"Living wage" mentality reflects misunderstanding of business reality

Fast food workers in seven cities were on strike last week demanding a "living wage" of $15 an hour, more than twice the $7.25 they currently make. Empathy aside, this expectation is a fantasy.

Every job has a value, but it is based not on what the person who has the job thinks it should be worth, or what sympathetic observers think it should be worth, but on its role in the business.

How important is the job to the business, compared to other jobs? Are other people who can do the job a scarce commodity, or are there thousands of them? Some jobs require substantial training, while others do not, and individuals with the required training deserve higher pay than those without training. Minimum wage jobs in the fast food industry require no formal training; the worker can learn on the job, and while the worker is learning to do the job satisfactorily, the boss endures lower-than-necessary productivity.

Who exactly works for the minimum wage? These jobs are entry-level work intended for people just getting started in the workaday world, like students trying to earn a little money while pursuing their education, or people with little or no skills or experience looking to get some skill and experience. About half of the 1.6 million minimum wage workers are under 25 years of age. The minimum wage is not intended to be, and cannot be, a “living wage.”

The minimum wage is, indeed, a low wage, but most of those workers get a raise in less than a year, and there are fewer of them today than in the past. The number of people making at or under the minimum wage today is 28 per 1,000 wage and salary workers, while in 1976 there were 79 per 1,000 wage and salary workers.

Most employers want the best workers they can find, so if most workers produce 10 of something an hour and Joe can produce 12 an hour, or if Mary’s work is of higher quality than other employees, the boss is likely to give them a raise to keep them on staff.

For people in minimum wage jobs with few or no skills, demanding their salary be doubled to a "living wage" is somewhat akin to high school students demanding they be given a college diploma. And anyone earning minimum wage that is unhappy with it can go look for a better-paying job. If they can't find one, do their best at the current job, and get some training that will qualify them for something better.

An organization calling itself Socialist Alternative illustrates graphically the failure of a “living wage" minimum wage in an article titled "Profit is The Unpaid Labor of Workers."

"Hypothetically, lets assume that our job pays $7.50 an hour and our boss wants us to work for twenty hours," the article says. "At $7.50 an hour for twenty hours, that’s a total of $150. In that same period of time, however, the work we do will probably make $300, $400, or $1000 worth of pizza."

And here's where it gets good: "What does this mean? Just for arguments sake, lets assume we only create $300 worth of pizza. After our boss gives us $150 for our week’s worth of work – meaning our own labor essentially pays our wage – he is left with an additional $150 that he did not work for."

There’s a brilliant bit of insight hidden in that paragraph: "our own labor essentially pays our wage." To the socialist mentality, the only cost of running the pizza parlor is what the boss pays the pizza maker. Everything else – flour, sauce, pepperoni, cheese, insurance, rent/mortgage, electricity, water, sewage, trash pickup, taxes, fees, etc. – the boss apparently gets for nothing, and the money collected for the pizza that is not paid to the pizza maker is ill-gotten gains.

The "living wage" strikers similarly do not understand business, and what happens when wages go up. Raising the minimum wage requires a commensurate raise in all wages, to avoid causing strife among the other workers, and that means price increases that make the business less competitive. That could lead to staff cutbacks or ultimately closing the business.

The strikers and the socialists fail to understand and appreciate the investments of the owner(s), who may have mortgaged their home to finance the business, and managers of larger businesses, who usually have spent years in training and working to get where they are, perhaps starting as a minimum wage employee themselves.

Owners get whatever is left over after everyone else – employees, venders, lenders, taxes, etc. – have been paid. Often, particularly in the beginning or during hard economic times, that is little or nothing. And, few employees work as hard as the owner of a small business, and particularly a new business, yet the Socialist Alternative begrudges them making a decent return on their investment of capital and time.

It’s easy to criticize the boss from the sidelines. The best course for these critics would be their forced entry into the business owner’s world. At their own expense, of course. They would undoubtedly see things differently in short order.

Read More

Obamacare’s serious weaknesses driving even strong supporters away

Commentary by James H. Shott

Although Sen. Max Baucus (D-Mont.) only recently acknowledged that the health care reform bill he helped create – the Patient Protection and Affordable Care Act (ACA), also known as Obamacare – is a “train wreck,” most Americans suspected that at its creation.

Things are so bad that President Barack Obama, trying to prevent some of the disastrous results, did something he is not allowed by the U.S. Constitution to do: postpone implementation of part of the law by suspending the employer mandate until 2015 and leaving the rest of the law intact. The Executive Branch of our government is obligated to enforce the laws – all of them, and all of each of them – and does not have the power to choose which ones, or parts thereof, it will enforce.

The House of Representatives passed two measures delaying the employer and individual mandates for one year, with 35 and 22 Democrats respectively joining in those efforts, which Mr. Obama has curiously threatened to veto.

And more recently, one of Obamacare’s most devoted groups of supporters has jumped ship. In a letter to Democrat Congressional leaders, Teamsters union president James Hoffa, and the presidents of two other unions, said this: “Right now, unless you and the Obama Administration enact an equitable fix, the ACA will shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.”

The law has already encouraged some employers to trim their staffs to fewer than 50 full-time employees to avoid the expense of the mandate, and in other cases to decide against providing insurance altogether, and pay a much cheaper fine.

Nevertheless, Mr. Obama declared last week that "the law is working the way it was supposed to for middle-class Americans,” and criticized House Republicans for trying to dismantle it.

Polling data from five different polling organizations from mid-May through July 13 shows continuing disfavor among Americans, with the disparity of opposition-to-support running from as little as 5 points to as much as 15 points, and the Real Clear Politics average of the five polls at 10.2 points.

According to the Gallup poll from late last month, 42 percent say that in the long run the law will make their family's healthcare situation worse, and only 22 percent say it will make it better. And 47 percent believe the law will make the healthcare situation in the U.S. worse, while only 34 percent say it will make it better.

Republicans also are criticized for offering no alternatives while trying to dismantle the measure. “Three years after campaigning on a vow to ‘repeal and replace’ President Barack Obama’s health care law, House Republicans have yet to advance an alternative for the system they have voted more than three dozen times to abolish in whole or in part,” Sunday’s editorial in The Washington Post complained. That ignores, however, H.R. 3400 - Empowering Patients First Act, introduced in 2009 before Republicans campaigned for and won control of the House.

And now there is another, H.R. 2300 – the Empowering Patients First Act of 2013. Its principal sponsor is Rep. Tom Price (R-Ga.), who sponsored H.R. 3400, and he has credentials for health care issues matched by few in the Congress. Rep. Price is also Dr. Price, a physician who actually delivered and understands patient care.

This measure allows patients, families and doctors to make medical decisions, not Washington, DC. That is an excellent place to begin improving health care. What a shame that wasn’t the driving factor behind the ACA.

“You can get folks covered, you can solve the insurance challenges, and you can save hundreds of billions of dollars in this health care system,” said the physician/Congressman, “all without putting Washington or health insurance companies in charge of those decisions that ought to be between patients, and families and doctors.”

How can H.R. 2300 – a bill of only 249 pages, less than a tenth the length of the monstrous Obamacare bill – accomplish this?

Rep. Price describes it as comprehensive legislation under which “every single American has the financial feasibility to purchase the coverage they want, either through tax deductions, or credits, or advanceable credits or refundable advanceable credits so that they can purchase the coverage they want for themselves or their families, not what the government forces them to buy.”

He says further that everyone owns their own coverage, like a 401k plan, so if they change their job or lose their job, they take their coverage with them, and it allows all of those with pre-existing conditions to pool together, giving them the purchasing power of millions so that no one person’s adverse health status will change the cost for anyone else, including that one person.

While H.R. 2300 has the great advantage of being properly focused on patients and physicians, trying to straighten out the voluminous failures of the ACA in one bill is a Herculean feat. Obamacare needs to be repealed in total, and as soon as possible, and then Congress must undertake a sensible approach to correcting the problems of the health care system without turning it over to the government.

Cross-posted from Observations

Read More

Tax-and-spend policies have not and cannot solve America’s problems

By James Shott

British millionaires are looking for greener pastures. As reported in The Telegraph of London, “In the 2009-10 tax year, more than 16,000 people declared an annual income of more than £1 million to HM Revenue and Customs,” but that “number fell to just 6,000 after Gordon Brown introduced the new 50 [percent] top rate of income tax shortly before the last general election.” The story goes on to say that it “is believed that rich Britons moved abroad or took steps to avoid paying the new levy by reducing their taxable incomes.” Consequently, the increase in tax revenues Prime Minister Brown had anticipated turned into a nearly £7 billion loss.

This should serve as a cautionary tale for America’s tax-and-spenders in the White House and Congress, who want to raise taxes on “the wealthy,” but it likely will float past them un-heeded. When you consider the details of the first post-election offer from the White House, it is clear that the administration does not comprehend such economic realities. The proposal: $1.6 trillion in higher taxes over 10 years, $180 billion in new spending and vague promises to cut only the growth of entitlement spending at an indeterminate future date, all while giving the president the power to unilaterally raise the debt ceiling.

The proposal calls for double the pre-election tax amount, additional spending and no specific amount of spending cuts or dates certain for them to take effect. And, there’s that last item, which gets immediately crossed-off: it’s unconstitutional.

As idiotic as that proposal is, understand that President Barack Obama appears serious about it.

Big government liberals live on entitlement spending, and many would die without it. The president’s proposal includes allowing the Bush tax cuts to expire for those making $250,000 a year or more, raising the top rate to nearly 40 percent, which he supposes will raise $80 billion annually. That’s enough to run the federal government for only 8.5 days. If America’s high earners follow the lead of the Brits and reduce taxable income or shift it into 2012, it will be even less than that relatively small amount.

But what is worse, when you understand that half of those affected by this rate increase are small businesses, it makes no sense to raise taxes on them with unemployment still more than 50 percent above normal levels nearly 42 months after the recession ended.

The tax-and-spenders need to get past their resentment of high earners and their appetite for their earnings, and get serious about fiscal reform. Out-of-control spending for entitlements, a bloated and inefficient government, a tax code that plays favorites, and other factors combine to produce huge annual deficits and 16 trillion in crushing debt, and it’s time to fix that.

Americans for Tax Reform has focused for years on getting newly elected U.S. Representatives and Senators to take a pledge against raising taxes, understanding that our problem is that we spend far too much, not that anyone needs higher tax rates. Grover Norquist, its president, is now a target of the tax-and-spenders for his organization’s efforts at controlling taxation. However, those Senators and Representatives didn’t make the pledge to Mr. Norquist, they pledged to their constituents they would vote against tax increases.

The problem we have today is not a new one. A Cary Orr political cartoon from 1934, in the midst of The Great Depression, shows a wagon filled with drunken people drinking from a “Power” bottle and shoveling bags of money out onto the road. On the back of the wagon is a sign reading, “Depleting the resources of the soundest government in the world.” And there’s a man on the side of the road painting a sign which says:

Plan of Action for U.S.

Spend! Spend! Spend!

Under the guise of recovery

Bust the government

Blame the capitalists for the failure

Junk the Constitution and declare a dictatorship

Other comments jotted around the scene say, “How red the sunrise is getting” near an ominous looking man labeled “Stalin,” and, “It worked in Russia.”

That is how Cary Orr saw what the government was doing then. And what is unsettling about this cartoon is the striking similarity to what is happening now.

He believed government’s actions were communistic. What our government is doing today may not be socialistic or communistic under the strict definition of those terms But an interesting coincidence is that the Communist Party USA is now organizing teleconferences and rallies supporting the plans to raise taxes and encouraging continued over-spending on entitlement programs.

We should recognize that no nation on Earth has ever achieved success that even approaches the level of success the United States of America achieved before it began changing from the capitalistic model that built it to a model that has produced mediocrity and fiscal peril worldwide.

We should heed the lessons of wrong-headed government policies that extended the Great Depression for years longer than it should have lasted, and try something different, like the economic principles of capitalism that built America.

Cross-posted from Observations

Read More

Trying to understand job numbers that appear to challenge reality

Commentary by James H. Shott

After three years of a lackluster economy, unacceptably high unemployment, serious policy gaffes and generally poor performance, President Barack Obama really needed some positive development. But he didn’t get anything positive at the first presidential debate with challenger Mitt Romney, which was, to be kind, uninspiring.

And then – magically, two days after the debate – the September jobs report came out and in one fell swoop wiped away that negative. From the jobs report we learned that the U-3 unemployment rate fell from 8.1 to 7.8 percent, a surprisingly large drop, given what we’ve seen over the last three years, big enough to get below the magic 8.0 threshold that dogs incumbent presidents.

But then the big surprise: There were 873,000 more people working in September than in August.

Really? Nearly a million people found work in one month?

That number is wildly out of line with months of job number reports. According to the Bureau of Labor Statistics (BLS), “In 2012, employment growth has averaged 146,000 per month, compared with an average monthly gain of 153,000 in 2011.” And suddenly, just when Mr. Obama needed it most, 873,000 people find work. What’s going on?

The BLS has two monthly surveys that measure employment levels and trends: the Current Population Survey – the household survey – and the Current Employment Statistics survey – the payroll or establishment survey – which the BLS describes thusly: “The household survey and establishment survey both produce sample-based estimates of employment and both have strengths and limitations.” The establishment survey has a larger sample size and smaller margin of error than the household survey. “However, the household survey has a more expansive scope than the establishment survey.”

Economists say that over a period of months the two different surveys will show similar results, however, the household survey is erratic, with wild monthly swings up and down, and it is not unusual for responses to the survey to be made by proxies, who may answer for the targeted respondent. Any single month’s results cannot be depended upon for an accurate picture of employment changes from the previous month, whereas the establishment rate moves more steadily up or down.

Illustrating that point is that the establishment/payroll survey showed total nonfarm payroll employment rose by only 114,000 in September, which is substantially lower than the monthly average of 146,000 for 2012, but more in line with average job growth than is the household figure.

“We believe part of the drop in the unemployment rate over the last two months is a statistical quirk (the household data show an increase in employment of 873,000 in September, which is completely implausible and likely a result of sampling volatility),” say economists John Ryding and Conrad DeQuadros of RDQ Economics. “Moreover, declining labor force participation over the last year (resulting in 1.1 million people disappearing from the labor force) accounts for much of the rest of the decline,” they conclude.

Just how implausible is that 873,000 new jobs number that appeared in only a month? It is the highest one-month jump in 29 years.

Further, the BLS explains that jobs reflected in the household survey are different types of jobs than are tracked in the payroll survey. They include those in start-up businesses, the self-employed, unpaid family workers, agricultural workers, private household workers, and some are people who can’t find a regular job and have started working from home, perhaps selling items on E-Bay; jobs that are excluded by the establishment survey.

While the U-3 rate fell to 7.8 percent, it is still too high. The sky-high number reported in the household rate may reflect a turn in the oh-so-slow rate of job creation. But it may not. We’ll have to wait and see what happens next month.

Following this “October Surprise,” to maintain a healthy perspective, other statistics must be kept in mind: The economy is grinding forward, with GDP a mere 1.3 percent last quarter. Most knowledgeable observers say we need 200,000 to 250,000 new jobs each month to drive unemployment down at a suitable speed, not the 146,000 we’ve been averaging. And while the Labor Force Participation Rate ticked up to 63.6 percent from 63.5 percent, it is still near the 30-year low.

More relevant, the U-6 unemployment rate counts those who are underemployed and those who have given up looking for a job, and now sits at the seasonally adjusted rate of 14.7 percent.

The number of persons employed part time for economic reasons rose from 8.0 million in August to 8.6 million in September, because many workers saw their hours cut back or because they were unable to find a full-time job.

“The household survey painted a picture of a sharply falling unemployment rate—down 1.2 points over the last 12 months,” say Ryding and DeQuadros. “Such a rapid decline in the unemployment rate would be consistent with 4 percent to 5 percent real economic growth historically. Of course, the economy is not growing 4-to-5 percent, not even half that.”

Despite this surprising bit of good news, the economy is still under-performing, and nothing has changed to warrant four more years of Obamanomics. It’s way too little, and far too late.

Cross-posted from Observations

Read More