Tag Archives: Don Boudreaux

Berkeley, CA and the $15 – oops – $19 living wage

Berkeley, CA’s labor commission – in what should be an unsurprising move at this point in Berkeley’s history – has proposed raising the city’s minimum wage to an astounding $19 per hour by 2020! The labor commission’s argument in a nutshell is that Berkeley is an expensive place to live so worker’s need more money. And while Berkeley may be an expensive place to live, mandating that employers pay a certain wage doesn’t necessarily mean that the workers will get that money. As one Berkeley restaurant owner noted:

“We can raise our prices. But you can’t charge $25 for a sandwich,” said Dorothee Mitrani, who owns La Note. “A lot of mom-and-pop delis and cafes may disappear.”

The article states that Ms. Mitrani’s

…. full-service restaurant now subsidizes her take-out shop, which she said is running in the red as a result of the increases already in place. If the minimum rose to $19, she expects she would have to shut it down.

Of course, there are some politicians – and unfortunately some economists – who insist that raising the minimum wage doesn’t have adverse effects on employment, despite sound theoretical reasoning and empirical evidence to the contrary. My Mercatus center colleague Don Boudreaux has compiled an extensive collection of blog posts at Café Hayek debunking and refuting every pro-minimum wage argument out there, and I encourage interested readers to check them out.

The minimum wage most adversely effects low-skill, inexperienced workers, such as those without a high school degree, below the poverty level, between the ages of 16 – 19, and with some type of disability. So how do the people who fit into those categories currently fare in Berkeley’s labor market?

The table below shows the labor force rate and percentage employed for people 16 and over in each of those categories in the city of Berkeley in 2013 and 2014. The data is from the ACS 1-year survey. (American FactFinder table S2301)

berkely min wage employment 2013-14

As the table shows the labor force rate and the employment rate for each of those categories is already low compared to the overall labor force rate in Berkeley of 67% and employment rate of 62%. From 2013 to 2014 both the labor force rate and the employment rate declined for people without a high school degree, while the employment rate increased in the other categories. Nothing in this table leads me to believe that it would be a good idea to make the workers in these categories more expensive to hire, as it seems it is already difficult for them to find employment and it’s getting more difficult for some.

The table below compares Berkeley to the surrounding San Francisco MSA using only 2014 data.

berkeley min wage emp vs SF MSA

This table reveals that compared to the surrounding area, workers in these categories fare worse in Berkeley. The percentage of people with less than a high school degree who are employed was 11 percentage points lower in Berkeley, while the percentage with a disability was 0.8 points lower and the percentage below the poverty level was 1.5 points lower. Out of the four categories only 16 – 19 year olds had a better chance of being employed in Berkeley than in the surrounding MSA.

Hopefully Berkeley’s city council reviews the labor market reality in their city and thinks about actual consequences vs. intentions before deciding to increase the price that low-skill workers are allowed to charge for their labor. It’s already difficult for low-skill, inexperienced workers to find a job in Berkeley and making it harder won’t help them.

Milton Friedman Would Have Been 100 Today

There have already been a lot of great paeans. I’d recommend this article by Thomas Sowell or this blog post by Bryan Caplan or this collection of remembrances by David Henderson. Friedman is justifiably remembered as an excellent economist whose timely and careful research on consumer behavior, money, and economic history literally upended conventional economic wisdom. But he is also remembered as an eloquent and impassioned public voice on behalf of individual freedom.

In that spirit, I think the best tribute is to let him speak for himself. Courtesy of Don Boudreaux, here is Friedman on freedom, government and conformity:

What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game. The characteristic feature of action through political channels is that it tends to require or enforce substantial conformity. The great advantage of the market, on the other hand, is that it permits wide diversity. It is, in political terms, a system of proportional representation. Each man can vote, as it were, for the color of tie he wants and get it; he does not have to see what color-the majority wants and then, if he is in the minority, submit.

It is this feature of the market that we refer to when we say that the market provides economic freedom. But this characteristic also has implications that go far beyond the narrowly economic. Political freedom means the absence of coercion of a man by his fellow men. The fundamental threat to freedom is power to coerce, be it in the hands of a monarch, a dictator, an oligarchy, or a momentary majority. The preservation of freedom requires the elimination of such concentration of power to the fullest possible extent and the dispersal and distribution of whatever power cannot be eliminated – a system of checks and balances. By removing the organization of economic activity from the control of political authority, the market eliminates this source of coercive power. It enables economic strength to be a check to political power rather than a reinforcement.

And courtesy of Professor Miles Kimball, here is a collection of Friedman videos. In the spirit of Mercatus’s latest initiative on cronyism, here is Friedman on the government and the power of the industrialists:

 

(HT, Steven Mitchell)

Sacramento Shakedown: your paycheck just got 10 percent lighter

GMU economist Don Boudreaux’s assessment of California’s decision (effective November 1) to increase the amount it withholds from employees’ paychecks by 10 percent can be summed up in one word: Theft.

Dr. Boudreaux recounts other episodes in history in which heads of state used their authority to extract revenues. In 1626 the British royal treasury was broke and Parliament wouldn’t raise taxes. King Charles I told landowners to pay up their “ship money“.Eighty refused, including John Hampden, who subsequently went to jail.  Charles I tried the tactic again ten years later. Hampden again refused and again went to jail. Why suffer jail twice? As Edmund Burke, reflecting on Hampden’s actions noted, “Would the payment of 20 shillings destroy Mr. Hampden’s fortune, no but the payment of 20 shillings on principle it demanded would have made him a slave.”

Is this sort of thing legal? Yes. The California legislature and the governor realized raising taxes wasn’t the way to go, so they found a dodge: shifting and acceleration. In other words, they changed the withholding tables, not the tax.