Tag Archives: minimum wage

One man’s expense is another man’s revenue

It’s difficult to fault them for their effort, but the right wing think tank, NPRI, toes the Friedman Line on minimum wage theory and embraced it wholeheartedly in 2010. [NPRI]

“Nevada voters don’t escape responsibility, either. They put a thoroughly destructive minimum-wage law in the state constitution by a voter initiative in 2006. Thus on July 1 of this year the state minimum wage increased to $8.25 an hour for laborers without health insurance.

Siding with demagogues and ignoring wiser counsel, voters no doubt believed they were helping low-income workers earn a higher wage. But in reality, minimum-wage laws mandate fewer job opportunities for low-skilled workers. Nobel Prize-winning economist Milton Friedman nailed it when he called the minimum wage “a law that is most properly described as: employers must discriminate against people with low skills.” [NPRI]

Unfortunately, there’s no There here.  Leaving the loaded language (demagogues) aside, this has been the corporate complaint since June 25, 1938 when the Fair Labor Standards Act was signed by Franklin D. Roosevelt.  In 1973 Friedman gave an interview with Playboy magazine (the one all the guys bought for the articles) in which he opined “I’ve often said the minimum-wage rate is the most anti-Negro law on the books.” [HuffPo]  Huh? Worse than the Fugitive Slave Act of 1850?   However, herein we have the origins of the mythology so ardently adopted by the radical right.

The mantra, to be recited ad nauseam, is “Minimum wage laws damage the prospects of young, minority, and unskilled workers.” That there is no substantial evidence to support this contention is dismissed because at some ethereal theoretical level the assertion is held to be “common sense.”

Yes, minimum wage level workers tend to be young, under 25, but as noted previously, they certainly aren’t all teens.  A 2012 EPI report debunks this but of ideology concisely:

“One common misconception about minimum-wage workers is that they are mostly teenagers, working part time. In fact, of the roughly 1.4 million low-wage workers who will benefit from Jan. 1 minimum wage increases in eight states, roughly 80 percent are at least 20 years old and 78 percent work at least 20 hours per week. The percentage of affected workers who fit the false stereotype of teenage, part-time workers is a mere 12 percent.”

The second fly in the ideological ointment is that somehow the labor “market” is the best determinant of the value of an employee, without any guidance from government.   At worst, this is a call to return to those wonderful old days when a carpenter in New York could expect to earn $3.49 per day or a machinist in Maryland might expect to average between $2.32 and $2.55 per day. [NBER pdf]

Most of us have a memory of our first, usually minimum wage, job and the attitude of our initial employer — who would have paid us less, but surrendered to the mandate of having to pay us at least the minimum.  Chris Rock spoke for all of us: “I used to work at McDonald’s making minimum wage. You know what that means when someone pays you minimum wage? You know what your boos was trying to say? “Hey if I could pay you less, I would, but it’s against the law.” [GoodReads]

Lost in the rhetoric of the minimum wage dispute is the upward pressure on wage levels by having set a floor beneath which wages cannot be legally justified. Cut through the weeping and clothes rending of those decrying the employment state of minorities and teens, and we’d see the corporate agenda, one in which there is less pressure for higher wages for more experienced or better educated workers because there would be no minimum below which an employer could not retreat.

Further down the drain hole, the loss of a minimum wage level ultimately means that labor is solely an input into the calculation of product or service cost.  Pious speeches about the dignity of labor, the edification of work, or the ‘value’ of our employees are reduced to the simple insertion of an expense in a spread sheet.

Speaking of ad nauseum, how many times has this blog offered the First Law of Personnel Management?  There is NO reason to hire anyone unless the staffing level is such that the demand for goods or services cannot be met with an acceptable level of customer service.  The reduction of an employee to an expense on a spread sheet demonstrates a focus on only one side of the tally.  We could as easily argue that one man’s expense provides another man’s revenue.

The continuation of that thought is simple — and does make demonstrable sense — there can be little or no economic growth without consideration given to the Demand side of the equation.  That which depresses demand decreases the level of growth.  And, what decreases demand? Poverty.

Federal Poverty Guidelines 2014Now, let’s see what this means for some workers in Nevada.  The minimum wage in Nevada is $8.25 per hour, or $7.25 per hour if the employer provides, and the employee receives, health insurance benefits. [BL]

A fast food cook in Nevada, working in our accommodation and food service sector, has a median hourly wage of $9.27.  The median annual wage for this job is $19,280.  A glance at the chart above shows that the wage earner can’t support a family of three — he or she is below the official poverty line.  The average monthly rental lease for an apartment in Las Vegas now stands at $781 per month, or $9,372 or 48% of a fast food cook’s annual median wage.

A department store security guard position has an annual median wage of $24,950, or $12.00/per hour.  This level puts the wage earner on the cusp of the poverty line for a family of four.  A person working as a home health care aide can expect median wages of $12.33 per hour, or about $25,640, insufficient to escape poverty if there are three children to support.  Running the dishwasher in a retail operation? That will yield a median wage of $12.49 for some hot sweaty work, or approximately $25,990 per year. Again, the wage earner can barely support a family of four, and five sinks the ship.

Notice that none of these examples are necessarily of minimum wage paying jobs — the nature of the median being what it is — some are earning above the level reported, and the other half below.  Now, imagine a setting in which there was no floor beneath the wage levels for these common jobs.  If the median annual earnings of a salesperson in a Nevada clothing store stands at $22.430, or about $10.78 per hour — what happens if there is no minimum below which the “labor cost” cannot go?  Our “median salesperson” cannot support a family of four, and is on the edge for a family of three.  Basic utilities in Las Vegas will average $151.21 per month [Numbeo] add that to the average apartment/housing expense and there’s precious little to expend on groceries, transportation, medical, and other household budget items.

A person would have to be singularly obsessed with the expense side of the ledger not to notice that our median salespersons, dish washers, security guards, and fast food cooks, aren’t contributing as fully to the “one man’s expense is another man’s revenue” formula as much as they could were their wages increased.

Not only is the argument that minimum wages “hurt” workers regressive and foolish, but it’s also counter-productive in terms of overall economic growth.

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Heller and the ALEC by the back door minimum wage issue

Heller 2Yesterday’s post concerned Senator Dean Heller’s (R-NV) decision to support the Republican filibuster of an increase in the federal minimum wage, focusing primarily on the economic effects and the number of Nevada workers who might be immediately affected.  However, there was a second element to Senator Heller’s objection to the measure — that the states should be the ones to raise the minimum wage levels in their jurisdictions.   As if they would?

What might prevent a state from opting to increase the minimum wage?  ALEC.

The American Legislative Exchange Council is actively working toward the goal of enacting legislation reducing minimum wages and overtime pay, or stopping localities from doing the same:

“Since 2011, politicians backed by the American Legislative Exchange Council, which has hit the headlines for previous campaigns on voting rights and gun laws, have introduced 67 different laws in 25 different states on the issue.

The proposed laws are generally aimed at reducing minimum wage levels, weakening overtime protection or stopping the local creation of minimum wage laws in cities or states. Using language similar to “model bill” templates drafted by Alec, they were put forward by local politicians who are almost always Republican and affiliated with the powerful conservative group.” [TRS] (emphasis added)

Eleven of those bits of “model legislation” eventually became law, including in New Hampshire, Arizona, and Idaho.  For state legislators not inclined to do their own drafting, ALEC has conveniently provided a piece of fill-in-the-blank model legislation (pdf) for them.  In fact, according to the National Employment Law Project, ALEC is steadfastly opposed to  (1) minimum wage laws, (2) living wage legislation, (3) minimum wage laws for starting workers, (4) increases in overtime pay.  There is model legislation to preempt state efforts in all these areas. [NELP pdf]

However Jeffersonian Senator Heller may wish to sound about “state’s rights,” the design should be reasonably clear — conservative forces backed by deep pocketed corporate sponsors want to eliminate minimum wage legislation, prevent living wage bills, and preempt state and local efforts to enact protections for working people.  So, from the bully pulpit inside the Beltway, Senator Heller is free to pontificate about the desirability of state leadership in this economic realm BUT the practical effect is to toss the issue back into the state legislatures wherein ALEC can work its magic.

Nothing would please the Austerians more than to play the divide and conquer game — happily believing that lower labor costs will entice enterprises into low wage regions.   If, for example, Nevada were to eliminate its minimum wage, then in combination with other states with such draconian statutes, that would create pressure on other states to do likewise in order to be ‘competitive.’  We know this to be a pie in the sky solution because factors like transportation, infrastructure, work force experience and training, and resource availability are essential in the business location formula.  However, it does create the mixture necessary for a race to the bottom in wages and benefits. Just the sort of thing to make corporate revenues whistle and sing to the analysts.

The second problem with this plan is that while labor costs may be a major factor in manufacturing, they are not as crucial in other economic sectors.  We’ve looked at two types of retail operations before (restaurant and grocery); the important element for these small businesses is speed of service.  Long waits and long lines do not profitability make.   The more labor intensive the enterprise the more labor costs will be a factor, and this is illustrated by looking at the labor costs as a percentage of revenue for sole proprietorships, those little businesses the GOP purports to champion.)

The percentage for food service and bars is 36.74%, for agriculture 37.60%, for construction 53.64%, for health care 77.74%, for manufacturing 38.15%, for retailing 19.40%.  [BizStats]  We can drill down into the retail sector and find that the percentages are 20.43% for clothing stores, 13.66% for food and beverage establishments, and 6.48% for gas stations.   Indeed, for all those little sole proprietorship Mom and Pop stores to whom the Republicans appeal for support — the highest percentage never goes above 35%. [BizStats]

If we draw back and look at a large picture of productivity and worker compensation there’s not much to support Senator Heller’s apparent inclination to race to the bottom there either.

Labor productivity, as defined by output per hour, increased in 63% of the 52 service related and mining industries according to a BLS Study (pdf) using 2011 figures.  “Unit labor costs fell in 11 of 47 service providing industries Unit labor costs declined more frequently in industries where productivity rose, as productivity gains offset movements in hourly compensation.” [BLS pdf]

If productivity is increasing and unit labor costs are decreasing, then why would Senator Heller and his allies in ALEC want to eliminate minimum wage laws and prevent living wage legislation?

Let’s hazard the guess that the impetus to get even more productivity (more work per hour) at even less cost has everything in the world to do with Wall Street and not a heck of a lot to do with Main Street.

Nothing so delights the financial markets as the prospect of creating more “shareholder value” by reducing the inputs — reduced costs for materials, reduced costs for fixed assets, reduced costs for depreciation, reduced costs for employee (read: worker not CEO) compensation.  As the lady once said of the turtles:  It’s earnings reports, earnings reports, earnings reports, all the way down to the bottom.  [CarnegieScience]

And there we have it. It’s workers — racing all the way to the bottom, with no federal minimum wage to underpin their economic security — it’s American workers being told that if their counterparts in China are willing to work for $1.74 per hour then they are being “overpaid” here.  And — with Senator Heller’s state’s rights excuse greasing the downward ramp.

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Heller: 0.01% trumps Nevada’s 15%

Heller 2As of 2012 there were some 161,317 workers in the state of Nevada who would be directly affected by an increase in the minimum wage, out of a total workforce of approximately 1.068,842.  Of the 161,317 directly affected 139,064 were aged 20 or above.  [EPI pdf] A bit of punching on the plastic brains (read calculator) shows that 15.1% of Nevada’s workforce would be directly affected, and that 86.2% of these workers were NOT teenagers.

So, why would Senator Dean Heller (R-NV) vote to sustain the Republican filibuster of the minimum wage increase bill in the U.S. Senate? [Senate]

Senator Heller offered two explanations: (1) “Heller’s vote was rooted in his belief the minimum wage should be determined by individual states and not the federal government, “and this particular legislation is no exception,” according to his spokeswoman Chandler Smith.” [LVRJ] (2) “Smith added Heller was persuaded by a Congressional Budget Office estimate that the legislation “could cost our economy 500,000 jobs.” [LVRJ]

Let’s take the second part first — Senator Heller seems to have read one half of the report, or one half of the CBO’s conclusions.  The conclusions created a “mixed message:”  A popular Democratic proposal to raise the minimum wage to $10.10 an hour, championed by President Obama, could reduce total employment by 500,000 workers by the second half of 2016. But it would also lift 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers in an average week.” [NYT]

Evidently, it doesn’t take too much precision to convince Senator Heller to embrace half a report.  He missed the part wherein there were two options ($9.00 and $10.10) and he obviously missed this portion of the text:

In CBO’s assessment, there is a two-thirds chance that the effect of the $9.00 option would be in the range between a very slight increase in the number of jobs and a loss of 200,000 jobs. If employment increased under either option, in CBO’s judgment, it would probably be because increased demand for goods and services (resulting from the shift of income from higher-income to lower-income people) had boosted economic activity and generated more jobs than were lost as a direct result of the increase in the cost of hiring low-wage workers. [CBO pdf]

There’s our old friend “aggregate demand” again, if more workers have more money there will be more demand for goods and services and hence more employment.  Unfortunately, Senator Heller is still locked into his mantra “less regulation, more tax cuts (especially for the 0.01%), “rein in government spending” (unless that means loopholes for corporations), and supporting comprehensive energy policies (read: support the oil and gas giants and the Canadian XL Pipeline).” [Heller]  None of this is substantiated by the conclusion reached in the February 18, 2014 version of the report issued by the CBO. Nor is the conclusion all that solid.

“Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.”

With all due respect to those who toil diligently at the CBO to provide economic analysis, a conclusion that there is a 66% chance of a range of employment displacement from “very slight” to 1 million isn’t all that robust.   However, this seems sufficient to support Senator Heller’s proclivity for hugging his favorite talking points.

At the risk of over-simplifying his position, the core of it is essentially Trickle Down Hoaxsterism with Austerity for All and Prosperity for A Few.   Somehow we are to believe that cutting taxes (especially for the 0.01%) and deregulating Wall Street will “create jobs” … sometime…somewhere.  Meanwhile, social safety net programs are subsidizing the poverty level wages being paid by major corporations. [HuffPo]

Meanwhile back in the real world, and in the state of Nevada — of those 161,317 workers directly affected by an increase in the minimum wage increase 68,247 are non-Hispanic whites, another 54,572 are Hispanic, and 12,957 are African American.  [EPI pdf]

As to the argument that minimum wage jobs tend to be part time, the EPI statistics don’t support that myth either — 81,115 are full time employees.  56,971 are mid-time employment, i.e. from 20 to 34 hours per week, and only 23,230 are actually part time jobs with 20 hours per week or less.    Nor are the people working a minimum wage jobs necessarily “drop outs” — 64,606 are high school graduates, 40,187 have some college or post secondary education, 5,824 have an associate’s degree, 12,051 have bachelor-level degrees; leaving 38,639 with less than a high school diploma or its equivalent.  [EPI pdf]

The notion that when speaking of minimum wage workers we’re talking about teens, females, and drop outs isn’t sustained by the actual numbers, in fact, while there are more Nevada women holding down minimum wage jobs (83,079) there are 78,238 men trying to maintain life on the minimum wage in Nevada. [EPI pdf]

We might summarize by concluding that Senator Heller would far rather support further tax cuts for the 0.01%, and more deregulation of the Wall Street Casino, and yet more “austerity” for those who work for corporations paying below living wages, than he would care to support legislation to support at least 15% of Nevada’s working men and women.

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Work Pay Live?

Want to see what a “recovery” looks like in terms of job openings? Here’s the FRED graph:

Jobs by category 2014 Note the increasing line for total non-farm jobs, and the almost parallel line for total private sector job openings.  What can we tell from the two lines at the bottom — that government employment and jobs in education and health services have not seen the increases indicated in the total job market or in the private sector job market.

What makes the greenish line (education and health care services) line so disturbing is that two health care related sectors — health care support and health care practitioners/technical — are projected to grow by 28% and 22% respectively by 2022.  [BLS]  Education, library/media, and training positions show a projected 11% increase in this decade. [BLS]

As we might expect given a aging population, personal care assistance jobs are projected to increase to 580,800 by 2022, and home health aide positions are projected to increase to 424,200 in the same period. [BLS]  That’s the good news for job seekers, the less exciting news is that personal care aides earn an average of $19,910 per year, while home health aides earn an average of $20,820. [BLS]

The third highest projection for new jobs comes in the retail sales category, 434,700 but with average earnings of $21,110.  The only high projection category which would put an employee in ‘middle class’ territory is that of registered nurses, with a projected need for 526,800 in the next few years and estimated average earnings of $65,470 annually. [BLS]

Federal Poverty Guidelines 2014Unfortunately, what we have here is a situation in which three areas of projected high job growth over the next 18 years (personal aides, retail sales, and home health care) are jobs which would not support a family of four on a single income above the federal poverty guidelines.  The estimated $19,910 a personal care aide is estimated to earn annually would barely keep a three person family at the poverty line.

If we extrapolate the numbers, by 2022 we will have an increased number of home health aides, each earning approximately $20,820.  That’s about $10.00 per hour, or a total contribution of $8,831,844,000 to the national economy.  This sounds nice until we get out MIT’s Living Wage Calculator.

A living wage for a adult + one child in Reno, Nevada is currently calculated at $20.39 per hour. For a family of four it’s about $19.22.  [MIT]  The current estimated wage for home health aides ($10.01/yr) doesn’t come close to either living wage calculation.

How about our retail sales person?  Nationally, we’re projected to need about 434,700 more of them by 2022. The 2012 median wage in retail sales is $21,410 or about $10.29 per hour.  How does this compare to the Living Wage Calculation for Las Vegas, Nevada?  One adult + one child would need an hourly wage of $20.67 and two adults and two children would need earnings of $19.50/hr. The $10.29 isn’t close — again.

There are at least three elements to consider in all these numbers. (1) Those jobs which are now identified as high growth tend to be in low wage positions; (2) Low wage positions don’t meet the Living Wage standards; and (3) If we continue to pay relatively low wages for high growth area jobs then we can reasonably expect to have more families qualify for public assistance.

Oh, but if we raise minimum wages for employees what of the KIDS?  For starters, most minimum wage workers aren’t children. Yes, most young people start out earning minimum wages, however this group only constitutes 19.8% of all minimum wage earners. [BLS table 1]  80.2% of all minimum wage workers are over 25.

If we drill down into the table we find that those “kids” aged 16-19 comprise about 5.4% of the minimum wage workforce, and men over 25 constitute 39.4% of the minimum wage workforce, while women over 25 are 40.8% of that total.   In short, it doesn’t do for us to hide behind the kid’s jeans during any attempt to argue that raising the minimum wage will be “bad for them.”

Well, there’s always that old canard that increasing the minimum wage reduces job growth.  For all the numbers tossed into the speculative pool — the FACTS of the matter don’t match the mythology.

Once more from the MIT economic study:

“Dube’s research looks at the effects of minimum wage differentials across state borders where the minimum wage is higher on one side of the border than the other. His research looks at the service industry, which he said employs the majority of minimum wage workers. According to his findings, both the short and long term effects of the increased wage on unemployment were negligible.”

What does raising the minimum wage do?  The Dube Study looked in that corner as well:

“Finally he added that work done by economists at the Federal Reserve showed minimum wage increase led to significant increases in purchases of durable goods. “From a perspective of stimulating demand, minimum wages will tend to increase demand by increasing the purchasing power of those workers.”

So, on one hand we have negligible impact on employment levels versus significant increases in the purchases of durable goods — which one sounds like a better common sense option?

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Very Basic Business

First Law Personnel Management

For those who’ve been reading this blog for more than a week or so, the admonition above is redundant.  For this I apologize, however since the discussion is trending toward increasing the federal minimum wage level it’s time for yet another repetition.

Forget for a moment all the blather that passes for Business News in the broadcast media.  What the High Flyers are doing on Wall Street makes precious little difference to most of the businesses in these United States.   The Census Bureau tells us that as of 2008 there were 22,614,000 non-farm sole proprietorship businesses in this country, along with 3,146,000 partnerships; compared to 5,847,000 corporations.   Granted that the big money is gathered toward the big corporations, but in terms of sheer numbers of enterprises, 81.5% of the companies doing business in this country are sole proprietorships or partnerships.  [Census 745]

These are precisely the kinds of enterprises which are acutely tuned to DEMAND.   What do most people cut back when times get tight?  If the business in question is a restaurant or movie theater — expect times to get more restrictive, because one of the first things slashed are entertainment expenses.  When wages aren’t keeping up with inflation the economic fall out can be witnessed in a wide range of small business operations from accounting and tax preparation to dog grooming, to dry cleaning, and on to window replacement and home contracting services.

Focusing down on the restaurant business, the profit margins are exceedingly tight.   Low tab operations can expect a margin of about 3%, mid-range tabs yield about 3.5%, but the high end establishments may be functioning on as little as 1.8%.  Those restaurants classified as “limited” service may make as much as 6%.  [HoustonChron]

The Complaint Department

It’s entirely too simplistic to argue that because the profit margin of the hypothetical Pandemic Pizzeria is a tenuous 2% that it cannot “afford” to pay its employees a higher minimum wage.  This complaint works IF and only IF no one else’s wages are increasing at the same time.  After all, it’s the wages of the other people which create the demand for the pizza, no restaurant would ever make a profit selling only to its own staff.

Another overly simplistic complaint is that raising the minimum wage will “cost jobs.”  Stop and think for a moment — don’t most firms, especially small businesses, already follow the first law of personnel management?  I’ve yet to eat in a family owned restaurant in which I didn’t have to be patient for a few minutes before the wait staff could get to me.   The most common expression I’ve heard is, ” Be with you in just a second.”  Thus, I’d conclude that there is no one working there who isn’t engaged in cooking or delivering the food; meaning there are no extraneous staff members.   Now think, what do we do when the wait time isn’t a matter of a few minutes of menu reading — when the wait time is more than 30 minutes?

The prized “speed of service” goal in our hypothetical casual pizzeria is 10 minutes. [FSW] The “sos” time will be longer in a full service establishment, and shorter in a “smoothie shop.”  Slower service (usually a function of being short staffed) cuts two ways: There is a higher probability of lost repeat customers; and, slower table turnover — cutting further into the profit margin.   This concept applies to other kinds of firms as well:

“It might seem obvious to people that raising wages will cause companies to hire fewer people. But not when you think it through. Well-run companies employ the right number of people to handle the demand for the goods or services they produce. They don’t just have extra people sitting around reading the newspaper, who they will lay off if they have to pay a couple of dollars more an hour.

Picture a store with only one cashier and 20 people in line. Pretty soon people get impatient and leave. A sensible manager is going to put the right number of cashiers at the checkout lanes to handle the number of customers in the store.”  [Alternet]

In short, what these examples are attempting to illustrate is the obvious:  Those companies which have hired the right number of people to staff their operations determine the correctness of that number in terms of customer or client service — the foundation of creating a demand for their products and services.  Bottom Line: A well run firm will hire the number of people it needs to meet customer demand at an acceptable level of customer service.

Therefore, we ought to be extremely cautious when reading “studies” of the reactions of business owners who quickly proclaim that increasing the minimum wage would “cause them to not hire people.”  If I ask the question: Do you think you would cut back on hiring if the minimum wage were increased?”  Don’t we all believe that the instant answer would be “Yes?”

However, there’s a difference between the Instant Impression Answer and the hard reality of running a small business, and the difference is — how does the business owner manage customer service?

If the small grocery owner decides its acceptable for customers to be lined up 10 deep at the registers, what happens to his or her trade?  If a restaurant owner presumes that people will sit 30 minutes before an order is taken, what happens to his or her traffic?  If one small contractor can get a bathroom renovated in one week while another with fewer employees can only guess the job will require two weeks or more, who gets the contract?

These aren’t questions which are answered by looking at the wages and benefits of the employees, they can only be addressed as functions of how much demand can the firm create and sustain.

Class dismissed.

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Marching Down The Aisle With Capitalism

The Nevada Progressive nails it in Marco’s Masquerade.  We should have seen this coming, the Republican answer to poverty in America is (drum roll please) Marriage.  Not necessarily marriage for members of the LBGT community, but that good old fashioned march to the altar for the right people.

The Numbers Don’t Add Up

First, if we buy into the Republican stereotypical person in poverty the individual in question would be a single mother and member of an ethnic minority community, which goes absolutely nowhere toward explaining that of the 20% of Nevadan adults who have earnings below the poverty line the gender categories are almost identical. [Kaiser FF] There’s 1% difference.

Secondly, 22% of Nevada citizens living in poverty do not have children, while 17% do.   There is something to the ethnic minority figures.  Of the people in Nevada living with below poverty line earnings 15% are white, 34% are African American, and 29% are Hispanic. [KFF]  However, a better correlation might be established if we were to consider educational attainment levels.   The unemployment rate for those with less than a high school diploma stands at 12.4%,  High School diploma 8.5%, and a professional degree at 2.1%. [BLS]

And the unwed mother mythology?  In 1990, unmarried white women accounted for 57.5% of the births to unmarried women, and unmarried African American women accounted for 39.1%.  By 2008 the numbers had changed with the rate for white women increasing to 67.7% and the number for African American women dropping to 27.9%.  [Census pdf]

Finally, when we look at the numbers, a hard cold fact sets in.  “There are more married parents with incomes below the poverty line than there are never-married ones, and more food-insecure adults live in households with children headed by married couples than in ones headed by just a man or woman.” [CPER]

In short it is more common for adults caring for children on incomes below the poverty line to be married (43% married, 6% separated) than in the homes of 40% of adults earning poverty level wages who have never been married.

Married PovertyNoticing the Obvious — the major cause of poverty is not having enough money.

Yes, young people do tend to be well represented among those paid minimum wages.  Those under 25 years of age make up about 20% of our workforce, but constitute about 50% of those earning minimum wages.  However, that information is only 50% of the story.

49.4% of our hourly wage earners over the age of 25 are working for minimum wages. [BLS]  15% of men over 25 years of age are working for minimum wages, compared to 30% of women in the same age group.  [BLS Table 1]

The cherished myth is that people who start out earning minimum wages in their teens go on by dint of Horatio Alger-like effort (remembering, of course, that he married the boss’s daughter) to Do Great Things.   This is such a good story one hates to diminish it, however reality kicks in all too quickly.  The Council of Economic Advisers (pdf) cautions:

“While the United States is often seen as the land of economic opportunity, only about half of low- income Americans make it out of the lowest income distribution quintile over a 20-year period. About 40 percent of the differences in parents’ income are reflected in children’s income as they become adults, pointing to strong lingering effects from growing up in poverty.”

Capitalism Works, and We Should Let It

The corporate think tanks and their media cohorts are fond of repeating the mantra that raising the minimum wage would be a Disaster, A Disaster I Say, for American capitalism.  Employment will decline! [Forbes]  Except for one nitpicky litte detail — there’s no hard evidence this happens.    The Forbes article cited above goes to great length to offer gloom and doom predicated on the assumption that the corporation must recoup any and all losses to its bottom line (read profitability) by adjustments in productivity.  Interestingly enough nowhere in the article does its author mention the bloated executive compensation packages which somehow do not need to be adjusted to improve corporate profitability.

Forbes opines: ” The Law of Demand always works:  the higher the price of anything, the less that will be taken, and this includes labor.”  Yes, it does. However, a person should be careful here to differentiate between micro and macro economics.   If our hypothetical worker, and that seems to be the main form workers take in financialist-land, works for the Acme Widget Company, and the “cost of her labor increases,” Acme may have to adjust, but Acme isn’t where she shops for groceries.  Or, where she purchases her car. Or, where she buys clothing and furniture.   The increased wages (or, increased labor costs) become part of our old friend Aggregate Demand.

Firms cannot pay a worker more than the value the worker brings to the firm.  Raising the minimum denies more low skilled workers the opportunity to get a job and receive “on the job” training.” [Forbes]  Yes they can, and they do.   One of the prime reasons employers are anxious NOT to have high levels of employee turnover is that training is relatively expensive.   No worker, from the bottom to the top, is worth on day 365 what he was worth on day 1.  If the firm is managed rationally, then it is assumed that experienced personnel are more valuable than the rookies, and therefore more valuable — and they all started out as rookies.   Interesting, this “worker value” argument never seems to emerge when Wall Streeters speak of executive retention bonuses?

If it did, we might hear some business pundit say the unimaginable, “We can’t give more executive retention bonuses because this will deny less experienced or skilled people the opportunity to receive on the job training.” I’m not holding my breath waiting to hear that one on some business cable channel.

Capitalism could work very nicely.  If we’d let it.

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Filed under Economy, Politics, poverty

It Can Happen Here: Corporate Welfare and Nevada Jobs

NV Food Service Jobs WagesThe eligibility level for SNAP benefits for a family of four is estimated at 130% of the federal poverty level ($23,550).

“A household is defined as a person or a group of people living together, but not necessarily related, who purchase and prepare food together. Households, except those with elderly or disabled members, must have gross incomes below 130 percent of the poverty line. All households must have net incomes below 100 percent of poverty to be eligible. Most households may have up to $2,000 in countable resources (e.g., checking/savings account, cash, stocks/bonds). Households with at least one member who is age 60 or older or a member living with a disability may have up to $3,250 in resources.” [SNAP]

The median wage reports from NV-DETR should be interpreted to mean that half the employees in this job category fall below the annual income in the second column.

And the point of all this?

The point is quite simply, we don’t get to have it both ways.  We can’t continue to employ people at wages which make them eligible for public assistance and then expect not to have to pay for the public assistance to help (as in the case of SNAP) to put food on the table for their families.   The second point is that this isn’t a situation that occurs in some highly generalized national way — it’s right here in the Silver State.  Worse still, it’s happening in the most prominent sector of the Nevada economy — hospitality and food service.

And so, we get stories reporting a McDonald’s employee being advised to seek public assistance by her employee resource hotline. [BusinessInsider] A study finds that over one half of Wal-Mart’s employees make less than $25,000 per year. [BusinessWeek] It’s already been reported that one Wal-Mart in Wisconsin could cost taxpayers some $900,000 including such “subsidies” as Medicaid, home heating assistance, reduced price school lunches, and Section 8 housing assistance. [HuffPo]  These and other stories led one columnist to call Wal-Mart the new “Welfare King.” [Salon]

Why Do The Welfare Kings Worry?

Inflation.  There is nothing a lender (banker) likes less than inflation. Even the prospect of inflation causes the vapors.   Thus, the banker’s political allies offer such bromides as the following:

“Where would the money come from to pay minimum wage workers a higher rate of pay? It would come from the customers of those businesses. When the cost of doing business rises, those businesses have to raise the prices of their products. This happens across industries and across the economy. The end result is inflation. Workers are making more money, but that money is only buying what their former wage purchased.”

Sounds right, but … the issue at the present is that wages aren’t keeping up with current levels of inflation, much less drive any inflation.  [CSMonitor] Even if we calculate that the full cost of the wage increase is passed along to customers, the research doesn’t support the contention that a wage-price spiral will ensue from improving the minimum wage:

“Past research on how business costs rise with minimum wage hikes indicates that a 10-percent minimum wage hike can be expected to produce a cost increase for the average business of less than one-tenth of one percent of their sales revenue. This cost figure includes three components. First, mandated raises: the raises employers must give their workers to meet the new wage floor. Second, “ripple-effect” raises: the raises employers give some workers to put their pay rates a bit above the new minimum in order to preserve the same wage hierarchy before and after minimum wage hike. And third, the higher payroll taxes employers must pay on their now-larger wage bill. If the average businesses wanted to completely cover the cost increase from a 10-percent minimum wage hike through higher prices, they would need to raise their prices by less than 0.1 percent.” [BTFE]

However, nothing seems to alleviate the never-ending terror of the financial sector (banks) that something will cause the dollars they lent to customers will be repaid in dollars of slightly less value (inflation).

…even if this costs us more to sustain the individuals and their families hired at current minimum wage levels. Out of Our pockets.  Not to put too fine a point to it, but American taxpayers — including Nevadans — are being asked to subsidize corporations which do not pay living wages to their employees, at the same time those corporations and banks are demanding that the federal government reduce its expenditures for social safety net programs.

If lower income workers are feeling like they are in a Grand Bind — it’s because they are.

*Annual median wages are not included because the levels of wages do not include earnings from tips.  The Nevada minimum wage for tipped employees is $8.25 per hour.

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Filed under Economy, Politics

Rep. Amodei’s Reverse Economics: It’s the Inequality

Amodei 3The U.S. House of Representatives had an opportunity to increase the minimum wage from $7.25 per hour to $10.10 by 2015, and it declined to do so on a 227-184 vote.  Representative Mark Amodei (R-NV Outback) and Representative Joe Heck (R-NVTeaParty) both voted against the increase.  Representatives Horsford (D-NV) and Titus (D-NV) voted in favor of the amendment. [roll call 174]

We can use a few charts to demonstrate why the Republican thinking on the subject of raising the minimum wage is counter-productive during an economic recovery.  Before launching into the graphics, a simple reminder is in order.  The only thing that encourages employment is DEMAND, i.e. there is more demand for an item or a service than current staffing levels can meet with acceptable levels of customer satisfaction.  There are few ways to increase demand.  Demand can be mandated, such as the requirement that individuals purchase private health insurance policies if they don’t already have such insurance in place.  Demand can be generated by allowing tax incentives, such as the deduction allowed on home mortgages.  Demand can be enhanced by creating a “must have” product.   However, there are limits to these three basic demand elements.

The limit is INCOME.  As we’ve seen during the debate over the health care reform issue, we can mandate that individuals purchase health insurance from private corporations, but if they cannot afford it then provisions have to be put in place to augment their financial capacity to do so.  Likewise, all the home mortgage deductions in the world won’t assist the housing market if the homeowners are unemployed or become under-employed such that they can no longer afford the payments.   There are numerous “must have” products and services on the market — but, people are also willing to “get by” without them if the price of the new product or service is beyond their reach.  Smart Phones are wonderful items, but for  a household straining on income from minimum wage jobs they are “might someday have,” rather than “must have now” products.

Now to the charts.   Atlantic published some handy charts related to how income is currently be distributed in the United States, and this first one illustrates where that income is going as well as any:

Cumulative change total economy

If productivity is increasing, then what happened to the income that is supposed to be generated? “Where did the gains from productivity go? Well, they went to the top. Household income, adjusted for inflation, has grown 12X more for the top 1% than for the middle 20% … and 24X more than the bottom 20%.”  [Atlantic]   Imagine that spending (demand) is like dragging a weight in order to get to the retail counter.  A person in the top 1% of all income earners in the U.S. has a weight 12X lighter than the Middle Class Americans in the line, and 24X lighter than the burden for those in the lower income categories.   The problem is that as of 2012 there were approximately 1,699,000 households in the United States with income above $250,000 annually, out of 114,761,359 households in total.   This works out to about 1.48% of the households in the nation seeing an increase in their income while the other 98.52% are looking at stagnating or decreasing incomes.   Here’s what the result looks like from one of the Atlantic business section charts:

cumulative change real annual income

This isn’t healthy.  Nor is it well explained by reverting to vague grandstanding about this is “America,” or we want “freedom.”  Or, isn’t “Liberty” nice?  Demand isn’t an abstraction. It IS the cumulative result of all the daily economic transactions we make in the course of our mundane lives.  How much to spend in the grocery store?  Do we need new clothing? How many pairs of jeans will the kids need this year?

How does the minimum wage look in this context? “In 1964, the minimum wage was about 50% of the average worker’s hourly earnings. By 2011, that figure fell to 37%.” [Atlantic]  In short, in 1964 those earning minimum wages had more “buying power” than they do now.  Buying Power = Demand.

So, what Representatives Amodei and Heck are telling us in roll call vote 174 is that they see no need to address the increasing variance in income across economic lines, and they see no need to increase the purchasing capacity of American workers.   They give every appearance of clinging mightily to the comforting mythology of Voodoo Economics, in which a consumer based economy is to be supported by real transference of wealth to the upper 1.48% of American households who will “invest” in “jobs.”   The Republican screeds about “re-distribution of wealth” as a form of Socialist-Commie Plot to Destroy America are a distraction from the real re-distribution of wealth which is now eroding the purchasing capacity of America’s middle and lower economic classes and destroying our consumer based free market economy.

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Filed under Amodei, Economy, Heck, Politics

Heller’s Platitudes on a Platter: With Charts and Pictures

Heller 2Quick! Someone get some valid economic information to Senator Dean Heller (R-NV) before he embarrasses himself again.

“The nomination of Jack Lew to be Secretary of the Treasury suggests that this Administration has learned nothing from the debt-driven economic policies of the past four years, and intends to move forward with more of its signature tax and spend policies.

“As the architect and defender of the President’s irresponsible budgets amid grave economic circumstances, Mr. Lew has failed to demonstrate the leadership and commitment to responsibility that this country needs in its chief economic advisers.

“While I respect the fact that Mr. Lew has remained a public servant for many years, I cannot support the nomination of an individual who does not share my commitment to treating taxpayers’ dollars responsibly,” Heller said. [RGJ]

Let Us Parse:

“….debt-driven economic policies of the past four years…”  OK, Senator Heller isn’t expected to be reading all the articles in every economic and business magazine and journal, BUT he could at least look at the pictures in Forbes.  We Repeat:

Obama spending forbes chart

Now what does the headline, “Slowest spending in decades,” tell us?

…signature tax and spend policies…   Here’s a heads-up for everyone. There are basically two things to do with tax revenues: (1) spend the money for government services, or (2) utilize the funds to reduce the federal debt.  However, if you’ve been reading this blog even for a short while, you know that already.

Of all the GOP talking points, the elderly “tax and spend” bumper sticker shorthand is the most hoary, and least accurate.  For example, the last time we had a budget surplus it was during a Democratic Administration.   Notice that the annualized growth in federal spending stood at 3.2 and 3.8 during the Clinton years.  Notice what it did during the two Administrations of George W. Bush, during the “Credit Card Conservative” years?  Those numbers are 7.3 and 8.1, even if the 2009 stimulus is assigned to the Democratic Obama Administration.

Secondly, during any recession, and we had a whopper when the Housing Bubble exploded all over the economy in 2008, government spending increases when AUTOMATIC STABILIZATION programs kick in to soften the damage to our economy.  Unemployment insurance benefits, food stamps (SNAP), and similar stabilization programs prevent recessions from becoming depressions.   The Tax Policy Center explains:

“Automatic stabilizers are features of the tax and transfer systems that tend by their design to offset fluctuations in economic activity without direct intervention by policymakers. When incomes are high, tax liabilities rise and eligibility for government benefits falls, without any change in the tax code or other legislation. Conversely, when incomes slip, tax liabilities drop and more families become eligible for government transfer programs, such as food stamps and unemployment insurance, that help buttress their income.”

Why keep repeating this basic bit of modern economics? Because it seems to have escaped Senator Heller and other radical conservatives, who believe that if we simply reduce taxation on the wealthiest Americans investment in domestic business enterprises will magically increase even if consumers don’t have the financial wherewithal to increase the demand for goods and services.

“…As the architect and defender of the President’s irresponsible budgets amid grave economic circumstances…”  There are several problems with this analysis, aside from the fact that it is vacuous and vague.  First, I thought one of Senator Heller’s complaints was that we don’t have a budget…that we haven’t passed a budget…that we are operating without a budget? [NPR]

Heller No Budget

All right, the President is functioning with numbers from the 2011 Budget Control Act, the response to the GOP threat to shut down the federal government in the debt ceiling fight of 2011, and the source of the Silli-quester we’re now engaged in.   So, is the “out of control” spending a function of the Congressional act of passing the Budget Control Act?

Frankly and bluntly, the phrasing adopted by Senator Heller is nothing more than a repetition of the Tax and Spend mythology from the first paragraph of his statement.   And, now to the second point.

What grave economic circumstances? For Whom?

Is he talking about economic activity in terms of the U.S. financial markets?  If he is then someone needs to get him a newspaper.  Here’s the graph of financial markets as measured by the S&P 500 for the past five years:

SP 500 march 2013

For reference, the index was at 683.38 as of March 2, 2009.  An 831.03 increase (or 121.606 % increase) in the S&P doesn’t signal anything “grave” to me about the health of our financial markets.  So, if a family’s income depends on investments then the past five years have been anything but “grave.”

If, however, ones personal wealth doesn’t come from investments, then indeed, the picture isn’t quite so pleasant. Consider the following information from The State of Working America (pdf).

Change in Wealth

Those reports about most of the increase in the nation’s wealth going to the upper echelons of American economic elites are accurate, and not only are they accurate they follow a pattern beginning in the 1980s in which the rich start becoming yet richer while the percentage going to the bottom 80% of the U.S. population begins to trend downward.

And, it’s not only wealth distribution which is increasingly headed toward the top, it’s income as well.  During the recovery we’ve seen most of the income going to about 15 counties in the United States.  [Forbes] Forbes has more:

“Galbraith’s not the only one who feels that way. Here’s the free market apostle Alan Greenspan in 2007 admitting that “you cannot have a market capitalist system if there is a significant mood in the population that its rewards are unjustly distributed.” Notice please the notion “unjustly distributed” from one of the policymakers who made it so.”

So, at this point it might be wise to ask if Senator Heller and his Republican colleagues in the U.S. Senate might be amenable to suggestions regarding how to devise a more just distribution, one in which more American consumers could be encouraged to support our manufacturers and retailers by spending more money?

The Real Questions

Does Senator Heller understand that, as discussed previously, aggregate demand and Gross Domestic Product are essentially the same thing?  And, that a reduction in government spending means the reduction in spending for everything from personnel costs to paper clips? From aircraft carriers and armaments to thermometers for food safety testing?  Some companies are manufacturing and selling these products — thus if orders decline so does our GDP.  [See more here]

Would Senator Heller and his associates agree with legislation to increase the minimum wage?  If you really want to put more money into more people’s pockets this is the easiest way to do it.  We can assume he would not be in favor of this remedy because he voted against raising the minimum wage in January 2007.  [H.R. 2 Fair Minimum Wage Act 2007, vote 18]

Since most of the wealth for those not earning most of the family income in the financial markets is tied up in the family home, would Senator Heller support measures to bolster the value of family residences and to help families facing foreclosure?  Judging from his voting record, it doesn’t seem so.  Senator Heller’s on record opposing the Home Affordable Mortgage Program (2011), and opposing modification to bankruptcy laws to help homeowners avoid foreclosures (2009). [OnTheIssues] Nor could he even find it in his conscience to support funding affordable housing renovation in “severely distressed public housing.” [OnTheIssues]

The Real Answers

Contrary to popular thinking among Republicans it really is possible to be Pro-Business and to also consider the needs of shareholders and consumers.  Being Pro-Banking doesn’t necessarily mean a person is Pro-Growth.   Growth, as former Federal Reserve Chairman Greenspan came to understand by 2007, requires a vigorous consumer base, which in turn requires protection for those who work in our factories and provide our services.  Consumers and shareholders do not benefit from policies which further exacerbate wealth and income inequities, nor do they benefit from policies and legislation which undermine the faith in our free market system.

Protecting the incomes of the economic elite does precious  little to prevent economic instability for the majority of American wage and salary earners.  Protecting the economic elite can never add to the total wealth of a nation as much as adding more willing participants in our markets…our housing market, our retail markets, our automotive markets, or in any other market.

In short, Senator Heller’s platitudinous palaver and vague rhetoric is bumper sticker speak obscuring the very real economic issues and the very real economic answers we should be discussing.

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Filed under Economy, Heller, Nevada politics

Late Night Recommended Reading Roundup

Newspapers glassesThe Nevada Progressive connects the dots in “The Secretive Climate Denial Campaign in Our Backyard.”  The AFP connected to the NPRI, the NPRI connected to the Tea Party, the Tea Party connected to the Republicans, now hear the Words of the Koch Brothers!  Highly recommended reading.

Stay tuned to the Sin City Siren for information about the upcoming Las Vegas, NV hate crime event.  Calendar marking information for those in the area here.

Talk about a business tax is waning in the Nevada Legislature; In case you missed it,  The Nevada View has a good summary, complete with a must see chart on taxation in the Silver State.  Buzzlzarownd discusses tax topics in the current session of the Assembled Wisdom.

L’Affaire Brooks  is covered in the Nevada State Employee Focus blog, and there’s more from Steve Sebelius at Slash/Politics.

Yes, there’s a big difference between deficit and indebtedness, and the Nevada Rural Democratic Caucus blog makes this clear while providing some ammunition with which to push back against the Republican’s Tocsin in regard to the Great Big Horrible Debt Which Will Consume Us Faster Than An A Speeding Meteor… or something.

Speaking of Things Financial:  Begin with the post on Crooks and Liars  about the depredations of HSBC; then proceed to “Call the Waaambulance!” for C&L’s observations on the bankers’ pearl clutching fainting couch landing after being assaulted, I say Assaulted, by Massachusetts Senior Senator Warren.  The Huffington Post describes the whining from Wall Street. Now, read the New York Times article concerning the $35 million settlement agreed to by a mortgage firm that was involved in a six year scheme to prepare and file perhaps a million (or more?) fraudulently signed documents.   Unsettling huh?  If you aren’t sufficiently annoyed by the corporate cavorting over the U.S. tax system — read “The Loophole Lobby.”

What is it that scares Republicans even more than the thought of increasing the minimum wage?  Politicususa has the answer.   And, then there’s the Tennessee Congressional Representative, who during a nostalgic tale of How I Grew Up Self Sufficient Making The Minimum Wage inadvertently made the President’s point for him.  Oh, and by the way, back in the days of the Bush Administration there were 65 Republicans pushing for an increase in the minimum wage. Who’da thunk it.

Then they went on vacation — The Congress is on vacation — again — meanwhile the Violence Against Women Act re-authorization sits awaiting action in the House.  Meanwhile, a prosecutor in Detroit is spearheading efforts to tackle the huge backlog of untested rape kits in police storage.

No, radical gun enthusiasts — Chicago is NOT proof that reasonable controls on guns don’t work.  Look at the Chart.

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Filed under Politics