Category Archives: Minimum wage

Ireland was no bastion of capitalism. Here’s what went wrong!

With Ireland sinking under a huge pile of debt, the socialist liberal left points out that Ireland, with its low taxes and supposedly unregulated banking system, is suffering from the excesses of capitalism. Liberals never waste an opportunity to convince you with pleasant-sounding lies.

I’ll give you a couple of examples of where the Irish and European governments, not capitalism, went wrong.

Minimum Wage

AP reports:

Ireland’s 140-page National Recovery Plan proposes to introduce property and water taxes, raise the sales tax from its current rate of 21 percent to 22 percent in 2013 and to 23 percent in 2014, and cut the minimum wage by euro1 to euro7.65 ($10.20).

So Ireland’s minimum wage was 8.65 Euros or $11.46. The minimum wage in the United States is just $7.25 with some states and cities imposing higher rates (the state of Washington has a $8.55 minimum wage, San Francisco is $9.79, and Santa Fe is $9.85) all of which are much lower than Ireland old $11.46 rate and its new $10.20 rate. With Purchasing Power nearly the same in Ireland as in the United States, the minimum wage there was 58 percent higher than in the US.

While everybody talks about Ireland’s extremely low corporate tax rate, much of that benefit was offset by this too high minimum wage. And the minimum wage did not just affect those at the low end of the wage scale. A minimum wage raises costs throughout the economy forcing employees to demand higher wages even at the higher end of the wage scale.

Liberals may argue that capitalism doomed Ireland to failure, but these high minimum wages are most certainly anti-capitalist.

Low interest rates

For years, the Irish economy was hot, earning the nickname Celtic Tiger. Wikipedia explains:

From 1995 to 2000 GNP rate growth ranged between 6 and 11% through 2001 and early 2002 to 2%. The rate then rose back to an average of about 5%. During that period the Irish GDP rose dramatically to equal then eventually surpass that of all but one state in Western Europe.

This economic growth led to speculative excess which led to inflation:

Inflation brushed 5% per annum towards the end of the ‘Tiger’ period, pushing Irish prices up to those of Nordic Europe, even though wage rates are roughly the same as in the UK.

Also:

Rising wages, inflation and excessive public spending led to a loss of competitiveness in the Irish economy. Irish wages are now substantially above the EU average, particularly in the Dublin region. These pressures primarily affect unskilled, semi-skilled, and manufacturing jobs. Outsourcing of professional jobs is also increasing, with Poland in 2008 gaining several hundred former Irish jobs from the accountancy division of Philips and Dell in January 2009 announced the transfer from Ireland, of 1700 manufacturing jobs, to Poland.

Much of this inflation and rising wages can be attributed to the high minimum wage discussed above. But where was the central bank to deal with this rising inflation?

When Ireland joined the Euro, it lost control of its monetary policy. Normally, a central bank would raise rates and decrease the money supply to fight inflation. But while Ireland was growing quickly, the rest of Europe struggled through most of the 1990s and 2000s with low growth rates and high unemployment. Thus, the European Central Bank (ECB) kept rates low in an attempt to promote growth. As a result, through no choice of its own, Ireland had a loose monetary policy at the exact time it needed a monetary tightening. Thus, Ireland’s economy, most notably its property market and banking system, experienced a huge bubble. We are now suffering the consequence of those previous excesses.

In a true free-market capitalist system, interest rates would have risen through investors’ demand and this would have slowed or stopped the Irish bubble. But the artificial government Euro system prevented this important market process from occurring.

Conclusion

Yes, Ireland was more capitalist than most. But errors like the above led the country to excess and then collapse.

The Absurdity of Minimum Wage Laws

The current minimum wage in the United States is $7.25 per hour. However, many states have imposed their own minimum wages because living in those states is more expensive. California, for example, has a minimum wage of $8.00. So why not get rid of the national minimum wage and let the states set their own? The Constitution gives the federal government no such power and this should be left to the states.

But even the states have a problem with minimum wages. Within a state, it may be more expensive to live in one city than another. For example, it is much more costly to live in San Francisco, where the minimum wage is $9.79, than in Fresno. So why not have each city set their own minimum wage as is being done in San Francisco? Why hasn’t New York City raised its minimum wage as it is certainly more expensive to live in  New York City than in Buffalo.

But wait. Even within cities there can be a big disparity in the cost of living based on neighborhood. It is much more expensive to live in Manhattan than it is in Queens. Even within Manhattan, it is more expensive to live in the Upper East Side than in Washington Heights. Even within neighborhoods, the cost of living in different buildings varies.

All this may seem quite absurd, but so is the minimum wage. Each person is an individual with their own needs and wants, their own cost of living. Broken down logically, each person has their own minimum wage at which they are willing to work. In other words, no government law can boost the minimum wage of all people. Or more accurately, we would need millions of minimum wage laws to help each state, each city, each neighborhood, each street, and each person or small group of people.

In reality, minimum wage laws creates winners and losers. Those whose incomes increase will benefit from the minimum wage, but at the same time those who can no longer produce enough profit at the increased wage will lose their jobs because of the minimum wage. And all consumers will pay more for goods and services as the government forces up wages.

The minimum wage sounds great in theory (for employees, not employers). Unfortunately we live in a reality where a minimum wage does more harm than good.

Teens Going Jobless This Summer. Minimum Wage Laws Partly to Blame.

A follow-up to my post  Teens Face Worst Summer Job Market in 41 Years. CNBC reports Many Teen Workers Are Going Jobless This Summer:

Several factors have aligned to hurt what was once a vibrant and reliable labor market, experts say. In some cases, unemployed older Americans or illegal immigrants have taken the jobs, while an increase in the minimum wage has made it too expensive for some employers to hire teens.

Many teenagers would be willing to work for less than the minimum wage, if only it were legal.

“It’s good experience and it’s good to put on your college application,” she says. “You can’t put sitting around and doing nothing on your application.”

This will have severe repercussions in the future:

With less experience on their resume, some teens might find it hard to compete for jobs when they’re older, experts say.

“Employers across the spectrum are going to opt for someone with more experience.” says Dion Lim, president and COO of online job-search site SimplyHired.com. “There’s no replacement for work experience.”

Not that the minimum wage is the only cause of teenage unemployment. The article mentions other factors, most notably high unemployment in general. However, the minimum wage is supposed to help those at the lower end of the employment market by boosting their wages. Instead, it is making it harder for them to earn any wage and depriving them of much needed experience.

It is time to eliminate minimum wage laws and bring back apprenticeships/internships

Remember the “good old days” when young people would apprentice for a few years earning nothing just for the chance to learn a trade? Well, I don’t either, but that is the way things used to work.

Enter minimum wage laws. All of a sudden, working for no monetary compensation is illegal. In reality, though, the apprentice does receive compensation in return for his labor: the acquisition of a valuable skill. The apprentice receives a valuable skill and the recommendation of his teacher while the employer receives a number of years of labor and the satisfaction of helping a young person succeed.

Today, there is only one way for a young person to gain skills necessary for a career: college. If one studies the situation, one would easily see that this situation is much worse than apprenticeship. Obviously, there are some careers that require college education and many people would benefit and enjoy the broader education college provides. But for somebody who is only interested in learning a skill, apprenticeship is vastly superior than college. Instead of working without compensation a couple of years to learn a skill, the young person is forced to pay a college to learn these skills. Now, the young person has graduated with a debt of tens or hundreds of thousands of dollars. How is that better off than working for nothing? And in fact, the college graduate is often behind where he would have been had he been working in the industry for a number of years learning these skills hands-on instead of in a classroom, making valuable contacts within the industry, and establishing a close relationship with a successful professional in the same field.

The young person today often chooses to skip college and go straight to work after high school. Many have no desire for college and others cannot afford it. Apprenticeships would be great for just such people, but they are now illegal, in almost all cases (political internships and graduate assistants seem to be the most obvious exceptions).

Thus, our young people are stuck in a Faustian choice between going to college and graduating with little or no hands on experience and deep in debt or working at a low skilled job for low pay. And that’s assuming they can get such a job in this environment, where the benefit an employer may receive less output from the employee than the costs of his minimum wage and other costs, such as insurance, payroll taxes, and compliance with government regulation.

As a result, young Americans are not learning the skills they need and thus earning less in later years. To help everybody become more productive and earn a better living, we need to eliminate minimum wage laws and bring back apprenticeships/internships.

Teens Face Worst Summer Job Market in 41 Years

Thanks to a combination of a weak economy, high unemployment, high taxes even for low-income workers (ie. payroll taxes), the minimum wage, and student loans that give students less incentive to work, teens are facing the world job market in 41 years.

Jobs traditionally given to teens are apparently going to older workers who are willing to take low paying job to make ends meet. Employment among 20- to 24-year-olds grew by 270,000 in May, an unusual spike, considering that employment in the same age group fell by 261,000 in May 2009.

The reasons given for the terrible job market:

Jobs traditionally given to teens are apparently going to older workers who are willing to take low paying job to make ends meet. Employment among 20- to 24-year-olds grew by 270,000 in May, an unusual spike, considering that employment in the same age group fell by 261,000 in May 2009.

Another reason for slower hiring, experts said, is that the establishments that usually add summer help are also the places where Americans hit by the recession may be cutting back on spending. The majority of young Americans aged 16- to 24-years old worked in the leisure and hospitality industry last year at establishments such as theme parks, hotels and restaurants. The other popular industries were in retail and in education and health services, according to the Bureau of Labor Statistics.

In the good old days, students had to work to pay for their college. Now, with subsidized student loans, kids can go to school and push off paying for it until after they graduate. That was a great system when a college degree almost guaranteed you a job. But today, that is no longer the case and students are simply graduating with heavy debt and poor job prospects.

More teenagers should be working to get the experience they need for the real world; experience college does not give them. But minimum wage laws makes it too costly for many employers to hire unskilled labor while high tax rates give teenagers less of an incentive to work. Combine that with the weak economy and high unemployment and teenagers have very poor prospects. They will suffer for the rest of their lives as they forgo much-needed training early in their careers.