are denying that there exists a top dollar that you, as an employer, would pay to have menial tasks performed. Is that a fair statement?

I don't think you can run a business profitably if you pay every menial worker a million dollars a year. However, it is the business profit level that sets the maximum threshold, not any intrinsic value to the labor itself.

I'm not saying minimum wages are positive or negative, they are likely a little of both. I can certainly see the argument they contribute to inflation, for examples. However, when every employer has to pay them, they don't create unfair conditions. If an employer can do without hiring someone who makes $8/hour, why would they pay that person $5/hour instead of $0/hour?

Lee said...

> I don't think you can run a business profitably if you pay every menial worker a million dollars a year

Welcome to the concept of financial constraints. Sometimes you have to go to the reduction ad absurdum, as I did, just to establish a principle. What businesses can afford varies from business to business, but in many if not most cases labor is the biggest single cost; to be competitive, they are forced to keep expenses, including labor, down to a minimum.

> However, it is the business profit level that sets the maximum threshold, not any intrinsic value to the labor itself.

I don't see anything approaching a concept of "intrinsic value". Labor, like durable goods, is worth what prospective employers are willing to pay for it. And market value for labor varies greatly within a given profession. New professions, like systems engineers and database administrators, spring into existence overnight and tend to command fairly high salaries. Old professions, like typewriter mechanics, die off in a sudden lurch of technological advance. Some professions stick around but fluctuate.

A corollary of this is that there is no such thing as an objectively "just" wage; there are only wages that are agreed upon by employer and employee. Think "consenting adults." Anyone else sticking his nose in the midst is a butt-insky. By telling a prospective employee that he cannot accept an offer below a certain minimum, the government is in fact taking away his options.

I don't quite know what you mean when you say, "business profit level that sets the maximum threshold". If you think employers will be willing to pay much more than within a ballpark range of marketable value, it just isn't so. Doctors make more than senior management at a lot of companies. Senior management tends to make more than all but the very best technicians. Technicians make more than trainees. Almost everybody makes more than unskilled labor.

Most of these folks aren't directly affected by minimum wage thresholds. The only people affected are entry-level labor. What minimum wages do is they cut off the lowest rungs on the economic ladder.

Lee said...

Correction for above: the only people *directly* affected are entry-level laborers. As already discussed, skilled laborers are affected favorably by minimum wage hiked because it reduces competition by substitution.

> I'm not saying minimum wages are positive or negative, they are likely a little of both. I can certainly see the argument they contribute to inflation, for examples.

Inflation is a function of money supply relative to goods and services available to purchase. If a hike in minimum wage harms productivity, I agree, it can contribute to inflation.

> However, when every employer has to pay them, they don't create unfair conditions.

The assumption here is that employers can always pass on increased labor costs to their customers. It's a bad assumption, as Herman Cain once lectured President Clinton. Customers may be perfectly willing to pay $12 for a large Godfather's pizza with pepperoni. Maybe some will be willing to pay $15 for the same item and order it just as often, but the odds are that not everyone will. For those who are not willing, the grocery store is always an option -- you don't *have* to have takeout pizza. Grocery store personnel tend to make more than minimum wage, so they have fewer costs to pass on to customers due to minimum wage. In short, through economic substitution, customers have other options and pizza makers may not be able to pass along increased costs to customers.

> If an employer can do without hiring someone who makes $8/hour, why would they pay that person $5/hour instead of $0/hour?

It's like any other commodity. If you like the price of something relative to the value you expect to get out of it, you buy it if you can afford it and want it. If you don't like the price, you don't buy it. If you like the price at say, $5/lb, you won't necessarily like it at $8/hr. You might, but then again, you might not.

If I'm an employer, maybe I don't like cleaning toilets, and I'm willing to pay someone else to do it at $5/hr; but at $8/hr, I prefer either to do it myself or writing it into the job description of my burger flipper, who I've decided is worth $8/hr. He gets a $3 raise and additional duties; the other guy just gets laid off.

One Brow said...

If I'm an employer, maybe I don't like cleaning toilets, and I'm willing to pay someone else to do it at $5/hr; but at $8/hr, I prefer either to do it myself or writing it into the job description of my burger flipper, who I've decided is worth $8/hr. He gets a $3 raise and additional duties; the other guy just gets laid off.

So, you think employers are stupid or don't care about efficiency when there is no minimum wage, apparently. At least, that's the only explanation for your example. The reality is that if I think my burger flipper can do both, I'll have him do it for the $5/hour to begin with, and don't need to pay an extra $3 to another guy while the burger fipper stands around.

don't quite know what you mean when you say, "business profit level that sets the maximum threshold". If you think employers will be willing to pay much more than within a ballpark range of marketable value, it just isn't so.

The maximum threahold is the point where the job vanishes because it no longer helps generate profit. It's usually well above the actual wage being paid.

Lee said...

> So, you think employers are stupid or don't care about efficiency when there is no minimum wage, apparently.

I have no idea how you construed that out of what I said. I have been arguing precisely the opposite: they do care about efficiency, and they're not (necessarily or predominantly) stupid (though there are always exceptions).

> At least, that's the only explanation for your example. The reality is that if I think my burger flipper can do both, I'll have him do it for the $5/hour to begin with, and don't need to pay an extra $3 to another guy while the burger fipper stands around.

You presume that there will be no loss of productivity by hiring only one person rather than two, just as you presumed that two workers who are worth $5/hr would also necessarily be worth $8/hr. You also presume that the remaining employee will be perfectly happy doing two jobs with no raise and will not quit.

> The maximum threahold is the point where the job vanishes because it no longer helps generate profit. It's usually well above the actual wage being paid.

But if we're talking minimum wage-level jobs, we can't assume that it's well above the actual wage being paid. We can't even assume that the business will continue making a profit if it needs to pay more for labor.

One Brow said...

I have no idea how you construed that out of what I said. I have been arguing precisely the opposite: they do care about efficiency, and they're not (necessarily or predominantly) stupid (though there are always exceptions).

So why, in your example, if the butrger flipper has time to clean the toilets, does the owner hire another worker for $3/hour to do that? Why can the burger flipper clean toilets when he makes $8/hour, but not when he makes $5/hour?

You presume that there will be no loss of productivity by hiring only one person rather than two, just as you presumed that two workers who are worth $5/hr would also necessarily be worth $8/hr.

If I can get all my customers fed and the toilets clean with one person, it is not a productivity gain to hire a second.

You also presume that the remaining employee will be perfectly happy doing two jobs with no raise and will not quit.

He'll be happier doing it at $8/hour? Not likely. raises only have a short-term effect on employee morale. Besides, out of the two employees, at least one of them will keep the $5/hour job. They are not there for luxuries, they need the money.

But if we're talking minimum wage-level jobs, we can't assume that it's well above the actual wage being paid. We can't even assume that the business will continue making a profit if it needs to pay more for labor.

That will vary from industry to industry. For people hiring burger flippers, there is a very good profit margin.

Lee said...

>So why, in your example, if the
butrger flipper has time to clean the toilets, does the owner hire another worker for $3/hour to do that?

That wasn't my example. I said:

> If I'm an employer, maybe I don't like cleaning toilets, and I'm willing to pay someone else to do it at $5/hr; but at $8/hr, I prefer either to do it myself or writing it into the job description of my burger flipper, who I've decided is worth $8/hr. He gets a $3 raise and additional duties; the other guy just gets laid off.

This presumed I had an employee working at $5/hr who did the bathrooms. If the minimum wage is then raised to $8/hr, I might decide to do the bathrooms myself, if money is tight. Or I might decide to give the burger flipper a $3 raise and add the bathrooms to his work schedule.

Note that this does not presume I can get as much work done with one employee as I can with two. In fact, I would assume, all other things being the same, that I would get less actual work done, or would take time off my valuable schedule to do something I don't enjoy. If I had my druthers, I'd still have the bathroom guy on my payroll for $5/hr. But I may not be willing to keep him on if I were to judge his labor isn't worth that much to me.

Hiring fewer people is not an efficiency move; it's an efficiency move *given* that I have had new constraints imposed on my business -- i.e., that I can no longer hire at $5/hr. The wages change, so the equation changes.

> Why can the burger flipper clean toilets when he makes $8/hour, but not when he makes $5/hour?

Maybe the burger flipper doesn't clean them. Maybe both were goldbricks, but I took the better of the two, gave him a little extra money as well as more responsibility, and admonished him that he could do the bathrooms with less goldbricking. Maybe the extra money makes him work a little harder. Maybe both jobs get done with the burger flipper, but the burgers aren't done quite as well and the bathrooms aren't quite as clean. The product, in other words, suffers, but my labor costs are less. Maybe the strategy works; maybe it doesn't.

There are any number of possible outcomes in any given scenario. Either way, the fellow who was doing the bathrooms no longer has a job, and I'm trying to deal with the constraints that have been imposed.

> He'll be happier doing it at $8/hour? Not likely.

That's sort of my point. The businessman has to make adjustments, and he may not like them, and neither may his employees. But financial constraints are the order of the day. You can't come up with $1 million/hr for someone to sweep the floors; often, people in the real business world can't come up with an extra $2 or $3/hr for every low-skilled employee. You can't just assume the employer can afford it. You can't just assume the employer can pass on his added costs to his customer. And you can't assume he or his employees will like how the employment/wage situation settles out.

All you can assume is that an arrangement that was considered satisfactory by the employer and two employees before the minimum wage hike may need to be adjusted, and that someone may end up unemployed.

> That will vary from industry to industry. For people hiring burger flippers, there is a very good profit margin.

So then, since you pull that statistic out of thin air, you simply assume they can afford any wage hike you can force on them.

One Brow said...

This presumed I had an employee working at $5/hr who did the bathrooms. If the minimum wage is then raised to $8/hr, I might decide to do the bathrooms myself, if money is tight. Or I might decide to give the burger flipper a $3 raise and add the bathrooms to his work schedule.

I understood that. The hypothetical you was too unaware or stupid to realize you had two people doing the job one person could do until that realization was forced upon you by the hike in minimum wage. most successful entreprenuers keep better track of their employees.

Note that this does not presume I can get as much work done with one employee as I can with two. In fact, I would assume, all other things being the same, that I would get less actual work done, or would take time off my valuable schedule to do something I don't enjoy.

So, you are deliberately cutting back on your production, instead. That is not the usual choice of managers in burger-flipping joints, either. They cut back on production in response to diminshed sales volume, but not in response to price hikes.

Your comments were full of a lot of maybes, for someone who offers such a definite point of view. It's almost like the reality fo the situation doesn't offer strong support for your position.

So then, since you pull that statistic out of thin air, you simply assume they can afford any wage hike you can force on them.

I don't recall saying "any wage", and just because you are ignorant of the typical profit margins of your local burger-flippery does not mean everyone involved in this discussion is.

Lee said...

> I understood that. The hypothetical you was too unaware or stupid to realize you had two people doing the job one person could do until that realization was forced upon you by the hike in minimum wage. most successful entreprenuers keep better track of their employees.

You didn't read very carefully. Try again. I'll check back when I see some sign that you understand my argument. I'm not going to respond to personal attacks other than to note them.

One Brow said...

You didn't read very carefully. Try again. I'll check back when I see some sign that you understand my argument.

I guess directly responding to the points and countering them is an insufficient sign.

I'm not going to respond to personal attacks other than to note them.

What personal attack? I don't think you personally would pay people you didn't need to pay, which is why I responded to your hypothetical "I" with a hypothetical "you".

Lee said...

Fine, I'll spell it out...

You said this...

> I understood that. The hypothetical you was too unaware or stupid to realize you had two people doing the job one person could do until that realization was forced upon you by the hike in minimum wage. most successful entreprenuers keep better track of their employees.

...as if I hadn't said this:

> Note that this does not presume I can get as much work done with one employee as I can with two. In fact, I would assume, all other things being the same, that I would get less actual work done, or would take time off my valuable schedule to do something I don't enjoy. If I had my druthers, I'd still have the bathroom guy on my payroll for $5/hr. But I may not be willing to keep him on if I were to judge his labor isn't worth that much to me.

In other words, I never said the employer would figure he could get the *same* amount of work done with one person as with two. But your rejoinder blithely presumes that the employer was a dolt all along for hiring two when he could get the same amount of work performed by one. It is not the "same job" being done, if two people did it well and one person does it so-so.

If you're making one person perform two positions, you will probably have to give something up. This was all calibrated into my earlier comments. Maybe the burgers aren't done as well. Maybe the bathrooms aren't cleaned quite as well. Something was given up. The employer did not want to give it up, but (in our example) was forced to do so because of increased labor costs.

As all these scenarios play out across the country, it shows up as a statistical increase in teen unemployment.