March 18, 2014

More Than 500 Economists Oppose Minimum Wage Hike

In an open letter released March 12, 2014, more than 500 economists voiced their agreement that increasing the federal minimum wage to $10.10 would not reduce poverty. The letter’s release coincided with hearings in the U.S. Senate’s Health, Education, Labor and Pensions (HELP) Committee to debate raising the federal minimum wage. The letter notes that poverty is a complex issue and simply raising the minimum wage is not “a silver bullet solution.” The letter’s signatories include Nobel laureates Eugene Fama, Edward Prescott, and Vernon Smith along with a number of previous administration officials, among them Glenn Hubbard, Greg Mankiw, and Harvey Rosen, all past chairs of the Council of Economic Advisors. (The full letter and list of signatories is available here.)

Raising the minimum wage costs jobs for the very workers it is supposed to help. A recent study by the Congressional Budget Office (CBO) found that the proposed increase would cost the economy 500,000 jobs by 2016. This outcome from raising the minimum wage agrees with previous work, including analysis that David Neumark and I wrote for the Show-Me Institute.

Missouri policymakers must consider the full impact of raising the minimum wage. It simply is not good public policy to raise wages for some individuals at the expense of other workers who are made even worse off than they are now. The minimum wage simply is not a viable policy tool to fight poverty.

March 11, 2014

Lust For Licensure

I honestly think that one of these days someone is going to propose requiring a Missouri license to hypnotize chickens. During this year’s legislative session in Jefferson City, the quest to unnecessarily license new occupations continues. Next up: home health care agencies, electricians statewide, and expanded licensing rules for landscape workers. None of these new or expanded regulations are justified.

Did you know that areas with stricter electrician licensing actually have higher rates of electrocution? It’s true. Licensing increases costs, increased costs lead to more do-it-yourself work, and that leads to more accidents. Similarly, is there a current crisis in Missouri regarding landscaping that I am oblivious to?

Missouri has fewer licensed occupations than other states. We should be proud of that. Simply put, all of the occupations that have some sort of legitimate role for licensing are already licensed at the state or local level. We need to be removing unnecessary licenses and making it more difficult to implement new ones. When it comes to licensing rules in Missouri, we need to pass rules setting demonstrated needs and benefits before new occupations can be licensed. We don’t need to add new occupations to an already too-long list.

February 25, 2014

Why Would Unions And Some Big Businesses Support Raising the Minimum Wage? Some Reasons

Last week’s Congressional Budget Office (CBO) report brought the negative effects of a proposed minimum wage hike into sharp focus. The CBO found that while wages would, by definition, increase for some employees, up to a million of our most vulnerable workers could lose their jobs. For all the bluster about free-market advocates being “anti-worker,” I can’t imagine a more anti-worker effect to a policy than the one you would see with a minimum wage increase. After all, what could be worse for a laborer than having his or her job taken away?

That’s what makes support for a minimum wage increase from unions and big business seem so odd at first glance. Why would unions such as the American Federation of State, County and Municipal Employees (AFSCME) support a change of policy that would hurt hundreds of thousands of Americans? Why would some businesses want to increase the cost of labor?

A few reasons stand out.

For starters, artificially raising the cost of non-union labor can make union labor more attractive. As the Cato Institute noted more than a decade ago:

Unions are labor cartels that attempt to restrict the supply of workers entering given occupations. Since non-union labor is priced below the cartelized price of union labor, it is an attractive substitute for union workers. Because unionization of all potential competition to the cartel is impossible due to the high policing costs that would be involved, unions resort to the minimum wage. By artificially increasing the wage rate of lower skilled workers — who could substitute for union workers — the minimum wage increase the demand for union workers and hence their wage rates.

Hypothetically speaking, if the labor of an entry-level employee with no experience is worth $7.50 per hour in the open market but the law requires he be paid $15 per hour, trained union labor costing $20 per hour looks considerably more attractive. By harming non-union labor, unions are able to help themselves.

Moreover, some large businesses have supported increasing the minimum wage because it would harm their competition. Costco, for instance, supports raising the minimum wage today at least in part because the entry-level wage for a Costco employee is $11.50, more than $4 per hour above the federal minimum. At a minimum wage of $10.10 per hour, Costco’s business model would remain largely unaffected.

But you know who would be affected by the change in the law? Businesses, large and small, whose profit margins are far narrower. That’s especially true of small businesses in our communities already suffering under a mountain of tax and regulatory burdens in a difficult economy.

Yes, there are, no doubt, some in both the business and labor camps who in good faith might think a minimum wage increase won’t hurt our vulnerable poor. But labor and business leadership know better, and the economics are as clear as the incentives.

February 20, 2014

Left Wages War On Poor With Minimum Wage Push

Over the last few months, the push has been on to raise the minimum wage. While increasing the wage sounds altruistic, in reality, it harms many of the people it should be helping. Tuesday’s Congressional Budget Office (CBO) report — which showed that up to a million people could lose their jobs if the wage was hiked to $10.10 — serves to hammer that point home.

I discussed those policy problems in a KCPT interview broadcast last week, which can be viewed below.

February 19, 2014

Raising The Minimum Wage Will Cost 500,000 Jobs

The Show-Me Institute has talked a lot about the negative effects of raising the minimum wage. In his two policy studies for the Show-Me Institute, David Neumark found that an increase in the minimum wage likely would reduce employment among low-skilled workers. Yesterday, the non-partisan Congressional Budget Office (CBO) released a study detailing the estimated economic impact of the federal government raising the minimum wage. The CBO found that raising the minimum wage to $9 an hour would eliminate 100,000 jobs by 2016. If the minimum wage is raised to $10.10 an hour, 500,000 jobs would be lost. On the other hand, the report also found that overall real income would increase by $2 billion and between 300,000 and 900,000 people (a huge range) could be lifted out of poverty.

Helping people get out of poverty is a good thing and if these estimates are correct, an increase in the minimum wage could help do that. However, the question is, does this fact compensate for the large number of people who would lose their jobs? Possibly, but raising the minimum wage is not the only way to help combat poverty. In fact, while it might help some poor families, it also would give a pay increase to many suburban teenagers and students while costing jobs for the very people it is designed to help.

In his 2012 policy study, Neumark mentioned the Earned Income Tax Credit (EITC) as a possible tool to increase the incomes of low-wage workers. The CBO report found that, “To achieve any given increase in the resources of lower-income families would require a greater shift of resources in the economy if done by increasing the minimum wage than if done by increasing the EITC.” In other words, the costs associated with raising the minimum wage greatly exceed the costs of expanding the EITC. This is true because many minimum wage workers are not from low-income families. On the other hand, the EITC only goes to low-income families. Even proponents of raising the minimum wage admit that the minimum wage is a “blunt instrument” for helping low-income families. Missouri should consider establishing a state EITC alongside the federal one.

The new CBO report projects that raising the minimum wage could help some people get out of poverty at the cost of hundreds of thousands of people losing their jobs. If policymakers want a way to combat poverty, there are more effective means to doing so, including expanding the EITC.

February 16, 2014

Missouri Needs Fewer Legal Restrictions On Nurses

couple of important bills will be considered in a Missouri Senate committee next week involving Advanced Practice Nurses (APRNs, or nurses with particular advanced nursing degrees and certifications). Currently, Missouri has unnecessary legal impediments to allowing them to serve patients without a doctor’s supervision. The fact is that many parts of rural Missouri have limited access to doctors and hospitals, and allowing nurses to fill that void is a sensible, low-cost way to serve many (but not all) of rural Missouri’s medical needs.

The two bills would address these needs by loosening the restrictions on APRNs so that they would be more able to open clinics and otherwise serve patients without the unnecessary supervision (in most cases) of doctors. Yes, there are issues that nurses need to refer to doctors, but I trust nurses to be able to know that difference. Opponents of these measures would have us believe that nurses will all of a sudden start doing major medical procedures without these restrictions. (That’s not a straw man argument; I’ve heard opponents say that at prior hearings on related issues.) I trust that nurses will know when to bring in doctors and refer out patients. In any case, the choice in rural Missouri is usually not between an APRN and a doctor. It is between an APRN and no medical care.

I hope these bills allowing nurses to have more freedom and authority to serve patients are given serious consideration. I think they would be a positive change for health care in our state.

January 28, 2014

Do You Know The Pay In San Jose?

In late December 2013 and early January 2014, the Employment Policies Institute (EPI) in Washington, D.C., conducted a telephone survey of restaurants in San Jose, Calif. San Jose was chosen because in March 2013, the city leaders enacted an immediate 25 percent increase in its minimum wage, from $8 to $10 per hour. EPI wanted to see how one group of affected businesses — fast food and table-service restaurants — respond to such a wage hike.

As always, we caution against putting too much weight on the outcome of one survey of one industry in one town. With that caveat in mind, what did the survey say?

In response to the higher minimum wage, two-thirds of the responding firms, the majority of which fall in the 10-49 employee size, will (or have) increase prices. More than 40 percent of the establishments plan to reduce employee hours and staffing levels. While 7 percent of the firms are now considering closing locations in San Jose, 30 percent are, after the wage increase, not likely to expand operations.

The EPI survey of food establishments in San Jose offers one observation supporting the predictions of basic economic theory; namely, that a higher minimum wage will lead to undesirable consequences, including higher product prices for consumers and, especially for those workers on the lower rungs of the job market, reduced income.

October 11, 2013

St. Louis Development Corporation Just Making Stuff Up

The 2013 annual report for the St. Louis Development Corporation (SLDC) is out. Let’s give them credit for timeliness, at a minimum, being that 2013 is not even done yet.

The report is a great example of ridiculous government claims. I took the time to add up all the “jobs created” claims for each of the various subsidies on pages 6 and 7. The report claims that the work of the SLDC and its various subsidies (TIF, etc.) will result in 18,198 new jobs. If I added in their “jobs retained” or “construction job” claims, it would be even higher.

Let me give you an idea of how completely bogus these claims are. According to the U.S. Bureau of Labor Statistics, the entire Saint Louis metropolitan region only added 13,500 jobs in the year from July 2012 to July 2013. That is ALL job creation in our entire 2.5 million-person metro area. Yet the SLDC is claiming its actions in 2013, which only reflect subsidized jobs within the city of Saint Louis, will create more than 18,000 jobs. (To be clear, they are not claiming all the jobs came in 2013 or just within one year.)

These stats bring to mind the comments of economist Dick Netzer when presented with preposterous claims of success by economic development officials (p. 134):

“Who needs oil wells, when a state can be another Kuwait just by increasing the budget of a tiny agency?”

Let me repeat this. This city’s economic development arm (which is now combined with the county, but these stats are city-only) is claiming that the projects they are subsidizing in 2013 will produce almost 5,000 more jobs than the compilers of economic data at the BLS say were created in our entire region by all types of job growth during approximately the same period. (I recognize there is some gross vs. net difference here, but the claims are so entirely out of whack that it does not really matter. I’ll explain further in comments if anyone wants me to.)

A state audit found that the Missouri Quality Jobs Program has claimed to generate almost 27,000 jobs, but in fact had generated slightly more than 7,000. This is the same basic thing. These numbers from the SLDC should be taken with the same grains of salt (and subsidized salt, at that).

The idea that governments should be empowered to take other people’s money to support government-sanctioned, targeted business investments is absurd. Their evidence of government success is, too often, simply made up.

September 9, 2013

On Tax Policy And Iocane Powder

Last week, our friend and fellow blogger Dave Helling at the Kansas City Star wrote a critique of my post about how much accumulated income has left Kansas City and Saint Louis since 1992. Missouri’s urban out-migration, he argues, has less to do with economic environments than it does macro trends of suburbanization and warm-weather retirement. “Inconceivable” assertions on his part? Not at all. But that doesn’t really address the actual policy problems — past and present — that have led people to leave Saint Louis and Kansas City.

Suburbanization, whether between or within states, doesn’t happen in a vacuum. Lots of factors are considered when people decide to move, and among those considerations is taxes. And to be clear, tax policy matters not just when taxes are reduced or repealed, but also when bad tax policies persist. And a bad, bad tax that both Kansas City and Saint Louis have had for a long time is the earnings tax. As our own Joe Haslag concluded in a policy study way back in 2006:

[T]he growth rate in [the modeled] economy where there is no city earnings tax is 1.72 percent, while the growth rate in the economy with a city earnings tax is 1.66 percent. Thus, a city earnings tax results in the growth rate falling by 0.06 percentage points on an annual basis.

That might seem small, but it can result in large differences in the size of the economy. Suppose that the initial value of the economy’s income is $78 billion. (This is the 2002 personal income level in the Missouri part of the St. Louis metropolitan area). After a generation (25 years), the no-tax economy would be $1.78 billion larger than the economy with a one percent tax rate. That is a difference of 1.5 percent.

Indeed, tax policy can be a contributing (rather than motivating) factor in where people live and grow their businesses. Even small tax policy mistakes can be economically destructive for a city — just more quietly and over a longer horizon. If you hurt your city’s capacity to grow economically, you truly hurt your city’s future.

Alas, unlike Iocane powder, it’s very difficult to build up an immunity to destructive taxes over time. And obviously, suburbs developed around Kansas City on the Missouri side as they did on the Kansas side. But the fact that Jackson County lost “only” a half billion dollars of Missouri income to Johnson County before Kansas enacted significant tax cuts in 2012 (and 2013) should be cold, cold comfort to Missouri tax cut opponents. Tax policy was a factor considered in moving from Missouri to Kansas before; it may be the preeminent factor considered today. Where people retire is a thornier proposition bound up with both economic and non-economic considerations, but one thing is certain — Kansas Citians haven’t moved, and won’t be moving, en masse to Olathe, Kan., for its sun-kissed shores. Will they move there for its tax climate? Quite possibly. And that’s the problem.

On a more personal note: I have heard from businessmen and businesswomen across Kansas City about the pressure longtime-Missouri businesses are under to consider a move to Kansas — motivated almost entirely by the new taxing environment there. Businesses already are asking the question, “Is it time to leave Kansas City?” I cannot stress enough how serious their concerns are. How long can Kansas City and the state of Missouri afford to ignore them before risking a plunge off the Cliffs of Insanity?

I’ll Gladly Cost You Your Job On Tuesday For My Pay Raise Today

On Aug. 29, hundreds of fast-food workers in dozens of cities across the United States (including Saint Louis) walked off their jobs in protest. The focus of their discontent is the minimum wage, currently $7.25. Arguing that this wage simply isn’t enough, they demand that their employers increase the entry-level wage to $15.

Economists of all stripes recognize the impacts that imposing such a wage on these employers would have. Most notably, it would reduce the number of jobs available for entry-level, unskilled workers. Dean Baker, co-director of the Center for Economic and Policy Research, a left-leaning think tank that labor unions partly fund, noted on NPR’s Marketplace, “I’m sure you would see a lot of jobs lost.” Even a liberal economist agrees: Raising wages above that which market forces determine is a recipe for job loss.

How do Baker and others of similar views assuage their conscience at this prospect? When a hypothetical job loss of 20 to 30 percent was suggested, Baker responded that the remaining workers would “take home twice as much pay. They’re still way better off.” However, at the higher, artificial wage, fast-food employers will sensibly opt to keep the most productive workers. For the rest, well, they’ll just have to find employment elsewhere or be driven to rely on government assistance.

This episode and liberal support for it recalls an argument that economist John Stuart Mill made almost 150 years ago. Mill staunchly supported the rise of Unionism in England. Mill viewed union workers as the best representatives of the “upright and public spirited working man.” Mill argued that by excluding the “ignorant and untrained” part of the working class, unions benefited society. He believed that “We do them [the unskilled masses] no wrong by intrenching ourselves behind a barrier, to exclude those who competition would bring down our wages, without more than momentarily raising theirs.” Unions, in other words, would drive the unskilled and poor to the wall, reducing their numbers. And with a smaller labor force, there would be no downward pressure on wages overall.

Haven’t we learned anything over the past 150 years? Mill was just as wrong then as supporters of raising the minimum wage or mandating living wages are today. If everyone agrees that imposing wages that exceed those based on mutually beneficial decisions of workers and employers alike leads to increased unemployment for those who need work the most — the poor and the unskilled — how can responsible civic leaders call for further increases in the minimum wage?

August 12, 2013

Opposing Tax Cuts, Supporting Bigger Government, And The Wisdom Of Milton Friedman

Few economists of the 20th Century had as wide and substantive an impact on the political discourse as Milton Friedman. The 1976 recipient of the Nobel Prize, Friedman not only was a student of free-market economics but one of its great communicators, evangelizing the values of the free market in books, on television, and even on blogs. Friedman was a quintessential happy warrior for the cause of economic freedom, remaining active in the movement late into his life and providing clear, principled advice on tax policy to young politicos throughout his later years.

Although I could cite a host of Friedman literature on the subject of taxes, I’d like to just highlight one interview he did in 2003, at the age of 90, with John Hawkins. Asked whether “the Bush tax cuts” were the “right thing” to do, Friedman replied that he was “in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.

The reason I am is because I believe the big problem is not taxes, the big problem is spending. The question is, “How do you hold down government spending?” Government spending now amounts to close to 40% of national income not counting indirect spending through regulation and the like. If you include that, you get up to roughly half. The real danger we face is that number will creep up and up and up. The only effective way I think to hold it down, is to hold down the amount of income the government has. The way to do that is to cut taxes. [Emphasis mine.]

Creep, indeed. Ten years later in Missouri, supporters of Gov. Jay Nixon’s tax cut veto have delivered a parade of horribles about what will happen if the legislature overrides the governor’s veto and Missourians get tax relief. They claim (among other things) that the state will have to leave bills unpaid and cut education, its bond rating will decline, dogs and cats will live together… in short, mass hysteria. No, public education funding won’t be eviscerated by giving the People back their money, and as to the bonds, of course it wasn’t a tax cut that imperiled Missouri’s rating earlier this year. It was … the prospect of new government spending, specifically in the Medicaid program. That’s an inconvenient fact which, in all the bluster about credit ratings, veto/Obamacare supporters hope you forget.

That’s because it’s all interconnected. Missouri’s tax cut opponents don’t want taxes cut because less tax revenue would prevent them from maintaining and growing the size of state government — whether they say it explicitly or not. It was spending, not tax cutting, that imperiled our bond rating this winter. And if I might repeat Friedman’s words here, “The only effective way I think to hold [the government's size] down, is to hold down the amount of income the government has. The way to do that is to cut taxes.”

Friedman was right. If you support smaller government, you support tax cuts. And in my view, if you support bigger government but don’t want to say so, you make excuses instead. I think Missourians are tired of excuses.

July 29, 2013

What Should Crestwood Do?

The Crestwood Tax Increment Financing (TIF) proposal is dead, at least temporarily. Joining it in death is Crestwood Mall, also perhaps temporarily. City officials in Crestwood did the unthinkable and actually questioned the basis for giving large sums of public money to private developers. In return, the developer has reacted to not getting millions of dollars of other people’s money by closing Crestwood Mall (a.k.a. Crestwood Court), and pulling out of talks with the city. That is fine — it is what I would expect.

Perhaps more surprisingly, the city’s urban planning partner, PGAV, has stopped working with Crestwood because, for once, a city didn’t do exactly what PGAV told them to do. Here’s hoping that this example of a city listening to its residents and voters instead of its planning consultants gains a lot of traction.

From a municipal finance perspective, Crestwood’s solution to the closure of the mall is straightforward: join the sales tax pool. As of 2010, Crestwood was receiving $189 per capita for its general sales tax, while the pool cities received about $116 per capita. However, the $189 number has probably gone down a lot since then, and is certainly going to go down fast now that the mall has closed. Joining the sales tax pool is the answer for city finances, both short-term and long-term. Would some services have to be reduced and some taxes raised? Perhaps. But responding to this situation by trying to resuscitate a failed mall with a huge TIF would be insane. Just look at Northwest Plaza to see how that simply will not work.

From the perspective of what to do with the space, that is going to require a commitment to patience and a faith in free markets. Just look at our recent (and now very timely) video about the rejected TIF in Olivette as an example of how good things can and will come without huge incentives if you give it time.

I went to Crestwood Mall plenty when I was younger. I remember its glory days. Those days are not coming back. Reacting to the closure with some huge tax subsidy and more corporate welfare won’t work either. No matter how grandiose the planner’s dreams may be, it does not justify taking other people’s money to give out more corporate welfare. Crestwood officials deserve great credit for their judiciousness so far. Here’s hoping it holds.

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