Is there only one way for wages to go up?

While I have followed Vox Day for several years, and respect him and his work, a recent post of his shows that he has an incomplete understanding of economics.

Putting together the post’s title and its beginning, he argues thusly:

The only way to raise wages [i]s to reduce the supply of labor. American workers can only benefit from the elimination of labor visas, increased limits on immigration, and stepped-up deportation, as evidenced by the response of Maine businesses to a “shortage” of H-2B visas.

Before addressing the article to which Day refers, I want to address the categorical manner in which he says wages can be raised.

Why do wages go up?

I agree that the methods Day cites will raise wages for American workers. For example, there has been increasing evidence that American companies have abused foreign worker visa processes to bring in lower-cost workers, at the expense of qualified yet higher-cost American workers.

However, I would like to think Day recognizes that this is not the only way to raise worker wages. In fact, through free markets, capital accumulation and higher wages go hand in hand. As Ludwig von Mises explains in Human Action:

In the capitalist society there prevails a tendency toward a steady increase in the per capita quota of capital invested. The accumulation of capital soars above the increase in population figures. Consequently the marginal productivity of labor, wage rates, and the wage earners’ standard of living tend to rise continually. But this improvement in well-being is not the manifestation of the operation of an inevitable law of human evolution; it is a tendency resulting from the interplay of forces that can freely produce their effects only under capitalism.

In other words, in the near term, it certainly makes sense that restricting the supply of labor will lead to its price going up. However, as time passes, there is a symbiotic relationship between capital accumulation, labor productivity, and wage rates. The less interference to that relationship, the better for everyone involved.

Now that I’ve discussed how wage rates go up, I turn to the article to which Day is referring.

Maine businesses scramble for seasonal workers

Day points to a Daily Caller report, indicating that Maine businesses are scrambling to find local workers because of a shortage in foreign guest workers.

Businesses in Bar Harbor, Maine are turning to locals to make up for a shortage of foreign guest workers that normally fill summer jobs in the bustling seaside resort town.

Because the H-2B visa program has already reached its annual quota, Bar Harbor’s hotels, restaurants and shops can’t bring in any more foreign workers for the rest of the busy summer tourist season. Like hundreds of similar coastal resort towns, Bar Harbor has for many years depended on the H-2B visas for temporary workers. The program allows non-agricultural companies to bring in foreign labor if they are unable to find suitable employees domestically.

Now they are coming up with creative ways to attract local labor, reports the Bangor Daily News.

The Bar Harbor Chamber of Commerce will hold a job fair Saturday in an effort to recruit significant numbers of workers from the region. Just about every kind of business in the town is looking for help, says chamber executive director Martha Searchfield.

“All types of businesses — retail, restaurants, the tour boats, all the trips, everything. All types of workers are needed,” she told the Daily News.

The shortage is so acute that companies are sweetening incentives for local workers. Searchfield says some businesses are offering flexible schedules that might appeal to older workers who might be interested in working only a day or two each week. And other companies have gone so far as to offer higher wages to entice locals.

Day, of course, applauds the situation.

That’s not a problem, that’s an indication of a solution. As long as tens of millions of Americans remain unemployed, there is absolutely zero net benefit to the economy or to American workers from immigration. All immigration accomplishes is to increase income inequality to the advantage of very large US corporations and the financial class that caters to them.

While I do not necessarily disagree with this, I also think that Day’s analysis is incomplete.

In addition to immigration, another key reason for high unemployment has been the disastrous drive across the country to raise the minimum wage.

Fortunately for Maine residents, its legislature developed some common sense and withdrew a previously-passed increase:

Last November, the Maine State Legislature voted to raise the minimum wage for restaurant servers. Then in mid-June, they voted to lower it back down.

And lots of Maine’s restaurant workers were thrilled.

The minimum wage for tipped workers in Maine is half that of the state’s regular minimum wage ($9). It’s called the “tip credit” rule, as it allows employers to take a credit of up to 50 percent from their employees’ wages, because servers will generally make that money back (and hopefully more) in tips. If tips and wages, together, don’t equal the state’s minimum wage, employers are required to make up the difference.

State Senator James Dill, a Democrat who initially voted to raise wages, told the Washington Post that after the Nov. referendum passed, he received “hundreds” of calls and emails from servers who were worried about their livelihood.

As a result, Dill threw his support behind a Republican measure to return the “tip credit” rule. After passing through the Senate on June 7, the bill was brought before the House on June 13, where it passed with a vote of 110-37.

Maine Governor Paul LePage signed the bill into law last week. It will go into effect 90 days after Legislature adjourned, reports the Bangor Daily News.

Restaurant workers wanted to retract the increase for two reasons.

[S]ervers were worried about the ramifications of the new laws for two reasons: first, that it would force employers to raise prices on their menu items, which could affect their current tips; and second, and perhaps more importantly, that employers might be forced to cut servers’ shifts as a result.

Preventing the minimum wage from rising encourages businesses to hire unskilled workers. Combined with competing with fewer foreign workers, lower-skilled Maine residents should have had a better shot at finding a job this summer:

Firms faced with minimum wage laws often substitute skilled for unskilled labor. In a report for the Show-Me Institute, labor economist David Neumark offers an illustrative example: Suppose that a job can be done by either three unskilled workers or two skilled workers. If the unskilled wage is $5 per hour and the skilled wage is $8 per hour, the firm will use unskilled labor and produce the output at a cost of $15. However, if we impose a minimum wage to $6 per hour, the firm will instead use two skilled workers and produce for $16 as opposed to the $18 cost of using unskilled workers. In the “official data” this shows up as a small job loss — in this case, only one job — but we see an increase in average wages to eight dollars per hour in spite of the fact that the least skilled workers are now unemployed.

This summer, it’s looking good for Maine residents who were otherwise prevented from working. Immigration abuse and a lower minimum wage is allowing them to find jobs.

In the long run, however, an unhampered free market allows capital accumulation and higher wages to coexist.

 

U of Washington study shows the minimum wage isn’t working in Seattle

For decades, liberals have been under the illusion that raising the minimum wage magically raises incomes for poor people. Unfortunately, unless one slept through Econ 101, one cannot help but recognize that raising the minimum wage helps only a portion of the working poor, and keeps the marginally productive out of the workforce.

Seattle was one of the first cities who noisily proclaimed the dawn of a new era for the working poor by gradually raising the minimum wage in that city to $15 an hour. However, a new study by University of Washington economists shows statistically what ought to be obvious logically.

When Seattle officials voted three years ago to incrementally boost the city’s minimum wage up to $15 an hour, they’d hoped to improve the lives of low-income workers. Yet according to a major new study that could force economists to reassess past research on the issue, the hike has had the opposite effect.

The city is gradually increasing the hourly minimum to $15 over several years. Already, though, some employers have not been able to afford the increased minimums. They’ve cut their payrolls, putting off new hiring, reducing hours or letting their workers go, the study found.

The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study, conducted by a group of economists at the University of Washington who were commissioned by the city. The study, published as a working paper Monday by the National Bureau of Economic Research, has not yet been peer reviewed.

On the whole, the study estimates, the average low-wage worker in the city lost $125 a month because of the hike in the minimum.

The reaction among liberal “economists” (a phrase that I’ll address later) has been swift, primarily because past statistical studies have shown presumably the positive impact from raising the minimum wage.

The paper’s conclusions contradict years of research on the minimum wage. Many past studies, by contrast, have found that the benefits of increases for low-wage workers exceed the costs in terms of reduced employment — often by a factor of four or five to one.

“This strikes me as a study that is likely to influence people,” said David Autor, an economist at the Massachusetts Institute of Technology who was not involved in the research. He called the work “very credible” and “sufficiently compelling in its design and statistical power that it can change minds.”

Yet the study will not put an end to the dispute. Experts cautioned that the effects of the minimum wage may vary according to the industries dominant in the cities where they are implemented along with overall economic conditions in the country as a whole.

And critics of the research pointed out what they saw as serious shortcomings. In particular, to avoid confusing establishments that were subject to the minimum with those that were not, the authors did not include large employers with locations both inside and outside of Seattle in their calculations. Skeptics argued that omission could explain the unusual results.

The article clearly demonstrates how economics is currently practiced. Essentially, economists are no more than statisticians who use data to back up preferable policy objectives. They do not explain how people create and exchange scarce resources so much as come up with equations and relationships that rationalize what they think government policy ought to be.

In comparison, Austrian School economists seek to understand how people act in the as value-free a manner as possible. While they may have their own opinions about what government policy ought to be, the Austrian School seeks to understand how people actually behave. It is through this process that one can understand, without the need of economic data, the harmful effects raising the minimum wage would have on the working poor.

While it is encouraging to see a statistical study come to the same conclusion, do not expect liberal economists to change their mind on the matter anytime soon.

California Lieutenant Governor concerned about “job-killing robots”

The beauty about being a liberal politician in a liberal state is one gets countless opportunities to be concerned about the negative consequences of previously-implemented policies.

For example, an inevitable outcome of California’s minimum wage law, under which the wage will rise to $15 and hour by 2022, is businesses dependent on manual labor will seek to automate those tasks as much as possible. However, because the memories of liberals are those of gnats, politicians can point to the symptom and call for ACTION against such a pernicious trend.

In the case of the minimum wage, Brietbart points to a Guardian article that reports Lieutenant Governor Gavin Newsom’s concern that the increased use of technology is killing jobs:

The graduating computer science students at the University of California at Berkeley had just finished chuckling at a joke about fleets of “Google buses, Facebook shuttles and Uber-copters” lining up to whisk them them to elite jobs in Silicon Valley. The commencement ceremony for a cohort of students who, one professor confided, were worth around $25bn was a feel-good affair.

Until, that is, Gavin Newsom took to the lectern and burst the bubble.

The smooth-talking Democrat, and frontrunner to win California’s gubernatorial race next year, warned the students that the “plumbing of the world is radically changing”. The tech industry that would make them rich, Newsom declared, was also rendering millions of other people’s jobs obsolete and fueling enormous disparities in wealth. “Your job is to exercise your moral authority,” he said. “It is to do the kinds of things in life that can’t be downloaded.”

No, Lieutenant Governor, their job is not to exercise moral authority; their job is to find a job.

Honestly, it takes a tremendous amount of guile for a grown man to whine to a bunch of smart kids that their career paths may lead to the next political crisis. That is especially the case because his party’s policies have created the very conditions for their future success!

Don’t believe me? One of the companies that irritates Newsom to no end designs robots … for the fast food industry.

[Newsom] frequently complains about Momentum Machines, a secretive San Francisco startup promising to transform the fast-food industry with robotic technology. The ambition, according to the company’s founder, is to “completely obviate” human workers.

“There’s an empathy gap,” Newsom said. “I really feel intensely that the tech community needs to begin not just to solve these business problems but to begin to solve societal problems with the same kind of disruptive energy that they put behind developing the latest app.”

So let me get this straight. Out of empathy, California passes a law that keeps more and more low-skilled people out of the work force. Businesses look to automating previously affordable manual work just to stay in business. So businesses lack empathy because they are trying to solve a problem government policy created.

If this is what it means to show empathy, keep it far, far, away from me!

So what is Newsom’s “solution” to the “empathy gap”?

Serious thinker that he is, he doesn’t know. However, one possibility is what socialists call “universal basic income”.

He is “not opposed” to universal basic income, an idea popular among Silicon Valley utopians that would see all citizens receive some kind of regular and unconditional payment, and is interested in a proposal from Bill Gates to tax companies when they replace humans with robots.

But Newsom said he was not ready to endorse either policy. Adopting politician-speak, he said his team was “starting to lean in to create the tenor of a policy approach” that will involve rethinking the education system and massive investment in apprenticeships.

Then he reverted to a more frank response. “I’m struggling to figure it out,” he said. “So I don’t have the damn answer.

May I offer a suggestion, Lieutenant Governor?

Perhaps you can look at the state’s minimum wage law for a clue about what to do next?