• Tag Archives minimum wage

  • What Puerto Rico Can Teach Us About Raising the Minimum Wage

    Posted on by Azrael 1 Comment

    What Puerto Rico Can Teach Us About Raising the Minimum Wage

    This week, twenty states began implementing minimum wage increases that were passed during 2016. As the country waits to see how these increased wages this will affect the economy, the U.S. territories have already provided us with a grim example.

    After the 2007 Fair Minimum Wage Act passed, each of the fifty states was required to raise the minimum wage from $5.15 an hour in 2006, to $7.25 by 2009. Few Americans realize that this legislation was also applied to the U.S. territories of Puerto Rico, American Samoa, and the Northern Mariana Islands, who were also forced to raise wages.

    Unemployment in Puerto Rico surged and its GDP per capita declined by almost 7 percent. 

    When the minimum wage is increased, the private sector is responsible for finding the means to actually pay for these increases. Though many companies will be forced to raise prices in order to continue operating within their profit margins, some might be left with no choice but to lay off employees or dramatically cut employee hours.

    Since minimum wage pay is typically associated with entry-level workers, if employers are forced to let these employees go, they will lack the skills necessary to quickly rebound in the job market. As a result, the unemployment rate begins to rise.

    Real World Consequences

    When minimum wage requirements are made at the city or state level, the losses experienced from high unemployment rates are offset in the local economy, since many who are unable to find work often relocate to an area where the minimum wage isn’t as restrictive.

    However, for those living in U.S. territories, relocation is not as easy as it is for residents in the continental states. Without the flexibility to relocate, the economic catastrophe that resulted from the 2007 minimum wage increase was felt on a grander scale.

    According to National Review,

    The impact on the economies of American Samoa and the Northern Mariana Islands was devastating. In American Samoa, by 2009, after only three of the ten scheduled minimum-wage increases, overall employment dropped 30 percent — 58 percent in the critically important tuna-canning industry. Real per capita GDP in American Samoa fell nearly 10 percent from 2006 levels. In the Northern Mariana Islands, by the end of 2009, employment was down by 35 percent, and real per capita GDP off by 23 percent.”

    As the situation grew desperate, the governor of American Samoa testified before the U.S. Congress explaining that the new minimum wage policy created, “the real possibility that American Samoa could be left substantially without a private-sector economic base except for some limited visitor industry and fisheries activities.” He continued, “American Samoa’s economic base would then essentially be based solely on federal-government expenditures in the territory.”

    Puerto Rico met a similar fate after the new minimum wage rate went into effect. The increase resulted in a minimum wage that was greater than 75 percent of the Puerto Rican median wage. In fact, the situation grew so dire, unemployment in Puerto Rico surged and its GDP per capita declined by almost 7 percent between 2007 and 2013. As a result, many young and able-bodied Puerto Ricans left for the U.S. mainland, creating an imbalance as the old and less motivated were forced to stay behind.

    Additionally, foreign investors were turned off from hiring Puerto Ricans, since residents of Jamaica and the Bahamas would only cost half as much to employ.

    By raising the minimum wage to as much as $15 an hour, states like California and New York are not just setting an American record for highest minimum wage; they are setting a global record as well. Even France, where socialism thrives, has a minimum wage equivalent to only $10.90 an hour.

    In fact, the only time in history that the minimum wage was increased at economic levels comparable to that of New York and California was in 2007, when the U.S. territories implemented the Fair Minimum Wage Act. As we all know how that situation ended, we can only hope that in the future, governments can learn from history and avoid causing economic catastrophes.

    Republished from Generation Operation.


    Brittany Hunter

    Brittany Hunter is a Staff Contributor at Generation Opportunity.

    This article was originally published on FEE.org. Read the original article.



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  • Faces of the $15 Minimum Wage Victims

    Posted on by Azrael Comment

    As another round of coordinated minimum wage protests occurred the other day around the country, the consequences of minimum wage hikes — including lost jobs, reduced hours, and business closures — are playing out in real time. To bring some economic reality into the national discussion on the #Fightfor15, the Employment Policies Institute (EPI) released four new mini-documentaries today featuring victims of dramatic minimum wage increases. EPI has documented hundreds of these outcomes on its Faces of $15 website. Four of these stories of lost jobs and business closing are featured in the mini-documentary videos below.

    1. The Almost Perfect Bookstore in Sacramento was forced to close because it could not absorb the increased costs of California’s forthcoming (far from perfect) $15 state minimum wage (watch video above).

    2. ARGYLEHaus of Apparel in San Fernando (CA) is leaving the state for Nevada as a consequence of California’s pending minimum wage increase to $15 an hour (watch video above).

    3. The Del Rio Diner in Brooklyn was forced to close because the owner couldn’t pass along the costs of New York’s rising minimum wage to his blue collar customers in the form of higher menu prices (watch video above).

    4. Sterling’s Family Childcare in Oakland (CA) has been forced to cut staff and hours as well as scale back a free rides service because of the costs associated with Oakland’s minimum wage increase (watch video above).

    MP: It’s really too bad that there isn’t some economic theory or some economic laws that could have predicted these inevitable adverse outcomes from a government price control that artificially raises labor costs by diktat …

    This first appeared at AEIdeas.

    Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.

    Mark J. Perry

    Source: Faces of the $15 Minimum Wage Victims | Foundation for Economic Education

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  • Minimum-Wage Supporters Believe in Magic

    Posted on by Azrael Comment

    An e-mail exchange this morning with a pro-minimum-wage economics professor who not only wishes to remain anonymous but who asks that I not even quote him directly prompts the following thought about minimum-wage proponents’ belief in miracles.

    Workers with a great deal of work experience earn, on average, much higher wages than do workers with no or only very little work experience. Given this reality, suppose that Congress, with the support of President Clump, enacts the following statute: “No one with less than five years of work experience is allowed to be employed for pay.”

    At the signing ceremony for this diktat, Pres. Clump triumphantly proclaims that

    Contrary to the predictions of naysayers and free-market ideologues, this legislation will cause no one to lose a job. Instead, it will simply give to all workers — even to 16 year olds! — a minimum of five years of work experience. There is nothing that a powerful and determined government with good intentions cannot do!

    Immediately, however, everyone reacts with astonishment at the stupidity of Congress and the president. Even editorialists and columnists for the New York Times observe that, as one especially famous columnist observes, “Many workers simply don’t have five years of work experience. They will remain unemployed.”

    In response to this surprising opposition from their “Progressive” friends, Congress and Pres. Clump add the following amendment to the above legislation: “Each and every worker in America is hereby decreed to possess at least five years of work experience.”

    Editorialists and columnists for the New York Times breathe a sigh of relief and declare that this amendment ensures that all is now right with this legislation! It will work only good for American workers!

    In contrast, editorialists for more skeptical outlets, such as the Wall Street Journal and the Orange County Register remain flabbergasted that anyone believes in such miracle-working.

    If you, dear reader, think the above hypothetical is silly, recognize that minimum-wage legislation is a very similar attempt by government to work a miracle through legislative decree.

    In markets in which workers are free to quit and to seek out new jobs, and in which employers — long-established and just starting — are largely free to compete for workers, each worker is worth to employers what that worker is worth. That is, in such markets, each worker’s hourly worth to employers equals the value that he or she adds each hour to his or her employer’s bottom line. A worker whose skills and other attributes enable him to add at most only $7.00 per hour to any employer’s revenues will not be hired at an hourly wage above $7.00 per hour. All such workers will remain unemployed (in the formal sector) today at the current national minimum wage in the U.S. of $7.25 per hour.

    Supporters of the minimum wage who insist that it destroys no employment opportunities for any workers believe in the following miracle: when government decrees that each worker shall be paid at least $7.25 per hour, all workers are thereby miraculously infused with the skills and work-experience necessary for each of them to produce for employers at least $7.25 per hour.

    The only difference separating minimum-wage legislation from the above hypothetical diktat lies in the wording of the incantations. Minimum-wage statutes and regulations specify the minimum that each worker must be paid, while the above hypothetical diktat specifies the minimum amount of experience (a good proxy for skill) that each worker must possess. Both instances of sorcery pretend to miraculously alter the same reality — namely, the productivity of low-skilled workers.

    Source: Minimum-Wage Supporters Believe in Magic | Foundation for Economic Education


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