Thursday, May 28, 2015

Economic Rhetoric vs. Economic Reality

Minimum Wage and Unions

When Los Angeles voted to increase its minimum wage from US$9 an hour to US$15 an hour by 2020, it was touted as a victory for the working class.

Proponents of the minimum wage claimed that people deserved a life of dignity, that workers were “worth more,” etc. There was no talk of freedom of association or freedom of contract or the possible unintended consequences that the law could have on marginal workers.

(Just to be clear, I have not only opposed raising the minimum wage for a long time, I have also long opposed the very idea of the minimum wage itself.)

So you can imagine the fit of laughter that I had this morning when I read in The LA Times that labor union leaders, who had been one of the strongest proponents for raising the minimum wage, are advocating last-minute changes to the law that could create an exemption for companies with unionized workforces because:

With a collective bargaining agreement, a business owner and the employees negotiate an agreement that works for them both. The agreement allows each party to prioritize what is important to them... This provision gives the parties the option, the freedom, to negotiate that agreement. And that is a good thing.”

Way back in the day, Milton Friedman once said that the real purpose of the minimum wage is to “reduce competition for the trade unions and make it easier for them to maintain the wages of their privileged members higher than others'.”

If this does not wake people up to the fact that unions only look out for their own interests, rather than the interests of the working class, then nothing will.

Mandated Family Leave

As though I did not get a good enough chuckle from The LA Times, I got another good laugh when I read The New York Times, which reported that mandated family-leave “benefits” often harm many of the same workers that these mandated “benefits” were meant to help.

Here's an excerpt from the article:

Spain passed a law in 1999 giving workers with children younger than 7 the right to ask for reduced hours without fear of being laid off. Those who took advantage of it were nearly all women.

Over the next decade, companies were 6 percent less likely to hire women of childbearing age compared with men, 37 percent less likely to promote them and 45 percent more likely to dismiss them, according to a study led by Daniel Fern√°ndez-Kranz, an economist at IE Business School in Madrid. The probability of women of childbearing age not being employed climbed 20 percent. Another result: Women were more likely to be in less stable, short-term contract jobs, which are not required to provide such benefits.

So passing laws that increases the cost of employing women compels businesses to hire fewer women? And to add insult to injury, it just makes the glass ceiling just that much thicker? Shocking!

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Income Mobility

Gawker loves to claim that the rich are getting richer and the poor are getting poorer. Robert Reich loves to make that claim, too. In fact, almost everyone seems convinced that that is true.

Yet today in The Economist, I read an article that showed how much progress Indian immigrants have made in Western countries, particularly the United States. Here's an excerpt:

On the usual measures of success they outstrip all other minorities, including Jewish-Americans. They are educated and rich. In 2012 some 42% held first or higher degrees; average family income was over $100,000, roughly double that of white Americans (see chart). Over two-thirds of them hold high-status jobs. They have done so well that many migrants from Pakistan or Bangladesh like to call themselves Indian, hoping that some of the stardust will rub off on them.

The stereotype of Indians as keeping shops or running motels in their adopted country is thus outdated.

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People who loudly claim that the rich are getting richer and the poor are getting poorer can make that boast because they are not talking about real flesh and blood people, but rather about abstract categories like the top or bottom 10 percent of families or households.

These categories have always existed and will always exist. However, the people who make up those groups change. It wouldn't surprise anyone to know that a 25-year-old recent college graduate makes less money than an experienced 45-year old manager because it is a given that older and more experienced workers tend to make more money. It also wouldn't surprise anyone to know that immigrants who have degrees in chemistry or computer science are able to earn more money than native-born workers who majored in Political Science or Women's Studies.

To have a serious discussion about income mobility and the so-called wealth gap of real people, then we have to talk about people's real income per capita – a topic that all these Chicken Littles avoid like the plague precisely because talking about that would expose their little game for the fraud that it is.

It would seem that the distance between rhetoric and reality is quite far, indeed.

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