By John C. Goodman
There is a single thought that unites the political parties of the left all over the world (from welfare state liberals to socialists and communists) and it is this: incentives dont matter. And since prices are the mechanism that coordinates incentives and clears markets it follows that prices dont matter either.
What other explanation can there be for something senseless that is about to happen in California: A $15 minimum wage soon to be mandated for almost every employee in the state?
I suspect that most of the delegates to the Democratic National Convention this summer sincerely believe that if a price is judged too low (for example a wage) the government should push it up and nothing bad will happen. If a price is judged too high (for example a rent) the government should push it down and nothing bad will happen.
If you dont think that prices matter that is if you dont think that prices through their incentive effects impact behavior it inevitably follows that almost every economic event is a disconnected event. You wont see any connection between minimum prices and surpluses or between maximum prices and shortages. That is you wont see any connection between rent controls and housing dilapidation. Or between minimum wage laws and the horrendous levels of black teenage unemployment.
Instead you will attempt to explain surpluses and shortages and other maladies as examples of personal failures (selfish hoarding e.g.) on the part of the actors in the system.
You would expect unsophisticated people to think this way. But the editors of the
New York Times? Here is the result of a quick Google search:
- A series of articles about the spread of robots doing what humans used to do in just about every industry. (See for example here.)
- An unsigned editorial stressing the importance of work even part time summer jobs supported by government and nonprofit subsidies to keep black teenagers on the right track.
- An unsigned editorial endorsing a $15 minimum wage.
At least at the
Times these three ideas are totally unrelated.
Take item 3. A minimum wage is often characterized as a restriction on employers. But the most important impact is on potential employees. A $15 minimum means that if you are unable to produce $15 of goods and services in an hour you wont have a job. Item 2 is a tacit admission by the editors that there are a great many black teenagers who are unable to produce even $7.25 in an hour -- the current federal minimum wage. (Hence the need for subsidies).
So taken together the two editorials are saying that the social impact of having a job is far more important than the wage anyone is paid but the editors of the
Times want to price these teenagers out of the labor market anyway. Does the make sense?
Do employers really have a choice? Is there an alternative to hiring workers who are paid more than their marginal product? According to President Obamas Council of Economic Advisors the answer is:
robots. In fact in their
latest report the CEA estimates that automation is going to have its greatest impact on those at the low end of the income scale. They estimate that those jobs paying less than $20 an hour have an 83 percent chance of being automated while jobs paying more than $40 have only a 4 percent chance.
Andy Puzder the CEO of CKE restaurants (Carls Jr. and Hardees) says that in the restaurant business profits are pennies on the dollar and labor costs are one-third of expenses. Already we know how restaurants respond to minimum wages and other mandates: fast food" means no waiters. Writing in the
Wall Street Journal Puzder says there is more to come. In 2013 Chilis and Applebees began installing 100000 table-side tablets so that customers can order eat and pay their bill without ever talking to a waiter.
Given these developments what could be more irrational or less humane than imposing a $15 minimum wage effectively making low-skilled workers increasingly unattractive vis-a-vis their robot competitors?
In California the mandate will be indiscriminate
ignoring differences in labor market conditions throughout the state. It will affect only one in five workers in San Francisco but half of all workers in places like Fresno. Thats exactly the kind of law you would pass if you think wages can be high or low and nothing else will change.
So why $15? Why not $100? At $100 the price of a hamburger would triple with no other changes. And one suspects the wage would have been set at $100 were it not for Jerry Brown and a few other people with some common sense.
Wage regulation isnt only one way in which the left would like to intrude on otherwise freely negotiated contracts in the labor market. There is
mandatory sick leave the threat of longer paid maternity leave expansion of the scope of overtime pay and
other proposals.
In response there is a growing group of workers for whom none of these restrictions apply: workers who arent employees. If you divide the income of Uber drivers by the number of hours they work for example the wage rate could be very high or very low depending on time of day day of the week and location. There is no legal restriction.
The gig economy" is only a small part of a much larger development: alterative work arrangements including independent contractors on-call workers temp workers and workers employed by contract firms. By
one estimate these workers are now 11 percent of the workforce in manufacturing and 16 percent in health care and education.
Amazingly
virtually all the job growth in the past 10 years is due to the growth of alternative labor!
So why is the loony left willing to leave all these people alone? In the world of
barnyard Marxism" the economy consists of the oppressors (employers) and the oppressed (employees). If there are no oppressors there is no oppression. If there is no oppression there is nothing for government to do.
John C. Goodman is President of the Goodman Institute and Senior Fellow at The Independent Institute. His books include the widely acclaimed A Better Choice: Healthcare Solutions for America and the award-winning Priceless: Curing the Healthcare Crisis.
