Bacon's Rebellion

Democracy Thrives in Sunlight

This Is Us. Ugh.

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James A. Bacon
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by Chris Saxman

During Monday’s Senate Commerce and Labor Committee, three bills were on the agenda attempting to raise the minimum wage. Virginia’s policy has been at least since the late 1990s to mirror the federal minimum wage which stands at $7.25 an hour. That rate became effective in July of 2009.

Watching the committee hearing via video streaming, I was struck by the political exchange. Trust me, this is not a criticism of any committee member or bill patron or even those who came to testify on the issue. It’s just where we are as a nation.

Like the title of the popular series on ABC: “This Is Us.”

Full disclosure – I personally oppose a minimum wage. It is not the role of government to set the cost of labor or any other business costs. Federal Reserve Bank notwithstanding. Having run a business with my family in which we had some employees at an hourly rate and having been an employee paid the minimum wage, I think a federal minimum wage sets a false floor for fair, market based compensation for labor. For hourly workers, the minimum wage is the starting point for the negotiations rather than the true value of labor in the market. But that’s just me.

There were three bills submitted by Senators Rosalyn Dance (SB251), David Marsden (SB240), and John Edwards (58) on the agenda. During the discussion, Chairman Senator Frank Wagner pointed out that the committee last year defeated minimum wage increase legislation and that the committee composition was roughly the same, indicating a similar fate for the legislation.

This was a legislative courtesy to suggest that something needed to have changed in these bills from last year’s bills if a different result was to be possible. In short, “We haven’t changed much, have you?”

The bills from Marsden and Dance were “rolled into” Senator Edwards’ bill (HB58), which meant they were set to hear testimony and debate on that legislation seeking to raise the minimum wage to $8 in July this year, $9 in 2019, and $10.10 in 2020.

Seems pretty functional at this point, right? Here’s the “Us” — the text of the bill was NOT discussed. There was no mention of why those wage levels were offered and what impact it would be on either employers or employees. Instead, what happened was that a series of speakers for an increase just said, in essence, “We need more money,” “We can’t subsist on $7.25 an hour.”

(Senators would likely agree since, based on a forty hour work week, they only make $8.65. House members only get $8.48.)

Then came the opponents from the business community who opposed the legislation largely because they always have due to the fact that it hurts small business, which has smaller margins from which to negotiate labor costs.

It was like those scenes from Casablanca where Captain Renault rounds up “the usual suspects” and then to impress his German counterparts, he rounds up “TWICE the number of usual suspects.”

Back to Commerce and Labor…

During the meeting, all of the Democratic members of the committee spoke in favor of increasing the minimum wage but never discussed the actual bill that scaled up the wage from $8 to $9 to $10.10 an hour. Why $10.10?

Senator Dick Saslaw, D-Fairfax, asked some pointed questions of one lobbyist who represents several Northern Virginia chambers of commerce. Since the $7.25 an hour in Northern Virginia is very different than $7.25 in Wise or Matthews Counties, Saslaw asked, “Is raising the minimum wage anti-business? I have spoken to several of your members and they don’t oppose raising it.” Again, not to the text of the bill with possible economic implications but rather a political question based on some are and some are not. Saslaw is a very pro-business legislator and has been so for his entire career, but he was direct. There is direct and then there is Saslaw Direct. This was the latter not the former.

Senator Dance, whose bill offered a $10 to $13 to $15 in 2020 scale, again without economic impact, asked if there was something, anything, that could be done to help those making minimum wage.

Shortly thereafter SB58 was voted on achieving the same results as last year – 11-3 to Pass By Indefinitely or PBI for short. Defeated.

Had an amendment even been offered to adjust the 2009 rate of $7.25 to inflation ($8.34 in 2018 dollars) and peg the rate forevermore to CPI or COLA adjustments, that would seem more reasonable right? Well, until it got to the floor and then we’re back to square one – bidding up the bill with amendments to $15 an hour. That’s, again, political calculus rather than economic consideration.

No articles have appeared, to my knowledge, on this issue in either the Richmond Times Dispatch or via the VPAP daily news feed (you should get that by the way – www.vpap.org)

Thankfully, the committee meetings are live streamed so we can watch our legislative process in action or, in this case, inaction.

But didn’t the business community get the outcome it desired? Perhaps.

Yes, a $15 statewide minimum wage would be bad, but was any progress made on the merits – either way – on the best wage policy for the Commonwealth’s economic and business climate?

Not at all.

This is Us.

Chris Saxman is executive director of the Virginia Foundation for Research and Economic Education. This commentary was originally published as an email missive.

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20 responses to “This Is Us. Ugh.”

  1. LarrytheG Avatar
    LarrytheG

    I MUST SAY – the Quality of the guest bloggers is HIGH and that speaks well of BR and Mr. Bacon!

    KUDOS!

    With respect to this tome:

    Unless I misunderstand the complaint is: ” That’s, again, political calculus rather than economic consideration.”

    well geeze.. is politics the central activity in the GA !!! ;-0

    I’ve been to committee meetings and was once prepped to speak and was strongly encouraged to keep my words SHORT.. and in a little while, I saw why.. The committee is .. shall we say – pressed for time and intolerant of long impassioned or even informative words from speakers. It’s pretty much get up, make your dang point right away and sit down.. and don’t bother getting up if someone already made your point!

    So. I have evolved to the point of view that logic and information is dispensed PRIOR by lobbyists both professional and lay person to staff and elected… and by the time the hearing is held … all the non-political stuff has been dispensed and consumed!

    By the way- as folks here know. I participate in a Church food pantry – and next door is a small neighborhood commercial strip with a Fas Mart and a kitchen/grill … and in that kitchen grill .. works a lady.. 40 hours a week… who also is a patron of our food pantry. Minimum wage or not.. let me point out that when people don’t make the minimum wage – both govt and NGOs have to expend resources to help them. People who come to the food pantry are vetted to insure they qualify (that’s a govt function that the volunteer pantry needs to vet clients). Then the food pantry also hands out USDA (another govt agency) .. and most clients at the food pantry also are eligible for food stamps.. yet another govt agency..

    and this is just the food.. most of these clients also receive MedicAid which is the 600 lb gorilla in Virginia’s budget.

    so.. is the minimum wage something that is wrong and should not exist?

    If we allowed labor to “float” to say $5 an hour.. would entitlements have to go up to compensate?

    I don’t know where or when those type questions are dealt with but I suspect not in committee hearings.

    thanks for your Article. It’s much appreciated and I hope you do more.

  2. CSaxman Avatar
    CSaxman

    Thanks LarryTheG!

    Yes, the problem is it is way too political.

    The minimum wage is not going away. Suggesting that it should not exist is an unnecessary discussion.

  3. CrazyJD Avatar
    CrazyJD

    And I MUST SAY, Larry, that your post has reasonable questions and reasonable points. I may disagree, but the presentation is reasonable on balance. I would say, in answer, that no, the minimum wage should not exist. The academic arguments made for it do not hold up upon scrutiny. The most famous in my mind was made by that paragon of economic reasoning, Paul Krugman, Nobel Prize winner (no one can figure that one out). In the mid nineties, he and fellow Princeton professor did a study of minimum wage in and around the Philadelphia area. It was chock full of bogus assumptions that any labor law practitioner would tell you were completely false.

    Check out the work of Richard Thaler, a Kahneman-Tversky acolyte in the Behavioral Economics field who more recently won the Nobel in Economics. One of his studies with implications for minimum wage was the impact of economic downturns on unemployment. Standard economic theory predicted that during an economic downturn, employers would cut wages to a level consistent with the demand for goods or services, meaning there was no reason to think a downturn would produce unemployment.
    But workers regard wage cuts as unfair. And so employers, seeking to avoid angering the workers they plan to keep, prefer to cut employees rather than wages.

    Is the failure to RAISE wages per an increase in the minimum wage similar to the failure to cut them in a downturn? From the behavioral viewpoint found by Thaler, one would think so, lending support to the argument often heard that increases in minimum wage lead to layoffs.

    1. LarrytheG Avatar
      LarrytheG

      Wrong Krueger Crazy.

      Alan B. Krueger

      “On April 1, 1992, New Jersey’s minimum wage rose from $4.25 to $5.05 per
      hour. To evaluate the impact of the law we surveyed 410 fast-food restaurants in New Jersey and eastern Pennsylvania before and after the rise. Comparisons of employment growth at stores in New Jersey and Pennsylvania (where the minimum wage was constant) provide simple estimates of the effect of the higher minimum wage. We also compare employment changes at stores in New Jersey that were initially paying high wages (above $5) to the changes at lower-wage stores. We find no indication that the rise in the minimum wage reduced employment’

      1. TooManyTaxes Avatar
        TooManyTaxes

        This is an example of a sophomoric study. Few people will drive to another state to buy a cheaper hamburger. But many will change their purchasing habits. Instead of buying a more expensive meal, many will purchase a less expensive meal, carry their lunch more often, eat at a lower priced restaurant, etc. If table service is provided, some will tip less. Many people, but certainly not all, will change their purchasing habits. People who regularly drop $200 for meal for three probably won’t change their behavior because the bill went up $20. But people who spend $50 for a meal for four are more likely to do so. They may well not feel like spending $60 for the same meal.

        It’s like the people who react to higher and higher real estate taxes or housing prices. Some will downsize. Some will move into Larry’s neighborhood from Fairfax County. Some will retire to a cheaper place. People react to price changes.

        AT&T and the Bell System invented toll free calling (800) because the cost of handling collect calls with live operators got to be too much. Businesses that would otherwise pay long distance charges from customers or prospective ones were balking at the very high rates for collect calls required when those calls were handled by union labor. So AT&T, Bell Labs and Western Electric made equipment and billing system changes that translated toll free numbers into ordinary telephone numbers and billed subscribers (say an airline reservation center) for the incoming calls. It was an incredible success. Toll free calling continues to be the fastest growing type of call even when many customers and businesses have “all you can eat” calling plans.

        I suspect there weren’t so many layoffs of telephone operators, but thousands of decently paying union jobs were never added over the last 50 years. Toll free calling was introduced in 1967.

        Cutting labor costs were also prime motivators over Direct Dialing of long distance calls (the rise of Area Codes), credit card calling, prepaid card calling, automated trouble shooting systems, etc. Back when my dad was a supervisor at the Telephone Company, his crew had to come to the customer’s premises to move a worker’s phone from one desk to another. I changed offices at our law firm this year. I unplugged my phone in one office; plugged it in at the new office; entered a couple of numbers and, bingo, it was all done. Our VoIP provider never got involved except through its server.

        As I wrote earlier, I’m not opposed to a minimum wage per se. But increases not matched by productivity increases can hurt low-wage workers, often because they lack work experience, good skills and educations, etc.

        Keep telling yourself – “We live in a real world, not a Washington Post world.”

  4. CrazyJD Avatar
    CrazyJD

    Agree that the discussion is unnecessary, but so is the minimum wage. No one will work for the minimum wage in any event when they can go on disability and come out ahead.

  5. TooManyTaxes Avatar
    TooManyTaxes

    What does Saslaw pay his cashiers at his gas stations? I would find his economic behavior more interesting than his political behavior. If we had a real newspaper in D.C., we’d know.

    On the merits, I have mixed emotions on minimum wages. Setting an economic floor -if reasonable-has been done for many years. But what about teenagers and people with no job skills? Because of the ability to pay a fairly low starting wage, Giant hired my son as a bagger when he was only 14. He learned valuable lessons about work habits, dealing with customers and other employees, etc. Cutting off employment opportunities for young people is a bad idea.

    And there are those older people who have no job skills whatsoever. Taking a chance on them might be worth $7.25 per hour, but not $10.10. What happens to these people?

    Bottom line – a business needs to be profitable and has to be able to control its costs. Smaller ones might just close. Bigger ones will look for labor-saving devices and methods. There may be jobs at $8 per hour, but a machine at $10.10.

  6. CSaxman Avatar
    CSaxman

    I don’t believe Saslaw is in the convenience/gas station business anymore.

  7. LarrytheG Avatar
    LarrytheG

    If we had an economic system where we did not provide entitlements to those whose economic circumstance was below the poverty level – then you might have a good argument for not paying minimum wage – but when you have an economic system that explicitly intends to supplement – whatever is needed to bring individuals up to a minimum level with regard to food, housing and medical care – then we need to think about which of the two paths (or another path) is more cost effective … i.e. costs taxpayers less money….

    The idea that entitlements are “bad” and we need to get rid of them all together and force people to “work” .. is a nice ideological concept that will not pass the political test and so we end up with a rat’s nest of entitlement benefits.. administered by an inevitably bloated govt bureaucracy that without a doubt is more costly than an increased minimum wage.

    Or if you don’t like that idea – then just add a basic income supplement to the minimum wage to bring it up to a living wage and dismantle the entitlement bureaucracy…

    remember the goal is to reduce the cost to taxpayers.. as opposed to some pie in the sky idea that ..some day.. with the “right” people in charge.. we just get rid of entitlements all together.

    Even most GOP in Congress are on board with this approach.. they supported an increased in the earned income credit which is nothing more than a blatant subsidy for low income.

  8. CrazyJD Avatar
    CrazyJD

    You are correct. It wasn’t Krugman, it was Card who did the study with Krueger. Krugman rightly criticized it in ’98, saying that Econ 101 dictates that any time you raise the price of something, you will get fewer buyers. Then he backtracked in 2015 and started claiming that the laws of supply and demand don’t apply to labor. It seems like you may be taking the same approach.

    1. LarrytheG Avatar
      LarrytheG

      supply/demand – price elasticity is a theory that presumes (like a lot of basic theories) that you hold everything else constant and only look at supply/demand.

      but the real world does not work that way with supply/demand.

      For instance some people WILL drive 10 miles out of their way to save 10 cents on a gallon of gas while others will not and the supply/demand curve does not conform to theory. Add in even more variables and things get even less predictable.

      That’s why when a study of minimum wage across a state border – done with fast food -should surprise no one. The critics say the study was not well designed.. because, in fact, there were other influences … but that’s the real world. No one who pulls off an interstate exit to get lunch is going to leave without lunch because the burgers cost a dime more than where they normally get their burgers at home.

      Nor are they going to “stock up” if the interchange exit where burgers are super cheap.

      Walmart is enormously successful because they know once they get someone in their doors – most are not going to pass something that is a nickle more than at the dollar store… and vice versa at the dollar store unless they both are next door to each other – which ought to tell you something about why Dollar General stores are on stand-alone sites – as well as most pharmacies these days.

      When you go pick up your prescription do you shop where the wages are lower?

      of course not..

      because – theories explain basic ideas when all other influences are held constant and the real world is not that way at all.

      so it’s no surprise at all except to disheartened simplistic thinkers that increased or decreased minimum wages across a border don’t influence sales.

      Finally – ALL THINGS EQUAL – no matter what a minimum wage is or is not.. ALL EMPLOYERS .. WILL implement any/all automation if it saves them labor costs and if you want to see that in action – look at how many places in both high cost AND low cost areas are implementing kiosks to order your stuff? Look at how many Walmarts ARE replacing check out people with self-check-out machines..

      I go back to what happens to people in the US who do not earn a living wage. What do we do about it? We argue about the wage and how it will decrease demand for something – in theory… and all that rot .. but what do we do when someone cannot afford food or a place to live or medical care – in the US?

      We subsidize it. And we administer the subsidies with a bloated bureaucracy for each separate entitlement. We have social security folks.. we have Medicare folks. We have Food stamp folks. We have section 8 housing folks. We have Medicaid and TANF folks.. we have …. a BUNCH of people we PAY to give others free money.. and we do this because increasing the minimum wage will result in .. increased unemployment..and even more folks needing entitlements? lordy.

  9. djrippert Avatar
    djrippert

    I would tread very lightly with changes to the minimum wage in Virginia. First, the cost of living varies so widely from one place to the next I’d have to wonder if a single minimum wage could ever make sense for the whole state. Once again, our archaic love of Dillion’s Rule sets us back.

    I also see the opportunity to automate a lot of jobs . If a car can be autonomous and a kid can buy and fly a drone why are people needed to push lawn mowers? Every time I go into airports I see waiters and waitresses replaced by iPad based kiosks in the restaurants. Double the minimum wage and double the incentive to deploy these things even faster.

    1. LarrytheG Avatar
      LarrytheG

      I’d make DJ a wager than if Fairfax/NoVa got home rule – they’d raise the minimum wage in a heartbeat…

      no?

  10. TooManyTaxes Avatar
    TooManyTaxes

    I’d like to see an honest study on the impacts of illegal immigrant labor on wages in general. I don’t want to see a thumb put on either side of the scale.

    As far as automation is concerned, I think we have much better technology today than we had in the 1990s, such that it’s easier to make investments in technology that can replace or reduce labor. For example, I don’t think we could have replaced fast food order-takers in the 1990s.

    I also suspect there are greater efficiencies in labor due to technology. One of my brothers-in-law retired early, got bored and wanted some more income. He got a job at Home Depot filing Internet orders. While I have no data, I suspect his productivity per hundred dollars of sales is higher than employees would interface with live customers.

    Even Paul Krugman cannot repeal the laws of economics. An employee needs to produce or provide efficiencies at levels more than he/she makes to stay employed.

  11. Acbar Avatar
    Acbar

    I can’t separate my reaction to this posting from the one posted by Dr. Ayers yesterday. The issue is, where is discussion of the substance of State policy?

    Dr. Ayers tells us, “How well colleges and universities succeed matters because higher education embodies and reflects the possibilities of society at large. Questions about affordability are questions about social mobility in America; questions about diversity are questions about fairness in this nation.” Mr. Saxman also addresses affordability and social mobility.

    Among those who actually received and accepted the lessons of a liberal education, the “possibilities of society at large” are the most important political challenges there are. But there is an ugliness out there, an anti-intellectual, even nihilistic bent among some of our citizens. They include: Those who believe facts are products of opinion. Those who attack the press itself rather than what they report, who blame academic bias when science supports conclusions they don’t like. Those who call others “liars” without basis and take mere disagreement personally. Those who are afraid to investigate or work collaboratively because awkward questions might have to be addressed. Those who refuse to examine the moral implications of the policies they preach. Those who do not rebut the message but shoot the messenger.

    We acknowledge here in this Blog, the strongest political support for the elected officials who champion such people is in the rural towns and abandoned mill-towns and, to an extent, the suburbs. In the urban areas, where young people migrate and life moves faster and levels of education and income are higher and diversity is greater, the politicians are still trying to address obstacles to affordability and diversity. In those urban areas a solid majority is appalled by the Republican Party today. And as a percentage of Virginia, those areas are growing. That says to me, there is the political future of Virginia.

    Yet there is no compromise from Virginia’s Republicans. Despite trends in the national Democrat Party, Virginia nominated a centrist for Governor and voters across Virginia clearly responded favorably; yet from Republicans we get no moderation, no movement towards the center on issues, but intransigence bordering on a willfull trainwreck of self destruction. To hell with Northam’s gun control measures and reregulation of utility rates. To hell with bipartisanship generally. The spirit of futile Massive Resistance to social change lives on.

    When the rear-guard Resistance topples — as it already has in Henrico, as it will in our Congressional delegation later this year and in our G.A. a year later — what will be left of the Republican Party? Can anyone be surprised if the political pendulum swings well past the center in pent-up reaction? Is this really the end of the Virginia Way, where at least civility and talk across the aisle is supposed to be the rule, not the exception? At the very least, I fear a bleak period for fiscal responsibility and other worthy conservative causes.

    Dr. Ayers and Mr Saxman are correct. “Social mobility” and “fairness in this nation” are at the heart of why the State has a role in higher education in Virginia today. The nature of that role may be changing, but its importance is not going away. Affordability and the debate over the “minimum wage” and the “living wage” concepts are not going away. Politicians whose worldview is of red-blooded American civilization in decline — threatened by cultural, technological and economic forces they do not understand, do not wish to understand, but do wish to denounce, and deride, and de-fund — those politicians’ days are numbered.

  12. LarrytheG Avatar
    LarrytheG

    ” The growing role of a college degree in landing a job is well documented. Now, new household employment data reported by the Bureau of Labor Statistics (BLS) show that Americans with college degrees can account for all of the net new jobs created over the last decade. In stark contrast, the number of Americans with high school degrees or less who are employed, in this ninth year of economic expansion, has fallen by 2,995,000.

    We use the household employment survey here instead of the business establishment survey, because it tracks the education of everyone who gains or loses a job, month by month. In the latest survey covering December 2017, the number of college graduates with jobs jumped by 305,000—while the numbers of employed Americans with no high school degree fell by 132,000. High school graduates with jobs dropped by 38,000, and employees with some college but no degree declined by 45,000. That’s a window into what’s happened across the U.S. economy throughout this business cycle—and the fact that Republican control of the government hasn’t helped working-class Americans with jobs could create problems for them in 2018 and 2020.’

    https://www.brookings.edu/blog/fixgov/2018/01/16/the-new-economics-of-jobs-is-bad-news-for-working-class-americans-and-maybe-for-trump/?utm_medium=social&utm_source=twitter&utm_campaign=es

    I’m not sure I buy this totally because “some college” is workforce training and do they treat 2 yr community college as a “college degree”?

    But I think more and more the phrase “College” is a turn off for many whose families have traditionally been in the working classes.. both blue and white collar.. and that “Workforce Training” is a better phrase to advocate for and in venues that are not traditional 4-yr institutions.

  13. CrazyJD Avatar
    CrazyJD

    Larry, Talk about simplistic thinking, with a lot of words, no less. As you would say, Geez or Geesh or Lordy, I can’t remember which. Pick one.

    >>supply/demand – price elasticity is a theory that presumes (like a lot of basic theories) that you hold everything else constant and only look at supply/demand. >>

    Sure. Ceteris Paribus. But you seem to think that therefore it has no meaningful application.

    It doesn’t take a lot of thinking, or complicated studies for that matter, to realize that in your real world, when you raise the price of something, you generally get fewer buyers. Not in every case, as you indicate in your examples of the exit from the interstate to get burgers, your Walmart shopper, but generally speaking you get fewer buyers. Your examples do not countermand the law of supply and demand. There will be just as many who will take advantage of the information of the internet to realize if they drive 10 miles further down the interstate, the burgers will be cheaper. All you are really saying with this line of argument is: life is complicated. Well….yeh.

    Your argument proves too much.

    As for your deflection about subsidies, you are relying on a false assumption: that subsidies are the only corrective measure for the lack of “living wage”

    1. LarrytheG Avatar
      LarrytheG

      re: ” Sure. Ceteris Paribus. But you seem to think that therefore it has no meaningful application.”

      but the more things that can vary .. the tougher the analysis..and the more difficult it is to account for each influence and factor it out.

      worked with missiles.. always had hits that were not dead center.

      trying to account for effects so you can backfit a correction …

      sounds simple.. until you realize there are dozens of potential error sources
      and they can affect each other.. some in small ways , others in big ways.

      ANY analysis where you’re looking for a straight line cause and effect works that way.. you gotta find the things that perturb the relationship.

      when you have a relationship like minimum wage on two sides of a border and the prices and employment don’t vary much then you know the other perturbations are low in impact.

      People simply don’t buy less burgers when they cost a nickel or dime more.. heck.. most people don’t even notice the price difference.. they just want their burger!!!

      Now if you’re talking about several hundred dollars on the price of a car or appliance.. yes.. but that’s not even a minimum wage issue.. at that point.

      Perhaps one where you might find a more pure relationship would be HOT Lane tolls.. where the tolls actually do reflect demand and the tolls themselves are explicitly designed to influence demand.

      So the theory is REAL but in the real world there are usually a lot of things that impact the relationship.

      You can easily show this with a lot of things by doing a graph.. You collect real world data and plot it and if it is not a straight line.. there are influences.

      so I’m a believer in the theory – but a real study has to account for influences.

  14. LarrytheG Avatar
    LarrytheG

    Here’s a way to dismantle a good portion of the entitlement bureaucracy:

    You determine the living wage for a given locality.

    The employer pays the wage for the employee. The difference between the actual wage and a living wage is added to the pay and funded from the money that would be withheld for Federal and state taxes. If that is not enough to bring it up to a living wage – take some of the FICA but the workers still gets full credit for FICA as a transfer payment direct to SS from saved money from dismantling 90% of the entitlement administration bureaucracy.

    Crazy might actually like this idea!

    1. CrazyJD Avatar
      CrazyJD

      He might, except he suspects that the numbers don’t get you there.

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