Washington State and Seattle set the nation’s highest minimum wage

Commentary by James Shott

   Since 1998, Washington State has led the nation in both local and statewide minimum wage levels, which attracted the attention of Labor Secretary Tom Perez who praised the state for having “the highest minimum wage in the country for the last 15 years.” But the full picture is much less rosy than Secretary Perez would have us believe.

   In an article on Forbes.com the Freedom Foundation’s Maxfeld Nelson put things in perspective. “Although the state’s overall job growth has remained strong since adoption of the high minimum wage, growth in industries with a prevalence of low-wage workers has slowed,” he reports. Citing Bureau of Labor Statistics and Census Bureau data he writes that while Washington State’s share of the nation’s population increased by 5.7 percent from 1998 to 2014, and its share of total U.S. jobs increased by 6.3 percent, the state’s share of U.S. hotel and restaurant jobs, which could have been expected to rise commensurately, fell by 5.7 percent. Those industries are where thousands of people the higher minimum wage was supposed to help were once employed.

   In fact, while Washington’s teen unemployment rate had roughly paralleled national trends prior to the 1998 minimum wage hike, every year since then it has been substantially higher, and at one point reached 34 percent above the national rate.

   Not content with the state’s $9.47 minimum wage, SeaTac, a small city that depends heavily on businesses benefitting from its airport, decided to raise its minimum to $15 an hour in a close vote in a 2013 election. “Although the narrow drafting of the ordinance and ongoing litigation have limited the law’s scope to a mere handful of businesses and employees,” Mr. Nelson writes, “it is still having consequences. A parking company has added a ‘living-wage surcharge’ to its rates. One hotel closed its restaurant and laid off 17 employees. Employees at another hotel reported losing an array of benefits, with one stating that the $15 minimum wage ‘sounds good, but it’s not good.’”

   And now Seattle has hopped on board that bandwagon with a phased-in minimum wage, raising the minimum to $11 an hour April 1, and the rate hike will be fully implemented by 2025. Some businesses, however, are on a sped-up schedule, like Ritu Shah Burnham’s Z Pizza restaurant.

   Even though she has only 12 employees, her business is classified as part of a “large business franchise,” putting her on the fast track to raising the minimum. “I’ve let one person go since April 1, I’ve cut hours since April 1. I’ve taken them myself because I don’t pay myself,” she told a local TV station. “I’ve also raised my prices a little bit; there’s no other way to do it.”

   One of her employees was initially excited at the advertised benefits of getting a raise and having a better life. “If that’s the truth,” he told the TV outlet, “I don’t think that’s very apparent. People like me are finding themselves in a tougher situation than ever.” He will only get to enjoy the higher pay until August, when Ms. Burnham has determined she must close her business. “I have no idea where they’re going to find jobs, because if I’m cutting hours, I imagine everyone is across the board,” she said.

   Jake Spear, the director of 15 Now Seattle, a wage hike advocate group, was unmoved at the plight of these 12 employees. It’s just one restaurant, after all. “Restaurants open and close all the time, for various reasons,” he said.

   Back during the flower child era of the 1960s and 70s, the operative slogan was, “If it feels good, do it!” That slogan has more recently been co-opted by pandering politicians, labor union leaders, and others more interested in the immediate rewards of increased numbers of fawning, adoring voters and thankful union members than with the reality of lost jobs, higher consumer prices, and struggling businesses. They have another favorite slogan, as well: “Damn the torpedoes! Full speed ahead!”

   The fallacy in the minimum wage debate is that so many people – liberal feel-gooders, people new to the workforce, people in the most basic jobs and/or with the lowest skill levels, along with pandering politicians and union bosses – don’t understand the significance of varying wage levels. It eludes them that wages must be earned, not merely given like a gift, and that higher wages require more training, knowledge, skill and experience from workers than lower wages do. There is more involved in earning a high wage than just getting hired and showing up for work. You have to contribute something positive to the business you are fortunate enough to work for, and the greater your contribution, the more you are able to earn.

   A mandated high minimum wage contributes to the entitlement mentality, where people expect to exist without having to contribute very much to their own well-being. This is not a positive development for a society that was built by generations of Americans who were hard working and self-reliant.

   Detroit and Baltimore are graphic examples of the failure of liberal policies, and now we see Washington State and Seattle heading down that same path.

Cross-posted from Observations

Slices of life in America, 2015: The Good; The Bad, and The Ugly

Commentary by James Shott

The Good: Jordan Speith, 21 year-old Masters golf tournament champion - In this day of giant egos among athletes, entertainers and politicians, we hardly ever expect to see someone behave with dignity and humility when they have a big success.

But following his magnificent win at the Masters on April 12, where he shot a 2-under-par 70 in the final round to finish with an 18-under 270, four shots ahead of three-time Masters champion Phil Mickelson and 2013 U.S. Open champion Justin Rose.

This was his fourth win worldwide in four months, placing him No. 2 in the world. But no self-congratulatory, boastful behavior comes from this young man. “It's the most incredible week of my life," he said. "This is as great as it gets in our sport. … This isn't an honor that's carried lightly.”

He is as even when things don’t go so well. A bad tee shot on the 16^th hole in Sunday’s final round elicited a disgusted "dang it!"

"He's just a classy guy," Phil Mickelson said of him on Saturday. "He just represents the game very well and at a very young age, and he's just got a lot of game. So if he were to come out on top, it would be wonderful for the tournament, wonderful for the game."

The Bad: Silly enforcement of a San Antonio ordinance - It’s another case of government run amok, sometimes seeing the good things people do as bad, and following sometimes-silly rules that interfere with religious freedom and the good works people do.

San Antonio lawyer and author Joan Cheever owns The Chow Train, a licensed non-profit food truck that she uses to provide hot, healthy meals to the homeless each week. She has been doing this since 2005, feeding between 25 and 75 homeless people each time. But four of San Antonio’s Finest took exception to this voluntary effort to help those less fortunate, and issued Ms. Cheever a $2,000 ticket.

When she told one of the officers she was merely following the tenets of her religion, he responded, “Ma’am, if you want to pray, go to church.” The officer apparently is not familiar with the First Amendment of the U.S. Constitution, which clearly allows one to freely practice their religion whether in church or not, something that is of a higher authority than city ordinances.

Charitable works have been under attack for decades by a growing attitude among big government advocates that holds, despite dramatic evidence to the contrary, that government can do it better. And now in San Antonio government directly halts a private sector effort to help people in need, people that the city government is not feeding once a week, as does Ms. Cheever.

She will appear in court on June 23 to defend herself, and plans to argue that this expression of her religious convictions is protected under the Religious Freedom Restoration Act. Let us hope the court will see the value of her works, and allow her to follow her charitable impulses to help the less fortunate unimpeded.

The Ugly: Two examples - “Ugly” is a term with a variety of meanings, and applications: very unattractive, disagreeable, unpleasant, objectionable, morally revolting, threatening or dangerous, mean, and is applied to things that are really dumb and defy common sense.

With that in mind, two ugly items:

* A New York Police Department officer who drove his replica of the General Lee car from “The Dukes of Hazard” TV show to work has been told by his superiors not to drive it to work anymore. Why? Because the General Lee has a Confederate flag painted on its top, and some might consider that offensive. According to a local TV news report, a police spokesman said, “due to the fact that its presence at the NYPD facility may be considered offensive and/or inappropriate, the registered owner is being instructed that the car should not be parked on NYPD property.” Maybe the officer should be forced to sell the car as a provision of continued employment, so he can’t offend anyone, even when he’s off duty. No one must be offended. Ever.

* A Virginia college girl and two friends were set upon in her car in a store parking lot after making a purchase by seven plainclothes officers of the state Alcoholic Beverage Control agency. The girls did not realize the un-uniformed people were law enforcement agents, and got scared when the agents aggressively approached their car. They tried to escape, prompting one officer to pull a gun and another to try to break out a window with a flashlight. In the effort to escape, the driver brushed two of the officers. She was later charged with three felonies and spent the night in jail. What had these girls done? The officers “thought” they “might” have bought beer and “might” have been under age. They had bought bottled water, not beer. Eventually, the charges against the girl were dropped. Who thinks hiding in store parking lots waiting to catch under-age customers buying beer is efficient use of ABC resources and taxpayer money?

Cross-posted from Observations

Minimum wage hike: Another bad Obama idea

Another of President Barack Obama's bad ideas is to force employers to pay higher wages to the lowest skilled and/or least experienced workers on the premise that by raising the take-home pay of these people, the world will be better.

Unfortunately, lots of people agree with him, including some who are usually far more sensible. They think that raising the minimum wage would put more money into the economy, and that can't be a bad thing, can it? First of all, it doesn't put money into the economy; it merely moves it around unnaturally. And, as usual, there are other repercussions that haven't been considered.

Since the number of people that earn the minimum wage is relatively small, any direct help is minimal. In January the U.S. Labor Force was 155.6 million, with about 102 million working full-time. Only 1.5 million earn the minimum wage, about nine-tenths percent. It is most often a starting wage level for teenagers with few or no skills and/or experience. And while the president didn't mention this, just because someone starts at the minimum, that doesn't mean they earn at that level for long. Research shows that nearly two-thirds of those earners get a raise from one month to a year after they begin work.

U.S. Census data shows that only 15 percent of minimum wage earners are single parents, and all are eligible for the Earned Income Tax Credit. The remaining 85 percent are teens living with their working parents or other working relatives, adults living alone, or married adults living with a working spouse. The average family wage of a minimum wage earner is more than $43,000 a year.

So, the problem the president believes he will solve by increasing the minimum wage is so small as to be no real problem at all, and there is evidence that far more harm than good will result.

Mr. Obama proposes to raise the rate from $7.25 to $9.00 an hour over two years. Something he never talks about – and may neither think about nor care about – is the question of where this money for higher wages will come from. Somehow, employers will have to find a way to pay every minimum wage worker 24 percent more over a two-year period, which works out to $3,600 in annual wage increases per worker over that time frame.

Will they reduce the number of minimum wage workers? The increase in pay for every four workers is nearly equal to the pay of one worker under the existing minimum wage. If you are a minimum wage earner, you might ask yourself: would you rather earn $7.25 an hour for 40 hours a week, or $9.00 an hour for zero hours a week?

Will they raise their prices by 24 percent, making their products more expensive for everyone, including those who earn the new minimum wage?

What about people who earn a bit more than the current minimum, but less than nine bucks? They will have to be increased to $9 per hour, which makes them minimum wage earners again after having been at a rate higher than the minimum, perhaps after having worked their way up from that level. What will employers do? Will they increase those hourly wages by $1.75 an hour to keep them where they were relative to the minimum wage; will they give them a smaller raise; or will they just pay them $9?

And what about those who earned more than $9 an hour, and are now $1.75 an hour closer to the minimum? How will they react? Shouldn't everyone get a raise; wouldn't that be the "fair" thing to do? How much additional costs to employers will this cause?

"The effects of the minimum wage are declines in employment for the very least skilled workers," according to David Neumark, a University of California, Irvine, professor who has studied the issue. He says the benefits of higher minimum wages sometimes go to teens in higher-income families taking part-time jobs. "A lot of the benefits of minimum wages leak out to families way above the poverty line," he said.

So, the minimum wage hike really helps only a relative few, sometimes helps those that don't need it, reduces hiring of minimum wage workers, and makes running businesses more expensive for employers, who would have to find a way to pay for increased wages for many more workers than just those earning the minimum.  They might have to defer expanding their business or purchasing new equipment. Or, they might have to increase the prices for their products and services. Or they might have to do some of all of those things.

All jobs and workers have economic value based upon the importance of their work to the business of which they are a component that is not related to the desires of politicians to endear themselves to a segment of the populous.

 Politicians cannot change economic reality, but they do not let that stop them from trying, and we can see all around us in the current economic malaise what happens when they try to manipulate the economic environment.

Exactly what does being “better off than four years ago” look like?

 

Commentary by James H. Shott
 
The DC newspaper The Hill has a new poll that found 52 percent of likely voters believe the country is now in "worse condition" than four years ago, while just 31 percent believe it's in "better condition."
 
It is pretty clear that people believe they are not better off today than four years ago, but what would things look like if we were better off today?
 
Well, for example, if your home was worth $80,000 in September of 2008 it should not be worth less today and perhaps should have gained a little value. Or, if you were out of work then, you should have a job today, and if you had a job then, you should perhaps be making a little more today. It should not cost you much more to fill your car with gas, and trips to the grocery store should cost about the same today as then.
 
However, most Americans cannot make such claims today. Most homeowners have lost value in their homes; more than 34 million of us are unemployed, underemployed, or have exhausted unemployment insurance and become so discouraged that we have given up looking for work; gasoline prices have doubled, food and health care prices have increased; and relatively few have seen their wages increase. 
 
The jobs numbers released last Friday reflect feeble job creation in August. Just to stay even with the new people entering the job market each month the economy must create 125,000 jobs, and to make progress in replacing those jobs lost during the recession we need lots more new jobs than that. The 96,000 new jobs created in August falls 29,000 jobs short of what’s needed just to stay even.
 
The U-3 unemployment rate fell from 8.3 to 8.1 percent. It most often is a good sign when the U-3 rate falls, but the fact that for every job created four people gave up looking for work and dropped out of the active work force means no good news there.
 
Economist James Fitzgibbon of the Highlander Group said that "If we impute the data samplings of non-working citizens at the labor force rate of January 2009 we would have a Household U-3 Unemployment rate currently of 11.4%." That isn’t better than four years ago, either.

Mr. Fitzgibbon then addresses the effect on the Labor Force Participation rate of the 368,000 people who dropped out of the labor force last month, which "has fallen sharply to 63.5 percent, a new 31-year low reading." 
 
Add to that the fact that from June 2009 to June 2012, inflation-adjusted median household income fell 4.8 percent, to $50,964, according to a report by Sentier Research. The report notes that incomes have dropped more since the beginning of the recovery than they did during the recession itself, when they declined 2.6 percent. That certainly does not indicate we are better off than four years ago.
 
Yet, Vice President Joe Biden said last week at a campaign appearance at an AFL-CIO event just before the beginning of the Democrat National Convention that his answer to the question “Are you better off than four years ago,” is “yes, we are.”
 
"You want to know whether we're better off? I've got a little bumper sticker for you: Osama bin Laden is dead and General Motors is alive," Mr. Biden proclaimed.
 
After 43 months in office, the vice president cites only two things to support the idea that we are better off than four years ago, both weak. As good as it is that bin Laden has been dispatched to his just reward, whether he is alive or dead is totally irrelevant as a measure of whether Americans are better off today than four years ago. The other one, General Motors, is not looking quite as bright and shiny as the vice president seems to think it is.
 
The company is losing market share; its products are not competitive in the American market. The federal government owns 500,000,000 shares of GM, or about 26 percent of the company, which earned it the nickname “Government Motors.” The government not only cheated GM bondholders out of their investment when it acquired the stock, but would need to get about $53.00 a share to break even on the “investment,” but the stock currently sells for about $20.21 a share.  The government has $10.1 billion worth of stock, and sits on an unrealized loss of $16.4 billion.
 
President Barack Obama showed what he thinks is important when he put his ideology ahead of what Mr. Biden termed his “profound concern for the average American.” His first priorities were taking over the healthcare system and force-feeding green energy to the American people. That put energy industry workers out of work, cost Americans millions in higher prices, and lost a pile of taxpayer money. But like the man said, “You don’t ever want a good crisis to go to waste.”
 
The President’s foolish, ham-handed decision to focus on health care and green energy have damaged, not improved, the economy, and as Clint Eastwood so perceptively noted in Tampa, “When somebody doesn’t do the job, we gotta let ‘em go.”
 
Cross-posted from Observations

Like most investments, private equity firms are good for the economy

Commentary by James H. Shott

The purpose of every investment – however ordinary or unusual; however simple or complex – is to make money through earned interest or dividends, or profiting from sales of items, services or businesses.

Whether it is a passbook savings account or a Certificate of Deposit; corporate or municipal bonds or shares of stocks; your employer’s pension plan that grows in value to fund retirement; investing in a business and working to have more revenue than expenses; or investing in a private equity firm that buys existing businesses and hopes to build the value of those businesses, profit is the reason people invest.

Nearly everyone understands and accepts that they should collect earnings from a savings account or a stock purchase, but many of these same people are horrified when business owners sometimes make a good living or private equity firm partners make significant money in their activities.

Some seem to think that the purpose of business is to achieve social goals, and try to impose all sorts of their favored ideals on the business world. While many businesses do support community or charitable programs, these are secondary activities. Making a profit so they can remain in business is their primary purpose.

Like every other investment, the purpose of putting money at risk by investing in a private equity (PE) firm is to make a profit, and PE firms do that by buying companies and selling them. They don’t buy successful companies because the price of a successful company is already high, and trying to make a successful company even more successful, and therefore more valuable, is mostly a no-win situation.

Instead, they buy companies that are failing or underperforming, because like a house that hasn’t been taken care of and needs a lot of work, these companies can be purchased at a relatively low price.

Perhaps the company needs to upgrade its equipment or processes; maybe management is stagnant, failing to make good decisions or timely decisions; or it spreads production components too thinly over too many products; or sometimes it must reduce employment to save the company. A fresh look by new owners with particular expertise in what the company does may very well turn it into a profitable entity. That is the bet that private equity firms make.

The firm then uses its expertise to recommend steps to improve the operation and performance, and the company most often prospers, grows, and creates jobs. The improved company is naturally more valuable than when it was purchased, thus the selling price is higher, and sometimes much higher. In three to five years the PE firm would sell the company at a profit, making money for its investors.

This isn’t magic. This isn’t criminal. This isn’t greedy. It is purely logical. And, furthermore, it was the intention from the start, along with producing the positive economic benefits it created and the products and services that it produced to satisfy the wants and needs of consumers.

So, the people investing in private equity firms put their money on the line, risking it on the hope that the firm will successfully buy and turn around poorly performing companies, and sell them at a profit.

However, private equity firms do not always succeed in turning around a purchased company, and in such cases the failed company is closed and people lose their jobs, and yes, the investors lose money.

The private equity folks can’t win. They get criticized as greedy when they succeed in turning around a failing company and then selling it for a handsome profit, and when it fails to turn a company around and the company closes and people lose their jobs, they get portrayed as profit-hungry, selfish capitalists.

What many people do not or cannot understand is the fact that the companies PE firms cannot save likely would have shut down had they not stepped in, and likely much sooner if it had not been acquired. And then there are those who use the pain of lost jobs and closed businesses as opportunities to further their political goals.

This is yet another example of how the American public’s abysmal understanding of how the economy works not only impedes the process of implementing favorable policies that will allow the economy to grow, but also arms demagogues with tools to take advantage of us for their selfish purposes.

There are other facts that need to be emphasized. First, if PE firms weren’t successful most of the time, savvy people would not invest in them. And, private equity investors use their own money in these endeavors, rather than taxpayer money, so no public money is lost in the relatively few times that they fail to turn a company around.

In “American Restoration: The Role of Private Equity,” an article on the Heritage Foundation’s website by J.D. Foster, Ph.D., the author explains that private equity firms “don’t always succeed. But their very existence and the [large] profits they reportedly make testify that they succeed far more often than they fail, and a lot of Americans can thank their continued employment to the prowess of these American restorers.”

Cross-posted from Observations