An overlooked argument in the minimum wage debate is that a high minimum wage gives big businesses an artificial competitive advantage over their smaller competitors. As I noted recently:
When states are considering hiking their minimum wages, big companies like Walmart routinely lobby in favor of the increases. They know that while they can afford the extra payroll, the mom-and-pop store down the road might not be able to. Advantage: Walmart.
As if on cue, the Huffington Post reports today that Costco CEO Craig Jelinek came out in favor of increasing the minimum wage to $10 per hour, even higher than President Obama’s proposed $9 per hour. The article notes that Costco has a reputation for paying its employees very well, and would be mostly unaffected by such an increase.
Who would be affected? Costco’s smaller competitors, who would have to raise prices and/or trim their workforces to make payroll. Advantage: Costco.
Given how popular minimum wage increases are with non-economists, Jelinek stands to reap some good PR for Costco from his announcement. And maybe he really believes that a minimum wage hike would be a net good for the working poor. But another plausible explanation is rent-seeking — using government regulations to gain artificial competitive advantages (and profits). And that’s something a struggling economy could do without.
President Obama set off quite a debate when he proposed raising the federal minimum wage from $7.25 $9.00 per hour. Minimum wage hikes poll very well, especially among progressives. Over at the American Spectator, I argue that progressives should look elsewhere for ways to help the poor:
Then there is the matter that high minimum wages help big businesses at the expense of smaller competitors. When states are considering hiking their minimum wages, big companies like Walmart routinely lobby in favor of the increases. They know that while they can afford the extra payroll, the mom-and-pop store down the road might not be able to. Advantage: Walmart.
Just because a progressive proposes a policy doesn’t mean that the policy is, in fact, progressive. A high minimum wage causes regressive income redistribution.
Read the whole thing here.
Have a listen here.
Severe drought in the Midwest has driven corn prices to record levels. Policy Analyst Brian McGraw argues that ending the federal government’s ethanol mandate could help families who are struggling to pay their heightened grocery bills. Under the mandate, nearly 40 percent of this year’s corn crop will be used for fuel instead of food.
In this morning’s CEI Podcast, my colleague John Berlau predicted that the new price cap on debit card swipe fees would lead to the end of free debit cards and free checking. He pointed out that while this is an unintended consequence, it is also entirely foreseeable.
It didn’t take long for that prediction to come true. Bank of America just announced that it will start charging its debit card users $5 per month. They are not the only ones:
JPMorgan Chase and Wells Fargo are testing $3 fees for debit cards in select areas, and Citibank recently announced it is raising its fees for checking accounts. Janney Montgomery Scott analyst Thomas McCrohan said last week that Visa and MasterCard, the top two debit card companies, may increase drastically increase (sic) fees on small purchases to offset the losses.
Have a listen here.
Every time you use your debit card, the merchant has to pay a fee to the company that issued your card, usually about 1 percent of the purchase price. On October 1, that price will be capped by law to 21 cents. John Berlau, Director of CEI’s Center for Investors and Entrepreneurs, explains the unintended consequences that will hurt consumers, merchants, and banks alike. John has written on interchange fees for The Wall Street Journal, Investor’s Business Daily, The American Spectator, and other outlets.
Steven Landsburg uncovers a whopper. Take a look at this graph for a second. Pay special attention to the right-hand y-axis. Then click on over to Landsburg’s blog post to find out what’s wrong with it.
Posted in Economics, Fun with Statistics, Price and Wage Controls
Tagged afl-cio, earnings gap, labor, organized labor, pay gap, statistical dishonesty, statistics, unions, wage gap
This letter of mine ran in today’s New York Times in response to Paul Krugman’s July 4 column.
To the Editor:
Paul Krugman is at a loss to explain why some people oppose extending unemployment benefits. One reason people hold such an opinion is that when government subsidizes something, there tends to be more of it.
The more government subsidizes unemployment, the more people will indulge in it for longer periods of time.
Washington, July 6, 2010
The writer is a journalism fellow at the Competitive Enterprise Institute.
Posted in Correspondence, Economics, Price and Wage Controls, Publications, Spending
Tagged new york times, ny times, paul krugman, subsidies, unemployment, unemployment benefits, unintended consequences
Teenage unemployment is 25.5% — an all-time high, and nearly triple the general unemployment rate.
Maybe the fact that the minimum wage has increased three years in a row has something to do with it. Why would an employer hire someone unless they produce at least what they’re paid?
A lot of younger people have little experience and no marketable skills. Such things take time to develop. Until they do, they will remain unattractive hires unless they can be paid what they’re worth. Minimum wage laws, of course, make that illegal in many cases.
Another case of good intentions gone awry.
Posted in Economics, Price and Wage Controls
Tagged econ 101, Economics, economics 101, good intentions, jobs, minimum wage, price controls, regulations, teen unemployment, unemployment, wage controls
The minimum wage is going up for the third year in a row, effective today. The new wage floor is $7.25 per hour.
Young people with little or no work experience may not be able to offer $7.25 per hour worth of productivity; no wonder so many of them are having trouble finding summer jobs. They have to be paid more than they are worth. Wage floors reduce the number of jobs.
Alex Tabarrok also explains why minimum wage laws are inherently anti-competitive. Some employers support wage floors, which is surprising at first glance.
But suppose a company has higher labor costs than its competitors. If they can’t cut their own costs to compete, why not just pass a law to increase their rivals’ costs? Tabbarok also observes, “This is why unions have typically been in favor of the minimum wage even when their own workers make much more than the minimum.”
Lost jobs and a less competitive economy, in other words. And minimum wage hikes still routinely poll at over 80% in favor. One of life’s mysteries, that.