Category Archives: Labor Economics

Are teachers underpaid?

Are teachers underpaid? No. That’s not to say there aren’t individual teachers that should be paid more, just as there are assuredly individual teachers that should be paid less (or fired). But the “national conversation” that is being continually pushed (from the left mostly, e.g. see recent Time Magazine spread on “underpaid” teachers) is not so much about worthy star teachers being passed over for raises but rather how the collective known as “teachers” is “underpaid”; identity politics now driven by profession. With credulous acceptance the public will always answer in the affirmative if asked should teachers be paid more because what we have been conditioned to hear instead is, “do these benighted souls deserve more for their selfless work?” With “more” being the unmoored comparative there is no upper bound for “worth.” Their salaries could double every year and every year if asked, “should they earn more” we would nod our heads in bobble-head synchrony.

Please do not misunderstand dear reader, teachers do indeed provide an important service to their fellow man – just as does every other working person. How do we know this? Well, if you earn a salary or income, then that demonstrates how much value you produced. Work in and of itself is not valuable – just ask the guy making mud pies all day – no one is going to pay him a dime (sorry Marx, labor theory of value was laid to rest long ago). The “hardness” of your work is irrelevant – only the result counts. Work is only valuable when subjectively judged to have value by fellow human beings, that is, an offer to trade parts of your work for theirs is made. Value is subjective and not absolute. When people say “teachers should earn more” I always wonder, “ok, what is the mathematical formula that is used to solve for pay of a teacher?” You may believe that teachers serve a more valued role in society than say the movie star or the lawyer, but the distribution of talent in society says otherwise. Labor, like any other economic good, is subject to the laws of supply and demand. The issue with teacher’s pay is summed up nicely in the following quote from the Time article,

“Hutchison’s siblings—an attorney, engineer and physical therapist—all earned graduate degrees, but now she makes half of what they do.” 

Hutchinson (the teacher) makes half of what her siblings make because her siblings all chose careers that are in much greater demand than that of the public school teacher. The path to becoming an attorney or engineer is long and arduous and very few have the skillset to complete it. The supply is thus low and it so follows that demand (and thus pay) will be high. On the flip side is the path of teacher; most people possess the skillsets needed to teach (after getting a 2 year teaching degree). It is an “easy” career (relative to other more highly paid careers), and so that low barrier to entry means many will take up that profession – supply is thus high and so demand (pay) will (all things equal) be lower when compared to professions with limited supply.

Because we are mainly focused on public school teachers this introduces either unions or the regimentation of a public sector workforce structure into the wage equation. In these systems wages are based primarily on seniority rules and have little to do with how effectively one performs their job. Being government run, raises will typically trail inflationary trends (inflation being 100% caused by the government mind you!) due to slow to act legislatures.

A more market-based approach (where teachers could be rewarded directly without concern for the “seniority” of others) would realize the top teachers earning top salaries, thus incentivizing those in other high paid professions to switch careers (if their preference had been for teaching). The end result of this process would be highly paid teachers dominating the profession and driving out the weak or ineffective teachers. If two teachers making $125k each can “out-teach” the same number of students as five teachers making $60k each, then it would be a win for the students, the teachers, and the taxpayer. If we want teachers to make more then let’s unshackle the profession’s public sector regimentation and union demands that maintain a status quo of oversupply driven by the politics of envy.

Can Buy Me Love

There is something eerily similar to the behavior of politicians competing for votes and that of divorced parents competing for the love of a child. There are two strategies deployed in this endeavor. Tear your competitor down with insults or build yourself up through gifts. With either approach there is little daylight between Democrats and Republicans. With Trump’s recent speech directed at working women we see that the difference between Democrats and Republicans is in degree, not kind. Both are quite willing to violate the rights of the individual upon the altar of compulsory collectivism, because you know, feelings. Trump promises six weeks of paid leave for working women. Clinton promises twelve weeks of paid leave for anyone caring for someone. Why so stingy though? It’s not their money after all. Why not promise a year of paid leave? Or two, or ten? Oh, that’s right, because of course we all know there are thresholds of cost that no business could bear. Let’s be reasonable after all. So in the pursuit of reasonableness our wise overlords-to-be dial back the burden-meter until some, but not all, business could manage to survive. Since only 12% of companies currently provide paid family leave we can draw the reasonable conclusion that this is a fairly expensive benefit. Were it not expensive then naturally every business would provide it (duh). And what adjective describes somebody that can afford really expensive things? That’s right: wealthy! So what kind of sorting might we expect to see if a large expense is imposed on large and small businesses alike? That’s right – smaller businesses will shut down leaving only the larger wealthy ones behind. Likewise the (artificial, government imposed) barrier to entry for new competitors will be so high that none will pass. I can almost understand Trump proposing this. As a large business owner it confers a competitive edge to his corporate interests. But the Democrats, those supposed champions of the “working men and women” leading the charge against the evil one percenters, they are in fact giving those ultra-uber rich businesses the greatest benefit imaginable: eliminating sources of competition. The irony is I’m sure Bernie would have supported a similar mandate while remaining blind to the fact he’s helping the very businesses he decries.

Such mandates further the goal of augmenting dependency on the state by slowly dissolving agency of the individual. The state views the employee as being too weak and stupid to make the best decision for themselves. If an employee would prefer more pay and less leave time, that’s not allowed. If an employee would prefer a higher wage in exchange for flexible working hours, that’s not allowed. If an employee would prefer having a job at lower wages vs. having no job at all, that’s not allowed. Mandated paid family or maternity leave is no different than a mandated minimum wage (i.e. price fixing). All benefits boil down to a monetary cost. If you mandate paid leave (the seen benefit), then you’re going to have to pay for it by subtracting from somewhere else (the unseen loss). That could be the rollback of non-mandated benefits, smaller bonuses and raises, or fewer workers hired. The last is most insidious as it leads to increasing unemployment despite no one losing their job. It further increases the work-load (and stress) on existing employees. When that happens many would gladly trade a lower wage for a smaller workload and less stress – but – that’s not allowed because children can’t make those sorts of decisions. Only the parents – the state – are wise and responsible enough to make those kind of decisions. Thank you wise and omniscient Dear Leader.

 

Capital Day

Labor Day, according to the US Department of Labor is “dedicated to the social and economic achievements of American workers” and as a “national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.” While true, there is a major missing component in this tribute: capital. Show me a worker laboring without any contributions from capital and I’ll show you naked primitives feeding off berries and dead carcasses. Every advance in the standard of living is built on a foundation of both labor and the deferred consumption (capital creation) that permits the creation of tools to augment laboring efforts. Holidays should be deployed to remind the populace of that which normally escapes public notice. This is exactly why we need a “Capital Day”. Although capital surrounds us, it is too often ignored, like the air we breathe, and like air, our society would be dead without it.

The fact that most of you are now probably scratching your heads and wondering what possible role capital has played is all the more reason to have such a holiday. Yes, workers perform the labor needed to drive the engine of commerce, but they do not do so in a vacuum. Who paid for the building that they work in? The equipment and tools they use? Their wages? No one asks these questions. It is somehow assumed these are exogenous resources simply laying about waiting to be donned by the heroic laborer.

No, they are not manna from heaven. The capitalist provides them by virtue of having deferred consumption and thus saving resources. That savings (capital) allows them to pay others to build the tools needed to enhance the capacity and efficiency of the worker in their role as laborer. The machinist creates multiple cars in a day using tools, the material handler moves tons of goods with a forklift, the office worker performs millions of operations a day with their computer, and so on. And when done performing those tasks the workers are paid long before the revenue generated from their labor returns to the capitalist – paying someone for their service so far in advance of revenue generated from that activity necessitates that money, capital, be saved and available. Without capital every newly hired worker would have to wait weeks or months before receiving their first paycheck.

The market capitalist (as opposed to the cronyist political capitalist who partners with government in order to gain advantage) risks all. For every success, dozens more fail and lose everything. Capitalists are not mere fat cats earning a living off the sweat of the laborer – no, they play an important and vital role just as the laborer does. They provide and coordinate the resources needed by laborer to actually labor. It is a partnership, but one where one partner is honored, while the other is at best perplexingly ignored or at worst, reviled. Let us never forget the importance of both, here’s to Capital Day!

Dear Mr. President

The White House recently posted an “Email from President Obama: An Update on Overtime” on the whitehouse.gov website. For some reason I was not on the distribution list for that e-mail. Had I been, here’s what I would have said:

“I wanted you to be the first to know about some important news on an issue I know you care deeply about: making sure you’re paid fairly.”

By “make sure” do you mean men with guns will insert themselves into the employer-employee relationship and substitute your notion of “fairness” for ours?

“Tomorrow, we’re strengthening our overtime pay rules to make sure millions of Americans’ hard work is rewarded. If you work more than 40 hours a week, you should get paid for it”

So people that are paid a salary aren’t paid for their work? That’s news to me. Last time I checked a salary covers ALL hours worked in a week, whether that is 25, 35, 40 or 60.

You do realize that there are two sides to this equation – sometimes a salaried worker may work 50 hours in a week and sometimes they may work 30. Regardless, they are paid the same amount each week. Oddly all the focus has been on the hours above forty worked but not on those that have the flexibility to work fewer hours when needed. Over time these fluctuations averages out to a level that satisfies both the employer and employee. There are benefits to both parties to being salaried. Salaried employees have an incentive to work as efficiently and productively as possible. If productivity exceeds both parties’ initial expectations, that can then become the basis to negotiate a raise. But, if one is not allowed to work more than 40 hours in a week (something many employers will now do to mitigate the cost increases) it becomes that much more difficult to justify a higher wage.

People who earn a salary take some measure of pride in that fact; punching a clock is seen as something teenagers do, not professional adults. Earning a salary means your employer is putting their trust in your ability to accomplish the necessary tasks without constant micromanaging. But overtime laws gag the employer and make it illegal for them to treat some employees as adults – they have no choice but to infantilize them with a “non-exempt” (hourly) classification. We (Seachem) have employees that are presently salaried but who stand to lose that status with this coming change. They view it as a demotion. I hope that they, and millions like them, do understand that it is you (and your progressive ilk) that is doing the demoting, come Election Day.

It is peculiar that some businesses can legally sell their wares at a flat rate (cell phone service, gym memberships, satellite TV, all you can eat buffets, etc.) but those who sell their labor are not afforded that same measure of autonomy. It’s almost like the government thinks individuals don’t have the capacity to make the “right” choice and so require a paternalistic helping hand.

“or get extra time off to spend with your family and loved ones.”

No, no you can’t. Read your own statutes Mr. President. What you just described is called “comp time” and that is illegal under the FLSA. At least for private employers and their non-exempt employees it is. “Public” employers are free to engage in this practice. I guess private employers are not as enlightened as their public brethren and so can’t be trusted to fairly give time off in lieu of extra hours worked even if that is what the employee wants.

“It’s one of most important steps we’re taking to help grow middle-class wages and put $12 billion more dollars in the pockets of hardworking Americans over the next 10 years.”

Right, instead of raising taxes on the employer directly, we’ll just raise them indirectly by finding another way to compel businesses to redistribute even more of their profits (wages are on average four-times the size of net profit) to those that bore no risk in earning them. Remember; when a business loses money employees still get paid. But when a business makes money employees expect even more money. Heads I win, tails you lose.

But that $12 billion figure is a pipe dream. These overtime rules changes will not raise worker income anywhere near to what you believe. To the extent it does raise it for some, it will be at the expense of others that are either laid off or that can’t be hired because too much of payroll is going toward paying excessive overtime. What this rule change will do, however, is ensure that America becomes less and less productive as businesses opt to send employees home at 40 hours. Payrolls will remain the same but output will decline. Although this is effectively a raise (the same money for less work) it actually harms both parties. The employee, being constrained to only 40 hours, is now in a weaker position to demonstrate their value. Likewise the employer realizes less output for the same amount of money. On net for the country less work will be done, growth will slow down and we’ll all wonder why the private sector appears to operate more and more like the Post Office or DMV.

Capital investments, which propel improvements to productivity, are the natural method to improve workers’ standard of living. Productivity gains translate into more goods for the same amount of work and income. Effectively everything becomes cheaper and thus more affordable. But these gains have all but been eroded by 40+ years of inflation wrought by the duopolic partnership of the Federal Reserve and Federal Government.

“But after years of inflation and lobbyists’ efforts to weaken overtime protections, that security has eroded for too many families”

Inflation is a 100% government phenomenon. The US Treasury issues bonds to prop up annual budget deficits. The Federal Reserve buys those bonds (directly or indirectly through open market operations) by using money literally created from nothing. More dollars equals more inflation, and the cycle continues year after year. If the government is serious about ending wage and benefit erosion it has the power to end it by ceasing all inflationary policies. It really is that simple.

“One of the many Americans who has been working hard but struggling to keep up is a single mom from Tucson, Arizona, Elizabeth Paredes. As an assistant manager at a sandwich shop, Elizabeth sometimes worked as many as 70 hours a week, without a dime of overtime pay.”

Seen benefit, unseen harm. You really should read more Bastiat. For every worker that benefits thousands more will be harmed by lost jobs, fewer hours, or simply not being hired in the first place. Forcing her employer to pay her more makes about as much sense as raising the minimum wage to $50/hour because you found a single mother with ten children who can’t get by working for $8/hour.

If someone wants to earn more money, then they should enhance their skills and find a new job. Dissatisfaction with low-skill wages is like buying a home by the airport and then being upset about the noise. Demanding changes to overtime or minimum wage laws would then be like adding new noise regulations that would make air travel cost more for everyone; concentrated benefits for some, increased costs for everyone else. Don’t ask others to pay the penalty for your choices.

“When workers have more income, they spend it – often at businesses in their local community – and that helps grow the economy for everyone.”

It is unclear why the economy would grow more if an employee spends money vs. the employer. Is the purchase of one set of goods “better” for the economy than another? I presume this line of reasoning comes from the flawed Keynesian notion that it is consumer spending that drives the economy. This viewpoint of course ignores the fact that consumers can’t buy anything until businesses/employers have first spent money on hiring employees, building plants, opening stores and so on. Consumer spending rests on the bedrock of business spending which itself lays on the firm foundation of savings. The lower the profit, the slower the savings, and thus everything else built upon it. Consumption does not grow an economy. Only savings and investment into capital goods will do that by making it easier to produce more goods with less effort. That is what improves the standard of living for everyone.

“Americans have spent too long working long hours and getting less in return. So wherever and whenever I can make sure that our economy rewards hard work and responsibility, that’s what I’m going to do.”

The fact that a thief can improve his standing at the expense of his victim(s) does not justify thievery as a legitimate means to improve one’s condition. Employers and employees have come to mutually beneficial arrangements that both parties agreed to. The employer is free to fire the employee and the employee is free to quit. No one is forcing these arrangements. There is no rational basis to suggest a disinterested third party has the right to interject themselves in these negotiations and supplant their judgment for the judgment of both parties.

When you remove choice from either party you rob them of their agency to live as independent, free individuals. In short, you turn them into de facto children. We are not children Mr. Obama. We are free men and women. Let us live our lives as we see fit, not as you do.

Being a Jerk at Work is a Human Right, Says Labor Board

The National Labor Relations Board (NLRB) recently told T-Mobile that its policy against workplace incivility is illegal. Nope, say the bureaucrats: workers have a right to be surly on the company dime.

The Huffington Post crowed about the ruling in a recent post. The article’s title, “Your Employer Can’t Force You To Be Happy,” betrays a fundamental misunderstanding of the meaning of “force.” The only one employing force in this situation is the NLRB. The only victim of force is T-Mobile. If T-Mobile refuses to comply with the administrative law judge’s order, eventually men with guns would come and haul its executives off to jail.

You Keep Using that Word

For the record, neither T-Mobile nor any employer uses men with guns to compel people to continue working for them. The confusion here stems from a flawed colloquial use of the word “force.” The situation called life requires that we eat, which in turn requires that we work to earn an income to acquire food. That darn Mother Nature forcing us to work! By the same token, if your attitude puts you in a situation where you can’t easily find another job, then that makes your employer the bad guy. Apparently anything asked in pursuit of maintaining that job is a use of force against you.

These are not monstrous expectations.

The employer-employee relationship should be an entirely voluntary one. To the extent that is untrue today is almost universally to the detriment of the employer. Employer rights (that is, the natural right to form mutually agreeable contracts) are severely restricted by an avalanche of labor laws, rules, and regulations.

Rules run the gamut from merely annoying (pay frequency standards) to debilitating (lawsuit risks when firing someone for performance reasons because they happen to be a member of a “protected class”). Somewhere in between is the difficult task of setting even basic conduct standards for employee behavior because of the intractable minefield that is the National Labor Relations Act.

The NRLA guarantees to all employees (irrespective of union membership status) certain “rights,” chief among these being the right to engage in any and all behavior that is conducive toward forming or joining a union. Anything that could remotely be construed to restrict this right is verboten and can earn the employer the label of “criminal”.

Even a rule as simple as stipulating that company resources can only be used for company business is disallowed on the grounds that employees have a right to use company resources to communicate with each other about working conditions. Apparently suggesting employees communicate after hours and using their own e-mail accounts or photocopiers is simply too much of a burden. I mean, who has access to phone service or printers at their house these days?

Government has given an official imprimatur to poor customer service.

The recent NRLB ruling similarly struck down several provisions of T-Mobile’s employee handbook that it viewed as being too restrictive with respect to employees’ organizational rights. Among these included a rule “prohibiting employees from arguing with co-workers, subordinates, or supervisors; failing to treat others with respect; or failing to demonstrate appropriate teamwork” as well as requiring employees to “maintain a positive work environment by communicating in a manner that is conducive to effective working relationships with internal and external customers, clients, co-workers, and management.”

These are not monstrous expectations. People actually want to work in places where management discourages acting like a jerk.

The head-splitting logic employed by the NLRB “judge” is as follows. If an employee is unhappy about work conditions, he or she has the right to externalize that unhappiness to co-workers and customers.

The Right to Treat Customers Poorly?

Being “forced” to cover up unhappiness, in this view, would be tantamount to disallowing their right to free expression of their anxiety over work conditions. This raises the question: what if the employee woke up on the wrong side of the bed? This has nothing to do with working conditions. Surely that is not a protected activity. How are we to differentiate the two?

Government has given an official imprimatur to poor customer service. In a way it makes sense. Government workers are infamous for their ill tempers (think the DMV). But if bureaucrats are able to propagate their own sullen attitudes toward work and service throughout the private sector, they won’t look so bad in comparison.

There is an old workplace humor poster that stated, “Sometimes the best solution to morale problems is just to fire all of the unhappy people.” Let’s start with the scowling faces in government before they make us all as miserable as they are.


Greg Morin

Greg Morin is the CEO of Seachem Laboratories which manufactures equipment and chemicals used in the maintenance of saltwater and freshwater aquariums. He holds a PhD in chemistry from the University of Notre Dame and maintains a personal blog at gregmorin.com .

This article was originally published on FEE.org. Read the original article.

You can lead a horse to a carousel, but you can’t make him eat a free lunch

A persistent myth in this country is that even though the government may do things we do not approve of, We the People ultimately have control of the reigns. We elect representatives, senators, and a President and it is they that decide how this country is run. So the theory is that if we don’t like what they do we can “vote the bums” out. That Congress’ approval rating is perennially in the low teens and yet incumbents are re-elected at a rate exceeding 80% speaks volumes about how successful that strategy has been. However, the dirty little secret is that most government functions originate not from elected officials but rather faceless bureaucrats who write, approve, and enforce what is known as “administrative law.” This process proceeds quietly in the dark underbelly of Washington, completely immune from “outsider” (that is, “the peoples”) influence. Like the static animals and chariots of a carousel, the unchanging bureaucracy provides support to our elected officials, who come and go like so many children believing they are driving when in fact they are merely passengers.

Case in point: The Department of Labor. Last month President Obama announced that the Department of Labor would be implementing a doubling of the white-collar salary threshold for overtime exception to $50,440. Although there is a request for comments period from the public, ultimately none of that really matters. The DOL committee voting on the change is in no way bound by those comments. President Obama knows that getting a minimum wage increase through Congress is likely to fail. However he can unilaterally ramrod a change to the overtime rules with little oversight if he employs the autonomous rule making authority of the DOL. Such changes do not require a new law or public debate. Only a handful of bureaucrats need to simply decide “ok, let’s just change this” and that’s it.

The shockingly sad part about all of this is not so much that a handful of people get to substitute their personal opinion of acceptable work conditions for the opinions of 120 million employees and employers but rather that they actually think this change will, in the words of Obama “help promote higher take-home pay… and shore up the middle class.” You can lead a horse to water, but you can’t make him drink. These people seem to labor under the fairy tale that employers are just sitting on a big pile of cash that they selfishly refuse to share with their employees. So to rectify this we need the government to step in and force them to share. Employee wages are a business transaction just like any other. Each transaction is negotiated between both parties to a level that is acceptable, otherwise were it not acceptable there would be no exchange. If these transaction costs are externally forced upward then employers will respond just as anyone else would, cut back in other areas to compensate.

There is no free lunch. Newly overtime-eligible employees will find their base hourly rate decreased so that at the end of the year they still have made the same dollar figure. Employers will also cut back on discretionary bonuses and benefits or simply cut back on hours so that there is no overtime. This will force such employees to become more efficient with their time and those that can’t will find themselves demoted or unemployed. Another way employers may respond is to reduce the number of managerial positions, which ultimately makes it harder for people to climb the corporate ladder into solidly middle class wage territory.

Another aspect often overlooked by the ivory tower elite is that many employees do not want to be classified as overtime eligible. A job requiring clocking in and out is viewed by employees as a job that is “not important.” Somebody with a college degree making $45k a year feels demeaned if they are told they must now clock in and out like some pimply-faced fry cook. Being on salary is a point of pride for these employees who feel they have worked quite hard to earn that status. That the government is now condescendingly informing them that this is for their own protection reflects the magnitude by which those in government are out of touch with the real world. As with all government interventions, conditions are made worse, not better. Employees either lose benefits and bonuses, get demoted, or end up making the exact same as before but not without first being made to feel less important due to their new status as “just” hourly.

Job! 2016

With the 2016 Presidential election season in full swing it seems nearly every candidate (from far right Trump to far left Sanders) is falling all over themselves to do “something” about illegal immigration. Problem is, the top three economic reasons cited in favor of “closing the border” are utterly fallacious despite their unquestioning acceptance by the media and voters alike.

 

Fallacy#1: Immigrants force wages down making Americans poorer.

Reality: Wages have two parts: a money part (the number) and a real part (the buying power). The money wage is arbitrary and irrelevant because all that matters is the real wage – how much that arbitrary amount will buy. Lower money wages (like lower prices) reflect a concomitant increase in production and should be welcomed. Yes, the money wage is lower, but there is more “stuff” available to buy at lower prices than before, thus real wages increase. Where would you rather live, in a town with a population of ten or one thousand? How much more must everyone work to produce everything needed in the town of ten vs the town of one thousand? Many hands make light work – on this principal alone we should be welcoming more, not fewer, immigrants into this country.

 

Fallacy#2: Immigrants steal jobs.

Reality: This fallacy is rooted in the mistaken notion that “jobs” are a form of fixed resource welfare. It views jobs like soup at a soup kitchen; there’s only so much to go around (see Fallacy#3 below). This view sees jobs as a completely one-sided affair when in fact it is of course a mutual exchange; you can’t be “stealing” if you are giving something in return. So jobs “given” to immigrants are not welfare – they produce something in exchange. Ah, but you say a job “given” to an immigrant was thus “stolen” from an American. This rests upon the assumption that there is some ideal level of workers and we must not exceed that. Well if that is true than how can we have this totally unregulated system of childbearing in this country? There is no control over how many children are born and who ultimately enter the work force only to “steal” jobs from other Americans. Should we restrict births in order to ensure just the right amount of jobs in this country? Shall we soon face the specter of the “illegally birthed”?

It is not possible to “steal” a job because one cannot own their job. The term “stealing” is a red herring that misdirects us into thinking a crime of sorts has been committed when in fact the real issue is one of competition. Competition lowers prices or increases quality. Normally we welcome that…when we are the buyer of a good. But when we are the seller, well then the story changes doesn’t it? Immigration control is simply another flavor of protectionism intended to limit competition. It is no different than tariffs or other import restrictions. The seen benefits accrue to the sectors of the economy so protected (whether that be agriculture, steel, or labor) while the unseen harms inflicted upon the consumer paying higher amounts are ignored.

 

Fallacy#3: There are only so many jobs so more immigrants means fewer for everyone else.

Reality: Jobs are unlimited. They are unlimited because humanity will never quench its desire to alter the world. We create our own jobs when we perform work for our own benefit. Others can create jobs for us if they are allowed to save that which they do not consume (profit) and use it to entice others to perform work on their behalf. Since the creation of jobs by others is a direct function of the amount of money they have saved and the amount of money saved is a direct function of profit, then it follows that decreased profit (through higher taxes or costs) will necessarily reduce the quantity of jobs at a given money wage. If one could pay any wage that both parties agreed upon there would be no limit on the quantity of jobs available. Jobs could be doubled overnight if everyone paid one-half the prevailing wage.

Now you may be aghast in horror at the thought of making one-half what you do now. And therein lies the problem. We have becomes so fixated on the money wage we ignore the reality staring us in the face, which is that with twice the number of people employed, output would increase far beyond two-fold (owing to the synergy of combined resources). Honestly, would you really care if you made one-half the money wage you do today if it bought five-times as many goods than your current wage does?

 

The blind spot that infects every conversation about immigration vis-à-vis jobs is this central fact: we are all buyers and sellers in the economy. You cannot simultaneously protect yourself as a seller without harming yourself as a buyer. Decreasing money wages, when driven by the competition originating from increased production, are reflective of a necessary growth in real wages.

Paddling Upstream

“We kept losing our men, they kept escaping from the factory life from a pesthole–till we had nothing left except the men of need, but none of the men of ability.” Atlas Shrugged, Chapter 10

 

This quote from Ayn Rand’s “Atlas Shrugged” highlights the ultimate outcome of a “to each according to his need, from each according to his ability” pay scale at the fictional Twentieth Century Motor Works. That this novel has been so eerily prescient on so many topics is a testament not so much to Ms. Rand’s prose but rather to her ability to recognize cyclical patterns that emerge in society due to those that succumb to ideas driven by emotion rather than reason. One of the most common fallacies is to conflate the value of one’s humanity (which is equal for all) with the value placed on what one produces. It is an easy error to make; after all it certainly seems “fair” that if two people work equally long and equally “hard” they deserve equal remuneration. Even though this fallacy (the labor theory of value) is easily overturned by considering the case of a mud-pie baker in comparison to an apple pie baker, it continues to infect the minds of all too many. When our leaders are infected with this nostrum, their position of power permits them to spread the damage far and wide. Governmental implementations of this idea include the minimum wage coupled with welfare. Such policies with one hand make it illegal for those with low experience or skills to work while with the other hand pays those same people to not work, crushing their spirit and the motivation to improve themselves.

Private implementation of this idea is more rare, but it does happen. The most recent and well-publicized example is that of Gravity Payments located in Seattle. The company’s CEO, Dan Price, apparently took a page from Atlas Shrugged and announced they would implement a new $70,000 minimum salary pay scale (that’s a $33.65 minimum wage).

Those on the left predictably rejoiced at this news – here was someone finally doing privately what they have been insisting for so long government must force everyone to do. Irrespective of who implements such a plan (public or private) it is doomed to failure on psychological grounds. The first signs of that failure harkens back to the Atlas Shrugged quote above – “we kept losing our men.” Early on two of Gravity Payment’s key employees quit citing the inequity of a pay scale they saw as rewarding the least productive at the expense of the more productive. Like a talent sieve there is nothing to retain or attract the more productive employee when it is need, and not effort, that is rewarded. Likewise, like an anti-talent magnet only those with the lowest drive and skillset will be attracted, for where else could they have any hope of earning such a high wage?

The irony here is that Mr. Price started his company in order to provide the lowest cost alternative in the payment processing industry. He saw others charging too much and he knew he could do the same for less (that is, be more efficient and hence more productive). Now he claims he will not raise prices in order to support this new wage scale (he’s already lost some customers over this fear). But, it seems, if he is going to be consistent it would be perfectly acceptable to raise prices and lay a guilt trip on his customers if they were reluctant to pay the higher rates. After all, his company “needs” the money to pay his employees who “need” their high wages.

Wages, like everything else, are a function of supply and demand. Demand is a function of the subjective valuations humans place on things. Supply is a function of the uneven distribution of varying talents. We can no more expect uniformity in wages than we can expect solidarity in opinion or an equal distribution of talents. One can paddle up stream only for so long; eventually nature will overpower our feeble attempts to counter to it.

Substitute Band Leader

President Obama unwittingly invoked dramatic irony during his recent state of the union address. For those unfamiliar with this less common definition of irony I provide herewith a definition: “dramatic irony: a literary technique by which the full significance of a character’s words or actions are clear to the audience or reader although unknown to the character.”

He opens his speech with, “Tonight, after a breakthrough year for America, our economy is growing and creating jobs at the fastest pace since 1999.” For now we’ll ignore the dissembling in that remark (faster growth has actually occurred 4 times since 1999 – in 2010, 2006, 2004 and 2000). Later in the speech he then remarks that, “we’re the only advanced country on Earth that doesn’t guarantee paid sick leave or paid maternity leave to our workers.” Again, not entirely accurate – Canada and Japan also do not.

However, the point of irony here is that while he praises the capacity for the American economy to foster vigorous job growth he is entirely oblivious to the fact that the rate of productive job creation (that is, not busy-work jobs) scales with the level of freedom of the individual to pursue their own ends, unmolested by meddling third parties. And being so oblivious he then calls for yet another layer of regulation that is guaranteed to retard the very job growth he praises.

More individual freedom translates into more opportunity, but less freedom, by way of a mountain of inscrutable regulations, increases the net cost of hiring. Given a fixed source of funds, one has no choice but to buy less of something if its cost goes up. The President seems to be under the impression that wages are derived from a bottomless pot of money kept at company headquarters, the disbursement from which is artificially limited by Monty Burns-style corporate bosses. Companies, unlike the government, can’t steal or print their money; they have to actually earn it by giving the consumer something they want.

Just as with his perplexing proposal to zero out the tuition of community colleges he is once again answering a question no one is asking. He claims 43 million workers have no access to sick leave. Since he doesn’t cite his source it’s unclear if that number would be reduced if we included workers that are permitted to substitute vacation time when sick. Nevertheless, this certainly sounds like a lot of people. Let’s parse it out. Using data drawn from the government’s own Bureau of Labor Statistics (bls.gov) we find total employment for 2013 averaged around 143 million. We also find that 75% of full-time workers and 23% of part time workers had access to paid sick leave. That’s about 93 million with such access. If we are to be impressed with the President’s figures, we should be doubly so impressed with this one. However the weedy details are not nearly as interesting as the game he is playing. He is imitating quite well his political predecessors who also sought to take credit for something the market had already brought about. He would like nothing more than to step in front of the ongoing parade and pretend it was following him all along.

Market forces have independently, and in the absence of government coercion, expanded access to an economic good that employees demanded: paid sick leave. In 1950, 46% of full-time workers had access to paid sick leave. In 1970, 51% did. By 1992 that number had risen to 58% and then by 2012 to 75%. A similar narrative can be found for other “we only have this because of government” myths, such as the 5 day, 40 hour work week, ending of child labor, or worker safety.  All improved over many decades long before politicians got involved and passed “laws” that simply memorialized what was already common practice.

The growth of such benefits is akin to the steady growth of stock dividends. Both increase at a steady pace because the growth in human ingenuity (leading to greater productivity) is an incremental process. We didn’t go from the steam engine to the integrated circuit overnight. Productivity enhancements accruing from incremental improvements in mechanical capital take time. As a society and an economy becomes more productive it becomes more able to afford things it could not afford in the past, like paid sick leave, paid vacations, or paid maternity leave. In 100 years our economy may be so productive it is literally only necessary to work 1 day a week. So if government is the true source of all that is good and fair in the world, why don’t they pass a law now capping work to 1 day a week? Because even they know that will fail. It is much more expedient to find something the market has already nearly achieved and swoop in at the last minute in order to take full credit. Perhaps their next act will be to pass a law mandating the sun rise each day. Isn’t law just grand?

If you have the right to work…

What is hypocrisy? Hypocrisy is a chain smoker that proselytizes on the dangers of smoking. Hypocrisy is an outraged thief discovering he’s been robbed. Hypocrisy is the state taking away our rights and then warning us to be vigilant against those that would deny us our rights. Or perhaps that is irony – I’m never really sure on that one. This past week my family and I stopped into an Arby’s for a quick dinner. Hanging on the wall adjacent to the registers was the most patriotic looking DHS labor rights poster you will ever see (red, white and blue with an overt flag theme to top it off). It was one of those silly “workers rights” posters that the government forces employers to post in effort to ensure that employees everywhere are aware that without the helpful fist of the state they’d all be earning 5¢ an hour on 16 hour shifts. Over the years these posters have grown in size from a mere 8.5×11 sheet to blockbuster movie poster sizes. I don’t know if this particular Arbys posted it where the customer’s could read it because they wanted their clientele to know they are doing their patriotic duty to keep them ‘ferners from stealing our jobs or if they simply ran out of wall space in the back.

In any event, what caught my eye was the prominent byline, “IF YOU HAVE THE RIGHT TO WORK, Don’t let anyone take it away.” That most people absorb this without comprehending the underlying violation of their rights is a masterful stroke of state propaganda. It first takes root within our public school system and is then nourished over a lifetime of exposure to popular media state-apologist indoctrination. People now blindly accept that our rights come from government. Most have the Bill of Rights backwards; it did not establish our rights, it simply delineated what was already ours to begin with. This enumeration was done in order to keep at bay those who believe that all that is not permitted is outlawed (a view clearly contradicted by the 10th amendment).

So at the very first word, “IF,” we find evidence of an egregious violation of a basic human right: the right to work. There can be no “if”; all humans, everywhere and always have the right to work. To work is to provide for oneself (or those in your care) with those things that make life possible (food, clothing, shelter). To deny this right is tantamount to murder. Of course by “right” I mean that in the negative, not positive, sense. No one may interfere with my right to work, however no one is obligated to provide me with a job either. If no one will (willingly, free of state interference) employee me then I am free to work for myself.

The sentiment expressed on this poster transmutes this negative right into a positive one through mere fiat, that is, the right to work becomes the privilege to work, a privilege that may only be granted by the state. So naturally once the state has given you something valuable, they want to foster a sense of dependency and gratitude by warning you to remain vigilant against those who might try to do the very thing (deny work) the state is doing through their E-verify program.

This is where the hypocrisy gets really rich. The big concern about all of these “illegal” immigrants is that they are coming here and acting as a burden on our social safety net. But, if they had jobs they would not be a burden. So naturally the response is to make it impossible for them to obtain jobs by filtering all potential employees through the E-verify net thus thrusting them into the open arms of state social support. Brilliant. E-verify does not change behavior; it merely removes the least bad option and replaces it with an even worse option.

Even if you are in the “keep them out” anti-immigration crowd, do you really desire to see America become a neo-fascist utopia where employers are mere puppets of the state? Where providing for oneself depends on the integrity of a US government database that is assumed to never produce false negatives? Where we have become so xenophobic that we willingly turn our borders into prison walls and slowly transform America into a permission based society, where all is forbidden except that which is blessed by the state? Is that price not too high?