No good deed goes unpunished: A look at the $15 an hour minimum wage

There’s an old expression, “No good deed goes unpunished.” Raising the minimum wage may sound like a good deed. But, it delivers a lot of punishment. And, it punishes those that it seeks to help.

For example, for the past few years, youth unemployment in Oregon has been about five percentage points worse than the U.S. as whole. The labor force participation of Oregon’s youth has been declining faster than the rest of the U.S.

In other words, young people looking for work cannot find work. And—even worse—it’s so hard for the young to find a job that they’ve given up looking.

However, as unemployment has grown and labor force participation has shrunk, Oregon has seen a steady rise in the state’s minimum wage to among the highest in the country.

This is not some crazy coincidence, or an episode of Portlandia where young people come here to retire. It’s because it is too expensive to employ young people or unskilled people. It’s because of Oregon’s sky high minimum wage.

It’s not only about the young. It’s about the unskilled, the elderly, the disabled, the person trying to get his or her life back on track.

Most economic evidence indicates that increasing minimum wages are associated with reduced employment. Indeed, a recent comprehensive review of the research by the U.S. Congressional Budget Office finds that the negative impacts are felt through wide portions of the economy with youth employment disproportionately damaged. CBO’s analysis is based on an increase in the federal minimum wage. State-level impacts are likely to be larger as many employers operate in a national labor market and can shift staffing across state lines.

We can see that observation play out in a few figures. The figure below shows that, since 1990, wage and salary income in Oregon has declined relative to the rest of the U.S. In 1990, the average Oregon worker made about $550 less per year than the rest of the U.S. The most recent data shows that the average Oregonian earns about $3,400 less than workers in the rest of the U.S. However, over that time period, Oregon’s minimum wage has grown to be among the highest in the country. In fact, the figure at the top of this post shows that as Oregon’s minimum wage has grown, so has its relative decline in wage and salary income.

Oregon-wage-salary-income-vs-US

The minimum wage bills under consideration in this legislative session would likely reduce total wage income in the state. The steep minimum wage increases being proposed would take income from one group of Oregon workers in order to benefit another group of Oregon workers, without increasing—and likely decreasing—total Oregon wage income. While some employees would see a modest increase in their annual salaries, tens of thousands of Oregonians would be unable to find employment and would have no wage income.

In fact, it is very likely that the gains to those who will see a boost in their wages would be more than offset by the losses to those who cannot find work at those wages. In other words, Oregon workers—as a whole—would be worse off.

In July 2014, the Legislative Revenue Office concluded that raising the minimum wage by just $2 an hour would have a long-run negative impact on employment and incomes.

The recent article published by the Journal of Political Economy titled, “How Effective Is the Minimum Wage at Supporting the Poor?” concludes that:

[t]he costs imposed by the minimum wage are paid in a way that is more regressive than a sales tax.

What the research finds that that the biggest chunk of a minimum wage increase gets eaten up in payroll and income taxes. Then, the rest of the increase gets eaten up by paying higher prices because minimum wage increases get passed on to consumers in the form of higher prices.

In other words, after the government gets its cut, minimum wage earners end up paying for their own minimum wage increases. It’s a bit like shifting money from one pocket to another, while dropping a few coins along to way that get picked up by the tax collector.

Watch the testimony before the Oregon Legislature:

A surprising explanation why Indian children are so short

You learn something new every day. Today, we learned that the people of India are short. Really short.

As someone who went to graduate school to study economics, I’ve come to know quite a few Indians and people of Indian descent. Some have been tall, some have been short, some have been thin, and some have been fat.

But, I’ve never walked away thinking to myself, “Gee, Indians sure are short.”

That means I’ve never stayed up at night wondering, “Why are Indians so short?”

First, let’s get an idea of how short is short.

According to one easily obtainable set of data, the average American male age 20 and older is 5 feet, 9.5 inches tall. The average Mexican is 5 feet, 5.9 inches tall. And, the average Indian adult male is just under 5 feet, 4 inches tall. That’s shorter than the average North Korean male who has had to suffer through years of malnutrition.

Apparently this has been enough to keep two economists up at night asking “Why are Indians so short?” Indeed, their working paper published by the National Bureau of Economic Research has the obvious title, “Why are Indian children so short?

The authors begin by noting that Indian children are shorter than many poorer sub-Saharan African countries.

First, they account for some of the biggest differences, such as differences in healthcare such as vaccination.

Then, they note something curious. The authors find that the difference in height between Indian and African children gets worse with birth order. In other words, there’s a difference in height between Indian and African first born children and the difference gets bigger with the second child, the third child, and so on. And, the difference is bigger between Indian and African girls.

This finding leads the authors to conclude that a preference for eldest sons in India leads to a significant unequal allocation of resources within families in India. This preference includes a desire (1) to have at least one son and (2) for the eldest son to be healthy.

The researchers—who are themselves Indian—not that eldest son preference can be traced to at least two aspects of Hindu religion. First, Hinduism prescribes a system in which aging parents live with their son, typically the eldest, and bequeath their property to him. Second, Hindu religious texts emphasize post-death rituals which can only be conducted by a male heir such as lighting the funeral pyre, taking the ashes to the Ganges River, and organizing death anniversary ceremonies.

The result is a strong preference for son and a desire to for the eldest son be healthy enough to fulfill his obligations to his aging parents.

The other result is a nation with a small group of relatively tall men and a large group of much shorter men and women, leading to an overall depression in average height.

UPDATE: For a more in-depth discussion, without reading the actual working paper, the authors have written a summary at VoxEU.

Are solar energy jobs a path to prosperity or poverty? Lessons from a solar scandal.

Last week, President Obama announced a new initiative to train military veterans for careers in the solar industry.

The new Solar Ready Vets Program, would help military veterans learn new skills needed to work in the solar industry after they leave the armed forces.

The solar industry, Mr. Obama said, was a natural growth industry that could help returning soldiers transition back into civilian life.

“The solar industry is actually adding jobs 10 times faster than the rest of the economy,” he said. “They’re good paying jobs that are helping folks enter into the middle class.”

Meanwhile in Oregon …

According to an Oregonian investigation, SolarWorld, a “solid name” in green energy, but a struggling business nonetheless pays it’s factory workers $11 an hour. That’s a little less than what retail pays, but a little more than what restaurant cooks get paid.

Even a these relatively low wages, the state’s solar project was a financial loser.

In a twist that sounds like the plot of a bad comedy—or a modern version of Shawshank Redemption—Oregon turned to … drumroll … prison labor.

Prison labor paying 93 cents an hour.

That’s right. Oregon’s solar industry cannot afford to pay workers what they’d make working retail.

In an even more bizarre twist, the Oregon legislature is pushing a $15 an hour minimum wage for the state. Proponents of the huge boost have argued that businesses can absorb the costs or pass them on to customers. Oregon’s experiment with solar panel prisoners clearly shows that fallacy with that line of argument.

 

First podcast – Subsidies, smokes, and solar

Welcome to the Econ Minute. It’s more than a minute, and it’s about more than just economics.

This is our first podcast. This pilot podcast begins with a visit to a mixed up world where the homeless are arrested for stealing less than a penny’s worth of electricity while high end electric vehicle drivers get priority parking and the privilege of plugging in for free.

Next, we take a trip in the wacky world of healthcare where expanded Medicaid coverage may lead to increased smoking by pregnant mothers-to-be.

We end with the silly world of solar energy where you might find some of the lowest of low wage workers. And these workers really are trapped in their jobs.

For more information or to hire an economist to speak at your next event or provide expert testimony, please visit www.econinternational.com.

The crazy mixed up world of “free” electricity where the homeless get arrested and Tesla owners get subsidies

In Portland, OR, Street Roots reports that a homeless former social worker with muscular dystrophy was hit with a misdemeanor theft charge for charging her phone from a plug on a planter-base on a sidewalk. She then spent a day in jail when she missed her arraignment.

The electricity she used to charge her phone was worth a fraction of a cent. Worried that a pleading guilty would put a black mark on her record that would interfere with her ability to get social housing, she pled innocent. After two court dates with two different public defenders, the DA finally dropped the charge.

Late last year, the Oregonian reported that the Portland mass transit agency, TriMet, cut off free electricity to battery-depleted commuters who discovered not-so-hidden power outlets tucked under its light rail schedule/map kiosks.

Now, the Portland Business Journal reports that the Oregon Legislature is considering House Bill 2092, which would award rebates to Oregonians who buy Nissan Leafs, Chevy Volts, Volkswagen e-Golfs and other all-electric vehicles now on the market, including the high-end Tesla Model S.

The legislation would provide a $3,000 rebate to buyers of electric cars and $1,500 to buyers of plug-in electric vehicles.

Already, in Portland, electric vehicles have priority parking and get to plug in to free electricity for the time that they are parked.

At the same time, on the other side of the country, the state of Georgia is pulling its electric vehicle subsidies. On top of that, Vice News reports that the state is about to get rid of its $5,000 tax credit and, on top of that, add a $200 a year electric vehicle tax to recoup the state’s drop in gasoline tax revenues.

Who would have thought that a few electrons would cause so many headaches?