Society

The Current State of Minimum Wage Research

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I was reading a Facebook thread recently in which a commenter was complaining about Walmart’s supposedly “evil” business practices and low wages compared to, say, Costco. This same commenter then advocated for the now-popular $15 minimum wage. Readers of Difficult Run are well aware that some of us here have little love for minimum wage laws. Setting aside the reasons Walmart and Costco might pay differently or the net positive effects of Walmart on the economy, I’m just going to point to two recent San Francisco Federal Reserve publications by UCI economist David Neumark. The first summarizes the current state of research on the employment effects of the minimum wage:

Many studies over the years find that higher minimum wages reduce employment of teens and low-skilled workers more generally. Recent exceptions that find no employment effects typically use a particular version of estimation methods with close geographic controls that may obscure job losses. Recent research using a wider variety of methods to address the problem of comparison states tends to confirm earlier findings of job loss. Coupled with critiques of the methods that generate little evidence of job loss, the overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers—with possibly larger adverse effects than earlier research suggested.

As for recent increases in the minimum wage, Neumark makes the following estimate:

Thus, allowing for the possibility of larger job loss effects, based on other studies, and possible job losses among older low-skilled adults, a reasonable estimate based on the evidence is that current minimum wages have directly reduced the number of jobs nationally by about 100,000 to 200,000, relative to the period just before the Great Recession. This is a small drop in aggregate employment that should be weighed against increased earnings for still-employed workers because of higher minimum wages.

The second brief looks at the minimum wage’s effectiveness in reducing poverty and inequality. There are a couple complications:

One complication is research pointing to employment declines from minimum wage increases (see Neumark 2015), which means raising wages for some people must be weighed against potential job losses for others. In this case, whether a higher minimum wage on net helps poor and low-income families depends on the specific pattern of employment effects for different family types.

A second complication is that mandating higher wages for low-wage workers does not necessarily do a good job of delivering benefits to poor families. Of course, worker wages in low-income families are lower on average than in higher-income families. Nevertheless, the relationship between being a low-wage worker and being in a low-income family is fairly weak, for three reasons. First, 57% of poor families with heads of household ages 18–64 have no workers, based on 2014 data from the Current Population Survey (CPS). Second, some workers are poor not because of low wages but because of low hours; for example, CPS data show 46% of poor workers have hourly wages above $10.10, and 36% have hourly wages above $12. And third, many low-wage workers, such as teens, are not in poor families (Lundstrom forthcoming).

Considering these factors, simple calculations suggest that a sizable share of the benefits from raising the minimum wage would not go to poor families.

Both briefs are worth reading. Check them out. For me, it all goes back to what Thomas Sowell says: “There are no solutions; there are only trade-offs.”[ref]Sowell, The Vision of the Anointed: Self-Congratulation as a Basis for Social Policy (New York: Basic Books, 1995), 142.[/ref]

Other People’s Money: Millennials and Socialism

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Friedman

There’s been one underlying basic fallacy in this whole set of social security and welfare measures, and that is the fallacy – this is at the bottom of it – the fallacy that it is feasible and possible to do good with other people’s money. That view has two flaws. If I want to do good with other people’s money, I first have to take it away from them. That means that the welfare state philosophy of doing good with other people’s money, at it’s very bottom, is a philosophy of violence and coercion. It’s against freedom, because I have to use force to get the money. In the second place, very few people spend other people’s money as carefully as they spend their own. – Milton Friedman

 

A recent article in The Washington Post looks at the love affair between Millennials, Bernie Sanders, and the polarizing term “socialism.” The Cato Institute’s Emily Ekins explains,

Millennials are the only age group in America in which a majority views socialism favorably. A national Reason-Rupe survey found that 53 percent of Americans under 30 have a favorable view of socialism compared with less than a third of those over 30. Moreover, Gallup has found that an astounding 69 percent of millennials say they’d be willing to vote for a “socialist” candidate for president — among their parents’ generation, only a third would do so. Indeed, national polls and exit polls reveal about 70 to 80 percent of young Democrats are casting their ballots for presidential candidate Bernie Sanders, who calls himself a “democratic socialist.”

Ekins makes a couple of important observations:

  • “[M]illennials tend to reject the actual definition of socialism…”[ref]Italics mine.[/ref]
  • Countries like “Denmark aren’t socialist states (as the Danish prime minster has taken great pains to emphasize)…” In fact, Denmark “outranks the United States on a number of economic freedom measures such as less business regulation and lower corporate tax rates…”[ref]Will Wilkinson relies on the high amount of economic freedom in some of the Nordic countries to make a libertarian case for Bernie Sanders.[/ref]

But the real question is whether or not this youthful infatuation with socialistic policies will last. Ekins provides reasons to think not:

There is some evidence that this generation’s views on activist government will stick. However, there is more reason to expect that support for their Scandinavian version of socialism may wither as they age, make more money and pay more in taxes. The expanded social welfare state Sanders thinks the United States should adopt requires everyday people to pay considerably more in taxes. Yet millennials become averse to social welfare spending if they foot the bill. As they reach the threshold of earning $40,000 to $60,000 a year, the majority of millennials come to oppose income redistribution, including raising taxes to increase financial assistance to the poor. Similarly, a Reason-Rupe poll found that while millennials still on their parents’ health-insurance policies supported the idea of paying higher premiums to help cover the uninsured (57 percent), support flipped among millennials paying for their own health insurance with 59 percent opposed to higher premiums. When tax rates are not explicit, millennials say they’d prefer larger government offering more services (54 percent) to smaller government offering fewer services (43 percent). However when larger government offering more services is described as requiring high taxes, support flips and 57 percent of millennials opt for smaller government with fewer services and low taxes, while 41 percent prefer large government.

If previous generations are any indication (“both baby boomers and Gen Xers grew more skeptical of government over time”), the Millennial approval of big government may dwindle when they start having to pay for the programs they advocate. But an even greater takeaway–in connection with the notion that the world is getting better–is that “college students today are not debating whether we should adopt the Soviet or Maoist command-and-control regimes that devastated economies and killed millions. Instead, the debate today is about whether the social welfare model in Scandinavia (which is essentially a “beta-test,” because it hasn’t been around long) is sustainable and transferable.” In other words, “in the 20th-century battle between free enterprise and socialism, free enterprise already won.”

Are All the Income Gains Going to the Top One Percent?

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A new report by the Manhattan Institute’s Scott Winship looks at the claims regarding “the rich getting richer” and the top 1% making most of the gains since the Great Recession. Winship’s main findings include:

  • An accurate accounting of who is gaining and losing in the U.S. economy requires a broad view across an entire business cycle: while the richest households tend to gain the most during economic expansions, this is partly because they also lose the most during recessions.
  • In the current, ongoing, business cycle, real incomes declined between 2007 and 2014; the top 1 percent experienced nearly half of that total decline.
  • From 1979 to 2007, 38 percent of income growth went to the bottom 90 percent of households, amounting to a 35 percent increase ($17,000) in its average income.

Check it out. An excerpt can be found here.

The Inequality of Spending

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Over at The New Republic, a pair of economists report,

In a just-released study, we provide the first picture of actual U.S. inequality. We account for inequality in labor earnings and wealth, as Thomas Piketty and many others do. And we get to the bottom line: what does inequality in spending look like after accounting for government taxes and benefits? Our findings dramatically alter the standard view of inequality and inform the debate on whether and how best to reduce it. Our study focuses on lifetime spending inequality because economic well being depends not just on what we spend this minute, hour, week or even year. It depends on what we can expect to spend through the rest of our lives.[ref]Similar studies have been done in their measurement of poverty.[/ref]

The results?

First, spending inequality—what we should really care about—is far smaller than wealth inequality. This is true no matter the age cohort you consider. Take 40-49 year-olds. Those in the top 1 percent of our resource distribution have 18.9 of net wealth but account for only 9.2 percent of the spending. In contrast, the 20 percent at the bottom (the lowest quintile) have only 2.1 percent of all wealth but 6.9 percent of total spending. This means that the poorest are able to spend far more than their wealth would imply—though still miles away from the 20 percent they would spend were spending fully equalized.

The authors conclude,

The facts revealed in our study should change views. Inequality, properly measured, is extremely high, but is far lower than generally believed. The reason is that our fiscal system, properly measured, is highly progressive. And, via our high marginal taxes, we are providing significant incentives to Americans to work less and earn less than they might otherwise. Finally, traditional static measures of inequality, fiscal progressivity and work disincentives that a) focus on immediate incomes and net taxes rather than lifetime spending and lifetime net taxes and b) lump the old together with the young create highly distorted pictures of all three issues.

Check it out.

Our Kids: An AEI Discussion with Robert Putnam

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This is part of the DR Book Collection.

Regular readers of Difficult Run know that research on marriage and family structure is a hobby horse of mine. It’s something I try to keep up with, which is why I was excited when political scientist Robert Putnam’s book Our Kids: The American Dream in Crisis was released. Putnam explores the growing inequalities within America by focusing on children and their family and social backgrounds. The book provides a useful narrative by fleshing out empirical evidence with interviews and anecdotes.[ref]He relies a little too heavily on anecdotes for my taste. More attention to the details within the data would have been preferable.[/ref] It joins an increasing number of impressive books that demonstrate the powerful influence of family structure on the outcomes of children’s lives.

See Putnam discuss his book on an AEI panel with Charles Murray and William Wilson below.

Munk Debate: Humankind’s Best Days Lie Ahead

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Harvard’s Steven Pinker and science writer Matt Ridley went head-to-head with essayist Alain de Botton and author Malcolm Gladwell in the Canada-based Munk Debates on the subject of human progress: “Be it resolved that humankind’s best days lie ahead.” Given Pinker and Ridley’s past books, they were obviously on the PRO side. A portion of the debate can be found below:

I came into this debate heavily biased, but I still think Pinker and Ridley wiped the floor with their opponents. Here are some highlights:

Pinker argues that the world is getting better based on 10 major factors of human well-being:

  1. Life itself: lifespan is increasing.
  2. Health: diseases are declining.
  3. Prosperity: the world is wealthier and extreme poverty is continually declining.
  4. Peace: wars are becoming less frequent.
  5. Safety: global rates of violent crime are falling.
  6. Knowledge: the percentage of people with a basic education is increasing.
  7. Freedom: democracy overall is expanding worldwide.
  8. Human rights: the amount of rights and campaigns in favor of them have increased.
  9. Gender equity: women are better educated and hold more positions of power and influence.
  10. Intelligence: IQ scores continue to increase in every country.

He concludes,

Pinker

A better world, to be sure, is not a perfect world. As a conspicuous defender of the idea of human nature, I believe that out of the crooked timber of humanity, no truly straight thing can be made. And, to misquote a great Canadian, “We are not stardust, we are not golden, and there’s no way we’re getting back to the garden.” In the glorious future I am envisioning, there will be disease and poverty, there will be terrorism and oppression, and war and violent crime. But there will be much, much less of these scourges, which means that billions of people will be better off than they are today. And that, I remind you, is the resolution of this evening’s debate.

Ridley

Ridley argues for the why behind these dramatic improvements:

But, my optimism about the future isn’t based on extrapolating the past. It’s based on why these things are happening. Innovation, driven by the meeting and mating of ideas to produce baby ideas, is the fuel that drives them. And, far from running out of fuel, we’re only just getting started. There’s an infinity of ways of recombining ideas to make new ideas and we no longer have to rely on North Americans and Europeans to come up with them. The internet has speeded up at the rate at which people can communicate and cross-fertilize their ideas.

In response to de Botton’s focus on what he himself labels as the “first-world problems” of Switzerland, Pinker says,

Are you saying that you willing to go to a peasant in Cambodia, or Sudan, or Bangladesh, or Afghanistan and say, “Listen, I’ve been there. You worry about your child dying, your wife dying in childbirth, you’re full of parasites, you don’t have enough to eat but, you know, trust me, it’s no great shakes to live in a country like Switzerland. True, your child might not die in the first year of life but, you know, when they’re a teenager they’re going to roll their eyes at you. And you may not have to live under the shadow of war and genocide but people will still make bitchy comments. And you may not be hungry but, you know, sometimes the wine will have a nose that’s a bit too fruity.”

Ridley adds to this:

This world isn’t perfect, definitely not. That’s the whole point of optimism…It means you don’t think the world is perfect, you want to improve it. And if, along the way, that means that when we get to Switzerland, we stop being able to appreciate flowers and we lose our sense of humour [a jab at de Botton], well, maybe it’s a price worth paying.

In response to the problem of “unhappiness,” Ridley correctly points out that “happiness correlates with wealth, between countries, within countries and within lifetimes. It’s perfectly true that you can be very wealthy and very unhappy. But, that’s all right, because it cheers up other people, so…” Pinker backs him up by explaining that “the Easterlin Paradox has been resolved. I think you’re [de Botton] a decade out of date. The idea that wealth does not correlate with happiness, which is what the Easterlin Paradox was, has been resolved.”

On the topic of climate change and Gladwell’s somewhat disparaging remarks about economists, Pinker states,

I certainly agree that economists are an inviting target and one can always get a laugh by making fun of economists. But the problem of climate change is an economic problem. All the projections of the worst case scenarios all depend on calculations of economists, namely how many people will burn how many units of fossil fuels…Both the analysis of climate change and the possible solutions are economic problems. We know that we can have solar panels, the question is will there be enough solar panels to reduce fossil fuel use? We know that nuclear power can cut into carbon emissions, by how much. We know that people could reduce their consumption enough to mitigate the problem. Will they? Under what kind of incentives…So, it’s very much a problem of economics.

As de Botton continued to obsessively bring the mental states of literary characters, Pinker reminded him that “Anna Karenina didn’t actually exist…neither did Hamlet…I think if your child dies in the first year of life, that deeply concerns the human psyche. I think it’s very relevant to happiness. I think if billions of people do not see their children die, that’s a much more relevant consideration for the human psyche, for the depths of human existence than Anna Karenina…”

Given all this, I applaud Pinker’s conclusion: “It’s irresponsible enough to be a fatalist when the objective indicators say the world is getting worse, all the more so where they say the world is getting better.”

The whole thing is worth the watch.

Reading Fiction Enhances Social Skills

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The Wall Street Journal reports on a brand new study in Social Cognitive & Affective Neuroscience:

People who read a lot of fiction are known to have stronger social skills than nonfiction readers or nonreaders. A new study suggests that reading fictional works, especially stories that take readers inside people’s lives and minds, may enhance social skills by exercising a part of the brain involved in empathy and imagination.

…[R]eading fictional excerpts about individuals and groups of people heightened activity in a brain system known as the default network. This system is active when people are imagining hypothetical situations, such as the past or the future, or thinking about another person’s perspective, the researchers said.

I’ve written on this topic before. The evidence continues to pile up.

 

The Populist Trade Problem

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A recent article in Vox outlines the problem of anti-trade populism:

Bernie Sanders sells himself as a champion of the little guy. But talk to economists and development experts, and you hear something different: Sanders’s policies on trade would hurt the very poorest people on Earth. A lot.

Here is the basic issue. Sanders has, correctly, recognized that freer trade with countries like China has hurt a subset of American workers (while benefiting others). As a result, he opposes most efforts to open American markets to more international competition, and promises to roll back a number of previous trade agreements the US had made.

There’s one big problem, according to development economists I spoke to: Free trade is one of the best tools we have for fighting extreme poverty.[ref]See my SquareTwo article written with Nathaniel for some of the evidence of this claim.[/ref] If Sanders wins, and is serious about implementing his agenda, he will impoverish millions of already-poor people in China and Central America.

What’s worse is that the actual ways Sanders might roll back these agreements could lead to serious reprisals from the affected countries. The nightmare scenario, experts say, is a global slide toward protectionism, wherein China and other countries take cues from the US and impose their own retaliatory tariffs. That would devastate economies in the developing world, dooming many more millions to a lifetime of crushing poverty.

The piece demonstrates how trade has benefited the global poor, while recognizing it may negatively impact some American jobs (though the benefits of increased purchasing power through cheaper goods may outweigh the costs). However, Sanders is not the only candidate with backward policies when it comes to trade. Donald Trump, according to The New York Times, “is bringing mercantilism back. The New York billionaire is challenging the last 200 years of economic orthodoxy that trade among nations is good, and that more is better. He is well on his way to becoming the first Republican nominee in nearly a century who has called for higher tariffs, or import taxes, as a broad defense against low-cost imports.” These positions show why Trump and Sanders are far more conservative[ref]In fact, some recent research in political psychology “suggests that the personality characteristics that make someone culturally conservative will often tend to promote left-wing economic views, favoring redistributive economic intervention by the government.” This is likely due to the protectionist nature of left-wing economics.[/ref] and far more alike[ref]This includes some of their views on immigration.[/ref] than some would care to admit. This is perhaps why some political scientists are recognizing Trump supporters as populists: a label usually reserved for Sanders supporters. “Trump supporters share anti-elitism with only one other group: Sanders’s voters,” write one pair of political scientists in The Washington Post. “But where Trump is a populist, we would argue that Sanders is not. Despite the fact that Sanders often gets called a populist, his voters do not conform to the populist stereotype. They generally trust experts and do not identify strongly as Americans.” This may be true of Sanders supporters in some cases, but when it comes to economics, they reject the expertise and consensus of economists and embrace U.S.-centric protectionist policies.

From Gregory Mankiw’s Principles of Economics, 7th ed. (pg. 32).

A socialist Democrat and a Republican businessman drawing from the same economic playbook. I’m sure most didn’t see that one coming.

 

“A Peculiar People”: An Interview with J. Spencer Fluhman

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This is part of the DR Book Collection.

I was lucky enough to meet BYU history professor J. Spencer Fluhman last year when he presented at the Miller Eccles Study Group here in Texas. The lecture was based on his book “A Peculiar People”: Anti-Mormonism and the Making of Religion in Nineteenth-Century America. Anti-Mormonism took on a number of forms, from describing Joseph Smith as an impostor and his religion as “false” to seeing Mormonism as a kind delusion or madness to fearing the Mormons’ political power and fanaticism. The U.S. Constitution granted religious freedom, but these fears and accusations led Americans to question what was truly meant by religion.

A fascinating read.

The interview below features both Fluhman and Joanna Brooks.

International Women’s Day: Women at Work

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With International Women’s Day coming to a close, I wanted to share this article from The Huffington Post titled “39 Stunning Images of Women at Work All Over the World.” This holiday was part of the early 20th-century labor movements, organized by the Socialist Party of America. However, the actual work is sometimes overlooked in modern celebrations. Here’s a little something to remind everyone of the hard work done by women all over the world.

Pakistan
India
Israel
Germany
North Korea
Thailand

And much more. Check it out.