Elitist Arrogance

“America’s economy is not just better than it was eight years ago, it is the strongest, most durable economy in the world,” Obama said.

Voters who are most concerned about their own financial interests have a clear choice in November, Obama said: Democrats.

“If what you really care about in this election is your pocketbook; if what you’re concerned about is who will look out for the interests of working people and grow the middle class, then the debate isn’t even close,” Obama said.

“One thing I can promise you is that if we turn against each other based on divisions of race or religion, then we won’t build on the progress we’ve started,” Obama said. “If we get cynical and just vote our fears, or don’t vote at all, we won’t build on the progress we’ve started.” (Bloomberg)

<<Insert Cynical Laughter here>>

White teenage unemployment is about 14 percent. That for black teenagers is about 30 percent. The labor force participation rate for white teens is 37 percent, and that for black teens is 25 percent. Many years ago, in 1948, the figures were exactly the opposite. The unemployment rate of black 16-year-old and 17-year-old males was 9.4 percent, while that of whites was 10.2 percent. Up until the late 1950s, black teens, as well as black adults, were more active in the labor market than their white counterparts. I will return to these facts after I point out some elitist arrogance and moral bankruptcy.

Supporters of a $15 minimum wage are now admitting that there will be job losses. “Why shouldn’t we in fact accept job loss?” asks New School economics and urban policy professor David Howell, adding, “What’s so bad about getting rid of crappy jobs, forcing employers to upgrade, and having a serious program to compensate anyone who is in the slightest way harmed by that?” Economic Policy Institute economist David Cooper says: “It could be that they spend more time unemployed, but their income is higher overall. If you were to tell me I could work fewer hours and make as much or more than I could have previously, that would be OK.”

What’s a “crappy job”? My guess is that many of my friends and I held the jobs Howell is talking about as teenagers during the late 1940s and ’50s. During summers, we arose early to board farm trucks to New Jersey to pick blueberries. I washed dishes and mopped floors at Philadelphia’s Horn & Hardart restaurant, helped unload trucks at Campbell Soup, shoveled snow, swept out stores, delivered packages and did similar low-skill, low-wage jobs. If today’s arrogant elite were around to destroy these jobs through wage legislation and regulation, I doubt whether I and many other black youths would have learned the habits of work that laid the foundation for future success. Today’s elite have little taste for my stepfather’s admonition: Any kind of a job is better than begging and stealing.

What’s so tragic about all of this is that black leadership buys into it. What the liberals have in mind when they say there should be “a serious program to compensate anyone who is in the slightest way harmed” is that people who are thrown out of work should be given welfare or some other handout to make them whole. This experimentation with minimum wages on the livelihoods of low-skilled workers is ethically atrocious.

In the first paragraph, I pointed out that black youths had lower unemployment during earlier times. How might that be explained? It would be sheer lunacy to attempt to explain the more favorable employment statistics by suggesting that during earlier periods, blacks faced less racial discrimination. Similarly, it would be lunacy to suggest that black youths had higher skills than white youths. What best explain the loss of teenage employment opportunities, particularly those of black teenagers, are increases in minimum wage laws. There’s little dispute within the economics profession that higher minimum wages discriminate against the employment of the least skilled workers, and that demographic is disproportionately represented by black teenagers.

A basic economic premise holds that when the price of something rises, people seek to economize on its use. They seek substitutes for that which has risen in price. Recent years have seen proposals for an increase in the federal minimum wage to $15 an hour. Some states and localities, such as Seattle, have already legislated a minimum wage of $15 an hour.

Nobody should be surprised that fast-food companies such as Wendy’s, Panera Bread, McDonald’s and others are seeking substitutes for employees who are becoming costlier. One substitute that has emerged for cashiers is automated kiosks where, instead of having a person take your order, you select your meal and pay for it using a machine. Robots are also seen as an alternative to a $15-an-hour minimum wage. In fact, employee costs are much higher than an hourly wage suggests. For every employee paid $15 an hour, a company spends an additional $10 an hour on non-wage benefits, such as medical insurance, Social Security, workers’ compensation and other taxes. That means the minimum hourly cost of hiring such an employee is close to $25.

The vision that higher mandated wages (that exceed productivity) produce no employment effects is what economists call a zero-elasticity view of the world — one in which there is no response to price changes. It assumes that customers are insensitive to higher product prices and investors are insensitive to a company’s profits. There is little evidence that people are insensitive to price changes, whether they be changes in taxes, gas prices, food prices, labor prices or any other price. The issue is not whether people change their behavior when relative prices rise or fall; it is always how soon and how great the change will be. Thus, with minimum wage increases, it is not an issue of whether firms will economize on labor but an issue of how much they will economize and who will bear the burden of that economizing.

Fast-food restaurants must respond to higher prices because they have two sets of ruthless people to deal with. We can see that with a hypothetical example. Imagine that faced with higher employee costs, Burger King automates and, as a result of finding cheaper ways to do things, it can sell its hamburgers for $3. Its competitor McDonald’s does not automate and keeps the same number of employees in the face of higher wages, maybe to be nice and caring. McDonald’s might try to forestall declining profits by attempting to recover higher labor costs by raising product prices — say, charging $5 for a hamburger. However, consumers are not insensitive to higher prices. They would seek cheaper substitutes, thereby patronizing Burger King. The bottom line is that in the wake of higher minimum wages, surviving companies will be those that find ways to economize on labor usage.

There is another ruthless set of people. They are investors. If customers were to flock to Burger King, McDonald’s profits would fall. What is your guess as to what investors would do? My guess is they would sell shares in McDonald’s. An even more dismal picture for McDonald’s would be the specter of corporate takeover attempts. Somebody would see that money could be made by bringing McDonald’s to its senses.

 

The saddest aspect of the minimum wage story is the damage it does to human beings. The current hourly wage for a fast-food restaurant cashier is $7.25 to $9 per hour. That produces a yearly salary of $15,000 to $20,000, plus fringes. That’s no great shakes, but it is honest work and a start in life. It might be the very best some people could do. Enter the arrogance and callousness of the elite. Their vision of what a person should earn, expressed by higher minimum wages, destroys people’s best alternative without offering a superior one in its place. Maybe the elite believe that welfare, unemployment compensation and possibly engaging in illegal activities are a superior alternative to earning an honest and respectable living on a cashier’s salary. That is a despicable vision. (Walter e Williams)

But it’s “fair”. 🙂
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