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Explaining the White House (and national) gender pay gap — neither are primarily the result of gender discrimination
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I reported yesterday that there is a gender pay gap at the White House, based on an analysis of White House salaries for 2015. That analysis revealed that the median pay for female staffers at the White House is $65,650 compared to the median pay for men of $78,000, resulting in a 15.8% gender pay disparity. How can we explain the fact that women working at Obama’s White House earn only 84.2 cents on average for every $1 earned by men? Discrimination? Probably not. More likely explanations include factors that result in a national gender wage gap, currently at 17.9% according to the most recent BLS data — factors like age, continuous work experience, marital status and children.
The chart above might help to explain the 15.8% gender pay disparity at the White House (WH), by showing a gender breakdown for White House staff at different salary rankings: the top 25/50/75/100 highest paid employees and the bottom 25/50/75/100 lowest paid employees. Because many employees make the same salary, I sometimes had to include more or fewer employees to the salary categories, e.g. the top 51 and the bottom 55, etc.
Here are some facts:
1. For the bottom ranked 25, 50, 75, and 100 lowest-paid White House employees in 2015, female staffers are over-represented in each category, with more than a 55% share of each of those four categories. Looking at the 100 lowest-paid WH employees with salaries between $41,000 and $47,361, women represent 57% of that group. Given the fact that women now earn about 57% of bachelor’s degrees in the US, and assuming that most WH staffers have at least a bachelor’s degree, it makes sense that women outnumber men at the White House for the more entry-level, lower-paid positions.
2. For the highest ranked 25, 50, 75 and 100 highest-paid employees, male staffers are over-represented in each of those four categories. Among the 51 highest paid White House staffers with salaries between $143,079 and the maximum of $173,922, male staffers outnumber females 30 to 21, and by percentage represent almost 59% of those senior employees. For the top 105 highest paid White House staffers with salaries of $120,000 and higher, men outnumber women 58 to 46, and represent a 55.2% share of that group.
MP: So here’s an economic explanation for the 15.8% gender pay disparity at the White House.
Women are far over-represented for the more entry-level, junior positions at the White House and probably for other government-related jobs in DC. But over time there are probably more women than men who voluntarily choose to forgo full-time job responsibilities in favor of greater family responsibilities, child care, and more flexible, family-friendly or part-time employment options.
Therefore, it might just be a reality that men represent a majority of the professionals in the Washington, D.C. labor market who have the necessary qualifications to be hired for the highest-paying, senior staff level positions at the White House. And what are some of those qualifications? Probably at least ten or more years of continuous work experience in government, public policy, nonprofit organizations or legal services, and the willingness and ability to work 50-60 hour weeks when necessary. So even though the White House might try to hire equal numbers of men and women for senior positions, they are likely faced with the economic reality that the number of qualified men available to be hired for senior staff positions is greater than the number of qualified women. In that case, a natural gender imbalance in favor of men emerges for the higher-paid, more senior level positions, and the White House thus has a 15.8% gender pay gap in favor of men.
In other words, almost all of the 15.8% gender pay disparity at the White House can be explained by age, continuous work experience, hours worked, marital status and number of children, the same factors that can help explain the 17.9% gender pay gap nationally. For example, the BLS data show that young women 25-34 years old earn on average 90.2% of their male counterparts, and women who have never married earn almost 96% of their male counterparts. In contrast, women who are married earn only 76.6% of what married men earn.
Bottom Line: It’s probably the case that none of the 15.8% gender pay gap at the White House is a direct result of gender discrimination. Rather, the pay gap at the Obama White House is likely the result of the voluntary choices of women, many of who marry and have children as they get older, which makes them less available for senior White House positions that require decades of uninterrupted work experience and long work hours. For example, one study of MBA graduates of the University of Chicago’s Booth School of Business found no gender difference in hours worked or incomes for recent MBA graduates. But significant pay gaps were found after longer periods of time, due to differences by gender in career interruptions and increasing differences by gender over time in the number of hours worked following graduation.
Here’s one of the key findings of that study on MBA graduates (“Dynamics of the Gender Gap for Young Professionals in the Financial and Corporate Sectors“):
Differential changes by sex in labor market activity in the period surrounding a first birth play a key role in this process. The presence of children is associated with less accumulated job experience, more career interruptions, shorter work hours, and substantial earnings declines for female but not for male MBAs.
Although President Obama’s rhetoric would have us believe that the 17.9% gender pay gap reported by the BLS is entirely the result of gender discrimination, which can only be corrected by legislation and executive orders, the similar 15.8% pay gap at his own White House suggests that factors besides gender discrimination can explain most gender pay disparities – like motherhood and marriage, and other voluntary family choices. A salary analysis of most organizations like Target, Costco, Ford, and Google would likely find a gender pay gap similar to the one at the Obama White House. And those gender pay gaps could likely be mostly, if not completely, explained by the same factors that explain Obama’s 15.8% gender pay disparity at the White House.
If President Obama applies the bogus statistical deception he uses to make statements like “Women are paid 77 cents on the dollar for doing the same work as men” — by comparing unadjusted aggregate income differences by gender — then he now has to admit that he is guilty of gender discrimination for paying his female staffers “84 cents on the dollar for doing the same work as male staffers.” But if he defends the 15.8% gender pay gap at the White House as a natural outcome of voluntary choices and not the result of discrimination, then he should stop with the pay gap rhetoric, stop the lecturing, stop the executive orders, stop the legislation and stop the presidential proclamations every year in April about National Equal Pay Day.
Glass ceiling at the White House: Female staffers earn $12,350 (and 15.8%) less than their male counterparts
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As required by Congress since 1995, the White House delivered its annual report to Congress today listing the title and salary of every White House employee. Here’s a link to the report and it also appears below as a searchable table (you can download the data by clicking on MENU). Here are some details of 2015 White House salaries:
1. There are currently 472 employees listed in the White House salary report: 263 female staffers and 209 male staffers. As you can see above, the White House report provides employee names, positions and salaries, but does not provide data on gender. Based on the names provided, the gender for most employees was obvious (e.g. Thomas, Matthew, Maureen, Stephanie), and for those names that weren’t obvious (Jem, Casey, Sabey, Kelsey, Vy, etc.) I conducted basic Internet research that included Google searches, image searches, Wikipedia, and Facebook, Twitter and LinkedIn searches.
2. The White House salaries this year range between a minimum of $41,000 for a position titled “Analyst” and a maximum of $173,922 for 18 employees (9 male and 9 female) with the senior-most positions like Josh Earnest (Press Secretary), Valerie Jarrett (Senior Advisor to the President) and Susan Rice (National Security Advisor). The average White House salary is $85,224 and the median salary is $71,054.
3. By gender, the median salary for the 263 female White House employees is $65,650 and the median salary for the 209 male staffers is $78,000 (see chart above). Therefore, female staffers in the Obama White House currently earn 84.2% of the median salary for male staffers, or 84.2 cents for every $1 men earn, and there is a 15.8% gender pay gap at the White House. That pay gap is slightly smaller than the 17.9% gender pay gap at the White House last year, but is still almost two times the average gender pay gap for Washington, DC of 9.2% according to the most recent data from the Department of Labor (see Table 3 and chart below).
4. Stated in dollars, the typical female staffer working in the Obama White House earns $12,350 less on average per year than the typical male staffer. Because of that significant gender pay gap, women working for Obama will have to continue to work until mid-March in 2016 before they earn what the typical male staffer will earn working just this year. That is, Equal Pay Day for the female White House staffers won’t take place until next March 14, 2016!
And yet despite the gender pay gap at the White House, Obama makes presidential proclamations every year for National Equal Pay Day, like this one earlier this year to mark April 14 as the calendar day in 2015 that the average woman had to continue working to earn the same income as the average man earned in 2014:
On average, full-time working women earn 78 cents for every dollar earned by men, and women of color face an even greater disparity. This wage gap puts women at a career-long disadvantage, and it harms families, communities, and our entire economy. Today, in more than half of all households, women are breadwinners — 49 million children depend on women’s salaries. But our economy and our policies have not caught up to this reality. When women experience pay discrimination it limits their future, and it also hurts the people they provide for. It means less for their families’ everyday needs, for investments in their children’s futures, and for their own retirements. These effects reduce our shared prosperity and restrict our Nation’s economic growth. Wage inequality affects us all, and we each must do more to make certain that women are full and equal participants in our economy.
I do hereby proclaim April 14, 2015, as National Equal Pay Day. I call upon all Americans to recognize the full value of women’s skills and their significant contributions to the labor force, acknowledge the injustice of wage inequality, and join efforts to achieve equal pay.
So women working at the Obama White House are doing a little better than women nationwide, but will still have to work an additional 49 days into 2016 to earn the same salary as the typical male staffer will earn this year. The female staffers might want to ask their boss why he talks so much about gender disparities, pay discrimination, and achieving equal pay while they suffer from a glass ceiling at the White House and an annual pay disparity of $12,350 compared to their male counterparts!
Bottom Line: In reality, the pay gap that has persisted every year at the Obama White House is not likely the result of gender discrimination, just like the findings of gender pay gaps in the general economy or at specific companies or organizations are also not likely the result of gender discrimination. While Obama and gender activists constantly lecture us about gender pay disparities nationally, with the assumption that any unadjusted pay gap using aggregate median salaries can only result from gender discrimination, the persistent gender pay gap at Obama’s own White House exposes the hypocrisy of Obama and his wage gap activist supporters.
If a 15.8% pay gap at the Obama White House results from factors having nothing to do with gender discrimination, isn’t is possible that the national gender pay gap also has very little to do with discrimination? If a 15.8% White House gender pay gap can be explained by factors other than discrimination, can’t a similar gender pay gap, if it exists at Target, Facebook, the University of Michigan, or ExxonMobil, also be explained by factors other than discrimination?
President Obama can’t have it both ways, either: a) there are gender pay differences throughout the economy and in any organization including at the White House, which can be explained by factors other than gender discrimination including age, years of continuous work experience, education, differences in positions, hours worked, marital status, number of children, workplace environment and safety, industry differences, etc., or b) any gender pay gap in aggregate, unadjusted salaries automatically exposes gender discrimination – including the White House – and Obama needs to explain why he is “waging a war on his women staffers” by paying them less than men on average.
So either: a) there is a glass ceiling at the White House and Discriminator-in-Chief Obama is guilty himself of paying his female staffers significantly less than men by $12,350 per year on average, or b) Obama is guilty of statistical fraud and deception for continuing to spread misinformation about the alleged discrimination-based gender pay gap at the national level with bogus claims like “Women are paid 77 cents on the dollar for doing the same work as men.”
Perhaps the persistent gender pay gap at the White House will move us further in the direction of statistical and economic sanity on an issue that has been plagued for generations by politics, gender demagoguery, and statistical fraud. It’s time to finally kill the gender wage gap myth once and for all! Let’s follow Christina Sommers’ advice to women’s advocates and Take back the truth.
US drug war sentencing: 16 years for a notorious Colombian narcoterrorist vs. life in prison for weeds?
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America, here’s your senseless, immoral, expensive and cruel Drug War….
1. The Department of Justice reported yesterday that a “Colombian Paramilitary Leader Was Sentenced to More Than 15 Years in Prison for International Drug Trafficking,” here are some details:
A senior paramilitary leader and one of Colombia’s most notorious drug traffickers was sentenced today to serve 190 months in prison for leading an international drug trafficking conspiracy that imported into the United States ton-quantities of cocaine. Through his leadership position in the United Self-Defense Forces of Colombia (Autodefensas Unidas de Colombia, or AUC, in Spanish), Salvatore Mancuso-Gomez directed the manufacture and shipment of over 100,000 kilograms of cocaine [about 220,000 pounds or 110 tons or almost 100 million grams] into the United States and elsewhere.
In addition to enriching himself, Mancuso-Gomez and the AUC used this drug money to raise and arm a paramilitary force of more than 30,000 fighters and cement his control over regions of Colombia. This case is yet another example of our continued commitment to collaborating with our international partners to prosecute criminals and warlords who traffic in illegal narcotics, violence and intimidation.
The case was investigated by the US Drug Enforcement Administration’s (DEA) Bogotá and Cartagena, Colombia, Country Offices, and the DEA Special Operations Division.
2. Meanwhile, in hundreds of cases, the US routinely sentences Americans to life in prison for offenses involving weeds, for example:
Here’s a few more related Drug War items…..
4. Chicago Weed Arrests: During the last 90 days in the city of Chicago, there were 2,814 weed-related arrests (76% of those arrested were black), resulting in 98 incarcerations, and which required 8,442 law enforcement hours performing and filing those arrests for weeds. Find out more here.
5. VIDEO: Policing for profit….
Steve Hayward pointed out recently that economist Thomas Sowell shares the same birthday as Frederic Bastiat – they were both born on June 30. To recognize Bastiat’s birthday I shared some of his quotes on CD earlier this week, and I’ll now do the same today for Thomas Sowell, who turned 85 yesterday. Here is Thomas Sowell’s webpage and here is his Wikipedia entry. Milton Friedman once said,
1. From a 2013 Thomas Sowell’s column “An Old ‘New’ Program“:
Like so many things that seem new, ObamaCare is in many ways old wine in new bottles. What is older than the idea that some exalted elite know what is good for us better than we know ourselves? Obama uses the rhetoric of going “forward,” but he is in fact going backward to an age when despots told everybody what they had better do and better not do.
Yet another way in which ObamaCare is an old political story is that it began as supposedly a way to deal with the problem of a segment of the population — those without health insurance. But, instead of directly helping those particular people to get insurance, the “solution” was to expand the government’s power over everybody, including people who already had health insurance that they wanted to keep.
Since there has never been a society of human beings without at least some segment with some problem, this is a formula for a never-ending expansion of government power.
2. In this 2013 column, Thomas Sowell discusses “busybody politics”:
Whether in housing, education or innumerable other aspects of life, the key to busybody politics, and its endlessly imposed “solutions,” is that third parties pay no price for being wrong. This not only presents opportunities for the busybodies to engage in moral preening, but also to flatter themselves that they know better what is good for other people than these other people know for themselves.
ObamaCare is perhaps the ultimate in busybody politics. People who have never even run a drugstore, much less a hospital, blithely prescribe what must be done by the entire medical system, from doctors to hospitals to producers of pharmaceutical drugs to health insurance companies.
3. Thomas Sowell wrote this in 2009 when Obamacare was being rushed through Congress before the August recess:
As for those uninsured Americans who are supposedly the reason for all this sound and fury [Obamacare], there is remarkably little interest in why they are uninsured, despite the incessant repetition of the fact that they are. The endless repetition serves a political purpose but digging into the underlying facts might undermine that purpose. Many find it sufficient to say that the uninsured cannot “afford” medical insurance. But what you can afford depends not only on how much money you have but also on what your priorities are.
Many people who are uninsured have incomes from which medical insurance premiums could readily be paid without any undue strain. Many young people, especially, don’t buy medical insurance and elderly people already have Medicare. The poor have Medicaid available, even though many do not bother to sign up for it, until they are already in the hospital– which they can do then.
Throwing numbers around about how many people are uninsured may create the impression that the uninsured cannot get medical treatment, when in fact they can get medical treatment at any hospital emergency room.
4. From one of Sowell’s Random Thoughts columns in February 2014:
With his decision declaring ObamaCare constitutional, Chief Justice John Roberts turned what F.A. Hayek called “The Road to Serfdom” into a super highway. The government all but owns us now, and can order us to do pretty much whatever it wants us to do.
5. From Sowell’s column in 2009 “The ‘Costs’ of Medical Care: Part III“:
If we cannot afford the quantity and quality of medical care that we want now, the government has no miraculous way of enabling us to afford it in the future.
If you think the government can lower medical costs by eliminating “waste, fraud and abuse,” as some Washington politicians claim, the logical question is: Why haven’t they done that already?
Over the years, scandal after scandal has shown waste, fraud and abuse to be rampant in Medicare and Medicaid. Why would anyone imagine that a new government medical program will do what existing government medical programs have clearly failed to do?
If we cannot afford to pay for doctors, hospitals and pharmaceutical drugs now, how can we afford to pay for doctors, hospitals and pharmaceutical drugs, in addition to a new federal bureaucracy to administer a government-run medical system?
6. From The Art of the Impossible in 2013:
Do you seriously believe that millions more people can be given medical care and vast new bureaucracies created to administer payment for it, with no additional costs?
Just as there is no free lunch, there is no free red tape. Bureaucrats have to eat, just like everyone else, and they need a place to live and some other amenities. How do you suppose the price of medical care can go down when the costs of new government bureaucracies are added to the costs of the medical treatment itself?
And where are the extra doctors going to come from, to treat the millions of additional patients? Training more people to become doctors is not free. Politicians may ignore costs but ignoring those costs will not make them go away. With bureaucratically controlled medical care, you are going to need more doctors, just to treat a given number of patients, because time that is spent filling out government forms is time that is not spent treating patients. And doctors have the same 24 hours in the day as everybody else.
When you add more patients to more paperwork per patient, you are talking about still more costs. How can that lower medical costs? But although that may be impossible, politics is the art of the impossible. All it takes is rhetoric and a public that does not think beyond the rhetoric they hear.
7. From Thomas Sowell’s book “Basic Economics: A Common Sense Guide to the Economy” (p. 570-571):
Often related to the notion of reasonable or affordable prices is the idea of keeping “costs” down by various government devices. But prices are not costs. Prices are what pay for costs. Where the costs are not covered by the prices that are legally allowed to be charged, the supply of the goods or services simply tends to decline in quantity or quality, whether those goods are apartments, medicines, or other things.
The cost of medical care is not reduced in the slightest when the government imposes lower rates of pay for doctors or hospitals. There are still just as many resources required as before to build and equip a hospital or to train a medical student to become a doctor. Countries which impose lower prices on medical treatment have ended up with longer waiting lists to see doctors, less modern equipment in their hospitals and, in the case of Britain, a substantial proportion of their doctors have come from Third World countries with lower quality medical training, because of an inadequate supply of British doctors willing to practice medicine in Britain. Costs have not been lowered for the same medical care. Lower prices have been paid for lower quality treatment.
MP: Something to keep in mind the next time you hear the frequently repeated nonsense that Obamacare “will bend the health care cost curve down.”
8. From one of Sowell’s column in 2014:
The front page of a local newspaper in northern California featured the headline “The Promise Denied,” lamenting the under-representation of women in computer engineering. The continuation of this long article on an inside page had the headline, “Who is to blame for this?”
In other words, the fact that reality does not match the preconceptions of the intelligentsia shows that there is something wrong with reality, for which somebody must be blamed. Apparently their preconceptions cannot be wrong.
Women, like so many other groups, seem not to be dedicated to fulfilling the prevailing fetish among the intelligentsia that every demographic group should be equally represented in all sorts of places. Women have their own agendas, and if these agendas do not usually include computer engineering, what is to be done? Draft women into engineering schools to satisfy the preconceptions of our self-anointed saviors? Or will a propaganda campaign be sufficient to satisfy those who think that they should be making other people’s choices for them?
That kind of thinking is how we got ObamaCare.
9. From Sowell’s column “Listening to a Liar: Part II” in 2009:
Even those who can believe that Obama can conjure up the money [to insure millions more people] through eliminating “waste, fraud and abuse” should ask themselves where he is going to conjure up the additional doctors, nurses, and hospitals needed to take care of millions more patients.
If he can’t pull off that miracle, then government-run medical care in the United States can be expected to produce what government-run medical care in Canada, Britain, and other countries has produced– delays of weeks or months to get many treatments, not to mention arbitrary rationing decisions by bureaucrats.
Con men understand that their job is not to use facts to convince skeptics but to use words to help the gullible to believe what they want to believe. No message has been more welcomed by the gullible, in countries around the world, than the promise of something for nothing. That is the core of Barack Obama’s medical care plan.
10. In the video below from 2009, Thomas Sowell discusses Obama’s proposed (at that time) health care reform:
Video of the day: Northwestern University Professor Laura Kipnis on how campus feminism infantilizes women
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What now gets labeled feminism on [college] campuses,” says Northwestern University Professor Laura Kipnis, “has to do with dialing back a lot the progress women have made establishing ourselves as consenting adults.”
That was the main argument of an essay Kipnis published this past February in The Chronicle of Higher Education, titled, “Sexual Paranoia Strikes Academe.” After the article appeared, the Northwestern campus erupted in protest. Students demonstrated by carrying mattresses and pillows and wrote a public letter accusing Kipnis of “[spitting] in the face of survivors of rape and sexual assault everywhere.”
Then two students filed complaints with the university, and Northwestern brought Kipnis up on charges under Title IX of the 1964 Civil Rights Act, which outlaws discrimination on college campuses that receive federal support. The charges were later dismissed, but not before Kipnis wrote a follow up essay in Chronicle, “My Title IX Inquisition.”
Last week, Kipnis sat down with Reason‘s Matt Welch to talk about how campus feminism infantilizes women, Title IX, why Hustler‘s Larry Flynt and anti-porn activist Andrea Dworkin have a lot in common, and her recent book, Men: Notes from an Ongoing Investigation.
Chart of the day: US oil output increased to a 44-year high in April, just slightly below November 1970 peak
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The Energy Information Administration released monthly oil production today for April and here are some of the highlights of that report:
1. Despite low oil prices that averaged $54.45 per barrel in April, US oil production topped 9.7 million barrels per day (bpd) in April and reached the highest level of domestic crude oil output in 44 years, going back to April 1971 (see chart above).
2. US monthly oil output has been higher than April’s daily average of 9.701 million barrels in only seven other months, all in late 1970 and early 1971, placing April of this year as the 8th highest month of oil production in US history.
3. The all-time peak monthly US oil production took place in November 1970, when output averaged 10.044 million barrels per day. April’s daily production average of slightly more than 9.7 million barrels is just 343,000 barrels (and 3.4%) below US peak oil production.
4. Note in the chart that there was a gradual, four-decade decline in US crude oil that took place between the early 1970s and about 2009, and during that time domestic production fell roughly in half, from 10 million bpd in 1971 to only about 5 million bpd in 2009. Thanks to the shale revolution, America’s oil production is now almost back to the 1970 peak level of 10 million bpd, and it only took a little more than six years for the bonanza of shale oil to almost completely reverse the 40-year decline!
Bottom Line: The dramatic rebound in America’s oil production since 2009 to a near 44-year high in April of this year has to be one of the most remarkable energy success stories in US history. Despite an anticipated potential temporary slowdown in US oil production due to falling crude prices, that slowdown hasn’t yet shown up in US production statistics from the EIA. And even if we get flat oil production over the summer, we can expect future production increases later this year as oil prices rebound to above $60 per barrel by late 2015 and top $62 in 2016, according to oil futures prices on the CME. There are also ongoing advances in drilling and extraction technologies that are part of a new era known as Shale 2.0, which are sure to lead to greater efficiencies, increased recovery factors, and significantly lower costs. America’s emergence as the world’s largest producer of petroleum products and its new status as an energy superpower will continue for a long time.
If workers use government to get above-market wages, shouldn’t employers be able to do the same for lower wages?
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There is general support among the public for legislated, government-mandated minimum wages for unskilled, low-skilled, and limited-experience workers. Further, it is considered perfectly acceptable for these workers (and their supporters like labor unions) to use the coercive power of the government to enact minimum wage legislation to attain above-market wages, which they are unable to get on their own in the marketplace.
It’s an economic reality that sellers (employees) always want higher prices (wages), and buyers (employers) always want lower prices (wages), so why isn’t it considered acceptable for buyers (employers) of unskilled labor services to use the coercive power of the government to achieve lower wages through maximum wage legislation?
After all, there are actually many more small businesses in America (28.2 million in 2011, according to the Small Business Administration) than there are minimum wage workers (about 3 million), and many of those small businesses employ unskilled or low-skilled workers. So it would seem natural that those small business owners, the SBA, the Chamber of Commerce, and the National Restaurant Association could organize a powerful lobbying group to advocate for a maximum wage law to enhance the profitability of America’s small businesses, restaurants and retailers, no?
Sounds crazy, right? Well, it actually happens all the time in many other ways – industry groups are always organizing and lobbying to use the political process to lower their costs or taxes, or receive taxpayer subsidies. For example:
Renewable energy firms seek taxpayer subsidies, favorable tax treatment, and loan guarantees to lower their costs.
The film industry lobbies for tax credits and film subsidies in states across the country to lower their production costs.
America’s chemical and steel companies are lobbying against US natural gas exports because they claim it would raise their energy costs.
Some of America’s gasoline refiners oppose crude oil exports because they say it will raise the costs of their main input.
The National Association of Realtors and the National Association of Home Builders aggressively protect tax deductions for homeowners, because those tax subsidies lower the cost of home ownership and help them sell more homes.
Many American businesses support the taxpayer-funded Export-Import Bank because it lowers their costs of selling products overseas.
So if it’s acceptable for US companies and industries to use the political process to lower their costs and taxes, why shouldn’t it be acceptable for them to advocate for a maximum wage legislation to lower their labor costs for unskilled workers? Should it only be acceptable for workers to advocate for higher wages, but not for employers to advocate for lower wages? That doesn’t seem fair and equitable.
For example, I’ve edited President Obama’s statement below advocating a $10.10 per hour minimum wage as an example of how support for a maximum wage of $5.05 per hour might be argued as a way to benefit the thousands of employers and small businesses who hire unskilled workers.
Weekly Address: Time to Lift Lower the Minimum Maximum Wage for Entry Level Workers and Give America’s Small Businesses, Restaurants and Retailers a Raise
In this week’s address, President Obama says this is a year of action, and he will do everything he can to restore opportunity for all, especially for America’s 25 million small business owners including restaurants and retailers. The President already lifted the wages for federal contract workers, and he calls on the American people to tell Congress to finish the job by boosting limit the federal minimum maximum wage for all unskilled, limited-experienced, entry-level workers to $10.10 $5.05 per hour and give small businesses, restaurants and retailers in America a raise.
Remarks of President Barack Obama
The White House
February 22, 2014 (updated below to reflect the recent announcement that “The Gap” is closing 175 stores)
Restoring the idea of opportunity for all requires a year of action from all of us. Wherever I can act on my own, I will – and whenever I can ask more Americans to help, I’ll do that too.
In my State of the Union Address, for example, I asked more business leaders to take action to raise their employees’ wages and start more small businesses. Because even though our economy is growing, and our businesses have created about eight and a half million new jobs over the past four years, average wages have barely budged. for unskilled workers are so high that they are preventing new small businesses from emerging and existing ones from expanding.
So it’s good news that, To see what threatens America’s retailers and small businesses, consider that earlier this week last year, one of America’s largest retailers, The Gap, decided to raise wages for its employees beginning this year. Their decision will was an honorable, but misguided attempt to benefit about 65,000 workers in the U.S., That means mistakenly assuming that more families will be able to raise their kids, finish their studies, or keep up on their bills with a little less financial stress and strain.
Gap’s misguided CEO explained their faulty decision simply – he said, “It’s right for our brands, good for our people, and beneficial to our customers.” And he’s right – was wrong — raising Americans’ wages isn’t just a good deed; it’s not good business and it’s not good for our economy. It might helps reduce turnover temporarily, it might boosts productivity, and it might gives folks some more money to spend at local businesses in the short run. But now The Gap is experiencing financial stress partly from excessively high labor costs, and it will have to close 175 stores in North America and lay off thousands of workers – who now won’t have money to pay their bills, raise their families and finish their studies. That’s what can happen without a maximum wage to protect America’s retailers and small businesses from excessive competition for unskilled workers and greedy employees asking for higher wages. And a maximum wage law also helps to guarantee that workers won’t lose their jobs – like the thousands of now unemployed workers who lost their jobs at The Gap because of excessively high wages.
And as a chief executive myself, that’s why I took action last week to lift more workers’ wages by requiring federal contractors to pay their employees a fair wage of at least $10.10 an hour. I want to curb higher wages for unskilled, limited-experience workers with maximum wage legislation, and ensure that every unskilled worker who wants a job will find one.
In the year since I first asked Congress to raise lower the minimum maximum wage for limited-experience workers, six states have passed laws to raise lower theirs, and more states are working on it as we speak. But only Congress can finish the job and lift America’s ns’ wages small business and retailers across the country into greater profitability.
Right now, there’s a bill before Congress that would boost limit America’s minimum maximum wage to $10.10 $5.05 an hour for unskilled workers. That’s easy to remember – “ten-ten” “five-five.” That bill would lift wages increase profitability for more than 16 28 million Americans small businesses without requiring a single dollar in new taxes or spending. But even though a majority of Democrats, Independents, and Republicans across the country support raising lowering the minimum maximum wage, Republicans Democrats in Congress don’t want to give it a vote.
Hardworking business owners of American’s small businesses deserve better than “no.” Let’s tell Congress to say “yes.” Pass that bill. Give America’s small businesses, restaurants, non-profits and retailers a raise. Because here in America, no one small business owner who works hard should have to live in poverty because his or her wage costs are too high – and everyone entrepreneur who works hard, takes risks and hires unskilled workers should have a chance to get ahead.
Thanks, and have a great weekend.
Bottom Line: What seems to get lost in the minimum wage debate are the significant burdens imposed on America’s struggling small businesses when their labor costs for unskilled workers are increased by 40% or more – Obama totally ignored that issue in his original address. The benefits of “ten-ten” or $15 per hour for employees always get most of the attention by Obama and others, while the significant costs and financial burdens imposed on employers, restaurants, and small businesses are frequently ignored. To be consistent and fair, if it’s acceptable for workers to lobby for higher wages, and acceptable for businesses and industries to lobby for lower costs, taxpayer subsidies and lower taxes, then I say it should be acceptable for businesses to lobby for lower labor costs by advocating maximum wage legislation. I’m just asking for fairness.
OK, maybe I’m being a little facetious, but I’m just suggesting a more balanced debate about the minimum wage that considers both the benefits to unskilled workers and the costs to employers, so that we get both sides of the story! And if you don’t think that employers should use the coercive power of the government to pay below-market wages with a maximum wage law, why do you think that employees should use the coercive power of the government to force employers to pay above-market wages with minimum wage laws?
Tomorrow, June 30, marks the 214th anniversary of the birth of the great French economist Frédéric Bastiat (born June 30, 1801) whom economist Joseph Schumpeter called the “most brilliant economic journalist who ever lived.” Celebrating Bastiat’s birthday has become an annual tradition at CD, and below I present some of my favorite quotes from the great liberty-loving, influential French economist:
1. One of Bastiat’s most famous and important writings was “The Petition of the French Candlemakers,” which is such a clear and convincing satirical attack on trade protectionism that it often appears in textbooks on economics and international trade. Here’s an excerpt from that famous 1845 essay:
We [French candlemakers] are suffering from the ruinous competition of a foreign rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival is none other than the sun.
We ask you to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull’s-eyes, deadlights, and blinds—in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat.
2. In 1845, as a solution to counteract job losses in some French domestic industries (like textiles) due to free trade, Bastiat proposed to the King of France that he “forbid all loyal subjects to use their right hands.” Bastiat predicted that:
…as soon as all right hands are either cut off or tied down, things will change. Twenty times, thirty times as many embroiderers, pressers and ironers, seamstresses, dressmakers and shirtmakers, will not suffice to meet the national demand. Yes, we may picture a touching scene of prosperity in the dressmaking business. Such bustling about! Such activity! Such animation! Each dress will busy a hundred fingers instead of ten. No young woman will any longer be idle. Not only will more young women be employed, but each of them will earn more, for all of them together will be unable to satisfy the demand.
3. Here’s Bastiat’s famous quote on legal plunder (now frequently referred to as “crony capitalism”):
Legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole—with their common aim of legal plunder—constitute socialism.
But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.
Note: As I pointed out recently on CD, the minimum wage law is a form of legal plunder because it takes money from some persons (business owners) what belongs to them, and gives it to other persons (unskilled workers) to whom it does not belong. The minimum wage law clearly benefits some citizens (entry-level workers) at the expense of employers by doing what the workers cannot do without committing a crime of theft. So let’s put aside all of the economic arguments about what economic theory and empirical evidence show regarding the possible employment effects of government mandated minimum wages, and consider something even more basic and fundamental: the minimum wage is legalized, government-sanctioned plunder/theft from business owners, and therefore on that basis should be considered morally objectionable, unethical and unacceptable.
4. Four days before his death in 1850, Frederic Bastiat sent this message to a friend:
Treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race.
5. When a new railroad line was proposed from France to Spain, the French town of Bordeaux lobbied for a break in the tracks so that “all goods and passengers are forced to stop at that city,” which would therefore be “profitable for boatmen, porters, owners of hotels, etc.” Using reductio ad absurdum, Bastiat proposed that if a break in the tracks provided economic benefits and jobs for one town and served the general public interest, then it would be good for breaks in the tracks at dozens and dozens of other French towns, to the absurd point that there would be a railroad composed of a whole series of breaks in the tracks, so that it would actually become a “negative railway.”
6. In his famous essay “What Is Seen and What Is Not Seen,“ Bastiat was one of the first economists to make the very important distinction between the immediate, concentrated and visible effects of legislation or regulation and the delayed, dispersed and invisible effects:
In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil.
To illustrate the principle of “what is seen and what is not seen,” Bastiat told a story that became known as the “The Parable of the Broken Window,” which was modernized in the 1940s by Henry Hazlitt in his book “Economics in One Lesson.” Here’s a quick summary:
A baker has saved $50 to buy a new suit, but then a young hoodlum throws a brick through the shop owner’s window and the baker now has to spend $50 to replace the window and forego the purchase of the new suit. If one ignored the invisible effects of the broken window, one could argue then that the hoodlum was a public benefactor by stimulating business for the window company that now receives $50 to replace the window. But instead of the baker having $50 for a new suit and a window, he now only has the window and no suit. And the invisible unseen party in the parable is the tailor, who would have benefited $50 from selling the baker a new suit, but now loses that business. Observers will see the visible new window but will never see the invisible new suit, because it will now never be made.
Here’s how Bastiat explains the unseen, invisible effects of the shopkeeper spending six francs to replace the broken window:
It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.
7. “The State [government] is the great fiction, through which everybody endeavors to live at the expense of everybody else.”
~The State in Journal des Débats (1848).
8. “When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
~Economic Sophisms, 2nd series (1848)
9. “Everyone wants to live at the expense of the State. They forget that the State lives at the expense of everyone.”
10. “Trade protection accumulates upon a single point the good which it effects [for domestic producers], while the evil inflicted is infused throughout the mass [of consumers]. The one strikes the eye at a first glance [benefits to producers], while the other becomes perceptible only to close investigation [losses to consumers].”
Bottom Line: Bastiat was truly an economic giant and deserves credit for his many significant and important intellectual contributions to economic thinking that are as relevant today as they were in France in the mid-1800s when Bastiat was writing, including: a) Bastiat was one of the first economists to warn us of the dangers of legal plunder, crony capitalism and trade protectionism, b) he helped us understand the importance of looking at both the unseen and delayed effects of legislation and regulation in addition to the immediate and visible effects, c) he was one of the most eloquent and articulate defenders of individual freedom and liberty who ever lived, and d) he was probably the strongest advocate for the consumer in human history.
Happy Birthday Bastiat!
Update: Here’s a great quote about Bastiat from Murray Rothbard: “Bastiat was indeed a lucid and superb writer, whose brilliant and witty essays and fables to this day are remarkable and devastating demolitions of protectionism and of all forms of government subsidy and control.”
That Rothbard quote comes from The Mises Institute, which reminds us that “Bastiat turns 214 and is still relevant.” The Mises Institute is offering some books by Bastiat including the Bastiat Collection Pocket Edition for $14 and The Law for $5.
Why are market-based wages superior to government-mandated minimum wages? There are many reasons, here are three
View related content: Carpe Diem
Market-determined wages: 1) are based on the unique market forces of supply and demand for entry-level workers that prevail in an individual geographical location and for a specific industry, 2) can easily be adjusted up or down dynamically in response to changes in market conditions for a given geographical area or for a given industry, and 3) require no costly bureaucratic enforcement mechanism. In contrast, government-mandated minimum wages: 1) are set arbitrarily based on political considerations, 2) remain fixed and static for long periods of time, and 3) require a costly enforcement bureaucracy. Here are more details of those three important differences that help us understand why market wages should be preferred to government-mandated minimum wages:
1a. Market Wages Reflect Economic Reality: When the Walmart in Williston, North Dakota advertises starting wages of $17 per hour (see photo above that I took on my recent Bakken trip), those wages are offered based on the market conditions for unskilled, limited-experience workers in that unique labor market. As an employer, Walmart is competing against dozens of other retailers who also seek to hire unskilled workers. In a competitive labor market like Williston, wages of $17 per hour emerge as competitive, market-determined wages based on the interaction of the demand for low-skilled workers and the supply of low-skilled workers for those labor markets at a given point in time. In other words, those wages, which are more than double the state minimum of $7.25 per hour in North Dakota and higher than the recently passed $15 minimum wages in Seattle, San Francisco and Los Angeles, have emerged to reflect unique local labor market conditions and market forces, and were not determined arbitrarily or randomly.
b. Government Wages Ignore Economic Realities and Instead Reflect Politics. I am not aware of any case of a new city minimum wage law being enacted (for example, $15 per hour in Seattle, San Francisco or LA), or a case of the federal minimum wage being increased, when the new government-mandated wage was determined based on any economic, scientific, or logical basis, or when some rigorous cost-benefit analysis was used to conclude that a $10.10 per hour or $15 per hour minimum wages generates the most benefits with the least costs. In almost every case, a minimum wage by government fiat is determined arbitrarily using the PFA method: “plucked from the air.”
For example, why a $10.10 per hour minimum wage as proposed by the Democrats and Obama with the Fair Minimum Wage Act? Well, according to Obama, one reason for a $10.10 an hour minimum wage is because he tells us that “ten-ten” is easy to remember (and that’s even in the name of bill – H.R. 1010). No economic or cost-benefit analysis, no economic logic, no economic reasoning, no empirical evidence; in other words, no systematic process of analysis that tells us that $10.10 per hour is somehow optimal or ideal, and is superior in some convincing way to a $9.10 or $11.10 per hour government-mandated minimum wage.
Why a $15 per hour minimum wage as advocated by former labor secretary Robert Reich in this video, and the new minimum wage that was recently adopted in West Coast cities like Seattle, San Francisco and Los Angeles? Again, there’s no economic analysis, economic logic or economic reasoning that supports $15 per hour, as the optimal or ideal wage for those cities, it’s another number that was apparently arbitrarily chosen politically using the PFA method, probably again because it’s another nice, round number that’s “easy to remember.”
Conclusion: The $17 starting wage at the Williston Walmart is a market-determined wage that accurately reflect the specific and unique market forces for limited-experience workers in that labor market, and is based on sound economic and business analysis and decision-making, probably some dynamic trial-and-error experimentation to determine the optimal wage for the local labor market; in other words that $17 per hour market wage is grounded in reason, logic, market forces and sound economics. In contrast, minimum wages by government fiat are grounded in politics and wishful thinking, not economic reality. Further, market-determined wages reflect the unique labor market conditions that might vary significantly both by geographical region and by industry, whereas the government typically imposes a “one-size-fits-all” minimum wage on all industries and all geographical regions (in the case of the federal minimum wage).
2a. Market Wages are Dynamic. It’s also important to remember that the current wage of $17 per hour at the Williston Walmart is much higher than it was before the oil boom in the Bakken area raised the demand for workers, both skilled and unskilled. In most areas of the country, Walmart has been paying starting wages of below $9 per hour and its average wage for associates was below $13 per hour until this year. But in a boom town like Williston, the local Walmart might have quickly learned that offering those wages in the Bakken area would have resulted in a significant shortage of workers, and it therefore had to roughly double its starting wages there to $17 per hour to attract enough workers. And because Walmart is in competition for workers in Williston with other retailers and restaurants there like McDonald’s, Home Depot, Menards, Buffalo Wild Wings, Famous Dave’s, and KFC, it’s likely that $17 per hour is the prevailing, market-determined entry-level starting wage for the entire Williston area. Higher even than $15 per hour in Seattle, with no legislation required – the market was responsible.
And that’s the important lesson here about a market-determined wage: It’s completely flexible, and can easily be adjusted up or down in response to changes in the market. If there’s a slowdown in the Williston area because of low oil prices, wages will likely fall at Walmart and other local retailers; if there’s a resurgence in the oil boom later this year from a rebound in oil prices, there could be upward pressure on Walmart’s starting wages (see my addition to the Walmart photo above).
b. Government Wages are Static. Minimum wages imposed by government fiat are fixed and static for long periods of time, and cannot easily be adjusted to respond quickly to unique or changing market conditions, or be adjusted upward for inflation in most cases. The federal minimum wage can also not be adjusted downward to reflect the market conditions in small towns where the cost of living is very low to account for the fact that a new $10.10 minimum wage (if passed) is too high for some local labor markets. In contrast, a major retailer like Walmart can easily customize its starting wages at thousands of locations nationwide to reflect the differences in labor market conditions and cost of living.
3a. Market Wages Require No Enforcement Mechanism. It should be obvious that when wages are market-determined by the forces of supply and demand, there is no enforcement mechanism or costly government bureaucracy required. In that sense, market wages are “free” since they impose no regulatory cost on taxpayers.
b. Government Wages Require a Costly Enforcement Mechanism. When a minimum wage is mandated by government fiat, a costly government bureaucracy is required to monitor and enforce the government wage mandate, respond to complaints, and impose penalties and fines on offenders. For example, after Seattle passed a $15 per hour minimum wage ordinance, the city had to next establish and fund a new Office of Labor Standards to oversee the city’s newly established minimum wage law. Earlier this month, the city appointed its new “Minimum Wage Czar” to head the new office. San Francisco has an Office of Labor Standards Enforcement (19 staff members and an annual budget of $3.7 million, of which about half goes to enforce the city’s minimum wage law), and the state of California has a Division of Labor Standards Enforcement to enforce the state minimum wage. An Office of Wage and Hour enforces the minimum wage law in Washington, D.C. at an annual cost of about $1.5 million for 11 full-time employees. San Diego estimates an annual cost to the city of $1.2 million during the first year to monitor and enforce a proposed hike in the city’s minimum wage above the state level (not yet finalized, a public vote may take place next year). Although it might be hard to estimate the exact cost to taxpayers for enforcement of city, state and federal minimum wage laws, it’s likely that the cost to taxpayers runs into the billions of dollars every year, and it’s a cost that can’t be ignored when comparing market wages to government-mandated minimum wages.
Bottom Line: Market wages for entry-level workers are: 1) determined by market forces and reflect regional and industry differences, 2) can easily and dynamically adjust on a continual basis to reflect changes in local labor market conditions, and 3) require no costly monitoring and enforcement bureaucracy. On the other hand, government-mandated minimum wages are: 1) determined arbitrarily by a politically-driven process that is divorced from economic reality, 2) based on a “one-size-fits-all” approach that can’t easily be adjusted for regional and industry differences, and can’t adjust dynamically to changing market conditions, and 3) costly to monitor and enforce. For those three reasons (along with many other important reasons), we can conclude that market-determined wages for unskilled and low-skilled workers when compared to government mandated minimum wages are far superior because they are more efficient and realistic, can be changed dynamically and don’t require costly bureaucratic enforcement.