The Minimum Wage: A Bad 28 Months, and Getting Worse For Now

In December 2013 I published “Six Points Against a Higher Minimum Wage.”  It became one of my most-read Work’s New Age blog posts, with more than 2,000 views to date, and has generated good discussion and healthy controversy.  

Although I do not subscribe to ideology from either the left or the right, one of my fixed principles is supporting the maximum number of American jobs; since forcing organizations to pay people more than they would otherwise can only damage that, I am an archconservative on this issue, against any increase, let alone the up to 106%, to $15.00 per hour, many have been advocating. 

The six reasons I listed address different flaws in a higher minimum, clear but often lacking in publicity:  the incorrect assumption that most or all positions paying less than that are with very profitable companies; the nationwide job dearth, currently 17.8 million as measured by the American Job Shortage Number (AJSN); the already high demand for these opportunities even at current wage levels; the folly of worsening the deepest gap in American employment, that between the low paid and those not paid at all; that, between those not in poverty now and those for whom even $15 per hour would not get them out of it, there are relatively few cases where that rate would make the difference; and the excessive damage it would do to both workers and their employers in poorer areas.  I also noted that my conservatism on this issue did not extend to unemployment benefits or food stamps, which should be extended and made readily available for all in need of them, respectively.  I have also advocated, perhaps paradoxically, a guaranteed citizen’s income, which would end the erroneous idea that those offering work are responsible for the welfare of those they hire, and, if the minimum wage were repealed, would allow for a flowering of pleasant, interesting, or easy, but now illegally-low-paying, positions.

In the two years and four months since, there has been a great deal of activity here.  News stories about protestors who have latched on to specifically $15 per hour, usually but not always in the fast food industry, seem never to end.  Despite inflation since then at 2% annually, 12 states raised their minimums January 1^st, with increases from 25 cents to $1 per hour, with current rates now headed by $10 in California and Massachusetts.  Although the press has generally been in favor of such moves or at least neutral toward them, that has changed recently, with unfavorable but apparently straight news stories from the Los Angeles Times (“California minimum wage hike hits L.A. apparel industry: ‘The exodus has begun,’” Shan Li and Natalie Kitroeff, April 15) and Investor’s Business Daily (“Minimum-Wage Hikes Hit Hiring in California, Arkansas,” Jed Graham, March 15), an expository article in CNS News (“California Minimum Wage Could Cost State Taxpayers Billions,” April 13), and anti-increase opinion pieces in The Week (“Democrats have lost their minds over the minimum wage,” Shikha Dalmia, April 11), and, astonishingly enough, The Huffington Post (“Don’t Kid Yourself on the $15 Minimum Wage,” Stephen Adams, April 12).  On the Democratic presidential campaign side, though, candidate Bernie Sanders has consistently been a staunch advocate of that national $15, and his opponent Hillary Clinton actually took criticism about, and as a result walked partially back on, her view that it should be “only” $12.  (To my knowledge, none of the 17 original Republican candidates advocated any minimum wage increase at all.)

These last articles put forth a few objections beyond my original six.  Adams claimed a higher minimum wage would generate “a moral hazard,” with workers at that rate “conned into thinking they don’t need to build up their human capital to earn a decent living.”  I’m not sure this idea is valid, and don’t have sympathy for his additional assertion that it would damage companies by compelling them to raise pay on higher-compensated employees, since above the mandated minimum that would be caused only by simple market forces.  A better cause for concern, suggested by another Graham article, is that employers, when forced to raise wages against their will, may recoup that by taking other benefits, such as education payments and vacation time, away from them. 

How are businesses dealing with giving substantial raises to all of their lowest-paid employees, and what do press sources think they need to do?  Articles in The Washington Post (“As minimum wage marches toward $15, small businesses adapt,” Joyce M. Rosenberg, April 13) and Forbes (“How To Cope With New Minimum-Wage Laws,” Bill Fotsch and John Case, April 12) address this matter, and although one is news reporting and one is couched as advice for entrepreneurs, some strategies in them are similar.  They both name raising prices, cross-training more often, and moving to what we might call a Costco employee model, with higher pay, better benefits, and higher expectations leading to, they hope, better performance, lower turnover, and fewer supervisors.  Other ideas mentioned by only one of the stories were passing work onto customers, such as restaurants requiring them to fill their own coffee cups and sit-down places getting them to bus their own tables fast-food style; teaching employees about the financial needs of the businesses to get more focused efforts; moving work to other states or countries; and installing labor-saving equipment.

The ideas in the above paragraph are the ones we are likely to see as the minimum wage marches up toward, and in some places to, $15 per hour.  The future of work at that rate of pay will belong more and more to those now the best.  Per the CNS News piece, jobs will be disproportionately lost by younger, less educated, and less skilled workers – the people whom liberals wanted to become the prime beneficiaries of mandated higher pay.  We will see again the likes of what happened with warehousemen, who, two generations ago, needed little beyond physical strength, ability to read, and common sense, but now must also be not only more efficient workers but skilled computer users.  And there is no denying that positions will go away – in January, 20 states lost net jobs, of which 7 were among the 8 raising their minimums 50 cents per hour or more, including California, up $1, which broke a streak of 54 consecutive seasonally-adjusted monthly gains.  As above, and per an April 15^th Forbes article (“Even The Fight For $15 Now Recognizes The Cost Of A $15 Minimum Wage,” Tim Worstall), there rates to be a backlash.  When August 2018 arrives, despite now-scheduled increases continuing, we may know the impetus behind this effort has peaked.  For now, however, we must deal with the combination of higher minimum wages and a permanent jobs crisis the best we can.  

Jobs and the Gig Economy – Or Do I Mean the Sharing Economy? – Part 2

Last week I wrote about a new expression – the “gig economy” and proposed it be used not as a synonym for sharing resources other than labor, but for employment of sorts through a chain of one-off work assignments.  I noted in passing that these propositions have “generally weaker prospects” than those in which labor was secondary to providing the likes of vehicles, housing, and equipment for their customers.  Why is that the case?

First, for employees, working small gigs is classically, in economic terms, an inferior good.  That means it is something that people use less when times get better, such as payday loans, margarine, or the lowest grade of beer.  When transitions between opportunities are included, it is clear that individual ones need to pay well over the minimum wage for even that level to be reached over the course of a week, month, or year, which is often not the case.  That is why Steve Tobak wrote in Fox Business that depending on these engagements for income is “no substitute for a career.” 

Second, the problem of poorly accounted-for expenses, on which Uber almost depends from its drivers, raises its head with individual work assignments.  That takes the form of setup and preparation time which shrinks net hourly receipts, as well as travel and needed-resource-acquisition costs.  Other things being equal, those are higher than for regular employees, due to workers having insufficient time to determine the most efficient solutions and to the variable nature of assignments preventing many economies of scale.    

There are three good things, however, about employment in the gig economy.  These income propositions can provide experience, not only valued by regular-job employers but allowing workers to find out how much they like and can do something, and get paid a bit at the same time.  They allow those who can’t find a regular job to earn money.  And, maybe best of all, they constitute a partial repealing of the minimum wage. 

Now on to the business side.  There is strictly no such thing as an industry requiring occasional employees, but authors of articles on the gig economy have discussed a number of new, and not so new, business ideas along with it.  Some never did well in the past, such as providing delivery of low-priced items – author, entrepreneur, and radio talk show host Bruce Williams said, decades ago, “you can’t deliver three dozen doughnuts” – but are being tried again, usually with similar results.   A great mass of them have potential but have not succeeded yet, mainly because their managements so far lack the experience to know how best to run them – of this grouping, most will fail but some will get there before their venture capital runs out.  One especially good principle is still to cater to the 1%, as money is concentrated to the point where those with large amounts of it will outsource almost anything they don’t want to do in person and may be willing to pay very high hourly rates for goods and services brought to them.  Who knows, the idea of selling extra-fresh milk from Omaha dairy cows, as Steven Hill mentioned in Salon last month, could work, as might an infinite number of other propositions; when the market has time to do its magic, winners will remain. 

Overall, we can expect that individual work assignments will provide money for many people.  Maybe not as much as they would like, but enough to make a real difference in their lives.  That is a superb thing.  It rises to the level of a possible comprehensive solution to the jobs crisis, along with guaranteed income, reduced work hours, assured government employment, and payment for providing online data and content. 

Five ideas, one for each year I have been writing on this subject.  If you can add to this list, please let me hear from you.

Jobs and the Gig Economy – Or Do I Mean the Sharing Economy? – Part 1

A new phrase hit the news earlier this year – the “gig economy.”  Like many neologisms, it is sort of catchy, evoking entertainment bookings and, with it, something of freedom and maybe creativity.  It first registered with me with a March 27^th Salon Steven Hill article, “Good riddance, gig economy,” which was followed by a Wall Street Journal one the next day, “The Entire Online Gig Economy Might Be Mostly Uber,” and a Fox Business effort only this past Wednesday, which took a surprising for-them liberal view, “The Gig Economy:  Boon for Companies, Bust for Workers.”  Although the Journal used it as early as February 18^th, The New York Times must have missed the beginning of this expression, since they had a similar piece three days before Salon’s, “The Uber Model, It Turns Out, Doesn’t Translate.”     

Unfortunately, this phrase also has a shortcoming typical of those in the early stages – its definition is fuzzy.  All four of these articles seem to conflate what the idea of working gigs would seem to be – people offering their labor for one-off opportunities – with what is still called the sharing economy, or income openings through providing other tangible assets, such as cars, apartments, tools, and so on.  Although owners must contribute labor in the process of sharing their possessions, that is secondary, even for Uber unlicensed-cab drivers, as what customers are paying for is the resource being provided.  On the other hand, someone willing to be paid to pick up and deliver something may not need any resources beyond time and effort.  A second unclear area is the steadiness of the work with one employer (sorry, Uber management, that’s in effect what you are).  Many and maybe most people driving for that company work full-time, meaning they are available to pick up customers continuously or almost so for over 30 hours per week.  That is in effect the same as true cabdrivers waiting for pickups or radio calls, but not the same at all as people with TaskRabbit or Mechanical Turk choosing working opportunities one at a time. 

Accordingly, I propose to use both expressions in better defined ways.  Let “sharing economy” be the correct form when assets other than labor are not only involved but required, and “gig economy” for individual work assignments.  When neither is the case, if for example someone is employed by a company but is only intermittently able to work and make money, call them, as Hill in effect wrote, temporary help workers.  Given that we’re talking about different things here, what can we say about them?  

A fair amount has changed with the sharing economy since I first wrote about it over a year ago.  As I predicted, there has been a real backlash.  There have been protests and new laws in cities from New York to Jakarta, both from competitors and governments, against Uber, informal hotel-room provider Airbnb, and their competitors.   However, Uber, usable now in 400 cities, car service Lyft, and Airbnb have continued to grow elsewhere.

So does the Uber model translate to other ventures?  Strictly speaking, despite the Times article’s title, it does.  Companies delivering restaurant food or parking cars are not part of the Uber model – they are simple labor services.  That their customers usually order and pay online does not make them fundamentally distinct.  Airbnb, though experiencing expected problems with zoning and other community restrictions, is a success, and there is every reason for people to continue to be compensated for lending everything from sanders to canoes as well.

Business propositions, and jobs, in the gig economy have generally weaker prospects, especially at the full-time income level.  However, there are some real hopes, and niches, for these service propositions.  What they are, and what they mean for jobs in America, will be the subject of next week’s post.  

Another Strong Jobs Month, Yet American Job Shortage Number Shows We Could Quickly Fill 17.8 Million More Positions

The Bureau of Labor Statistics March employment and unemployment data has arrived.  The bad news was that official joblessness ticked up to 5.0%, taking its first worsening since May to return to the level where it sat from October through December.  Although the absolute number of unemployed edged down, there are still 2.2 million officially jobless people who have been out for 27 weeks or longer.  The number working part-time for economic reasons, or hired less than full-time and unsuccessfully seeking that, was up 100,000 to 6.1 million.  Average wages, after dropping 3 cents per hour in February, gained back 8 cents, more than inflation but nothing special considering previous months. 

Otherwise, almost all of the data was positive.  Once again the number of nonfarm payroll positions increased more than population change alone could absorb, this time 215,000.  The two indicators of how common it actually is for Americans to be working, the labor force participation rate and the employment-population ratio, not only did not fall back or even stay the same after February’s unusually large gains but went up again, to reach 63.0% and 59.9% respectively.  Most categories of those marginally attached to the labor force, or neither employed nor officially jobless, lost people, led by a superb 500,000-plus drop in those wanting work but not seeking it for a year or more.

The American Job Shortage Number or AJSN, the measure which shows in one figure how many additional positions could be quickly filled if getting one were as easy as buying groceries, takes shares of 11 different employment statuses, and, this month, fell 356,000, as follows:

Compared with a year before, especially important since the AJSN is not seasonally adjusted, the measure is down 767,000, mostly due to lower unemployment but also because of shrinkage in the two most important secondary numbers, those discouraged and those not looking for a year or more.

Despite the worsening in what is still the most known and publicized employment number, the official seasonally-adjusted jobless share, March was a robust month.  With the labor force participation rate and employment-population ratio a big 0.6% higher than only six months ago, it is clear that many people are indeed going back to work, and, for once, not just slipping into marginal labor-force attachment.  There are still too many Americans without jobs, and a shortage of 17.8 million of them is a lot, but we are clearly moving in the right direction.  The turtle stretched his tendons in March with another good step forward.