Dependency, Work Incentives, and the Growing Welfare State

    This was orginally posted at Mitchell’s blog International Liberty. It is particularly relevant as we watch the un- and underemployed vent their frustrations in Baltimore. ~ Ed.


    A nation’s prosperity is determined by the quantity and quality of labor and capital that are productively utilized.

    Which means that it doesn’t make sense to have policies that penalize either saving and investment or working.

    Yet that seems to be the favorite hobby of the political class.

    And there are real consequences. A new study by a pair of economists, published by the National Bureau of Economic Research, has some interesting findings on the link between redistribution programs and labor supply.

    It’s a bit wonky, given the way academics write, but they produce some important data on the negative unintended consequences of government dependency.

Guess who else is against the minimum wage?

minimum wage

Read these paragraphs and see if you can figure out who wrote them:

The Federal minimum wage has been frozen at $3.35 an hour for six years. In some states, it now compares unfavorably even with welfare benefits available without working. It’s no wonder then that Edward Kennedy, the new chairman of the Senate Labor Committee, is being pressed by organized labor to battle for an increase.

No wonder, but still a mistake. Anyone working in America surely deserves a better living standard than can be managed on $3.35 an hour. But there’s a virtual consensus among economists that the minimum wage is an idea whose time has passed. Raising the minimum wage by a substantial amount would price working poor people out of the job market. A far better way to help them would be to subsidize their wages or - better yet - help them acquire the skills needed to earn more on their own.

An increase in the minimum wage to, say, $4.35 would restore the purchasing power of bottom-tier wages. It would also permit a minimum-wage breadwinner to earn almost enough to keep a family of three above the official poverty line. There are catches, however. It would increase employers’ incentives to evade the law, expanding the underground economy. More important, it would increase unemployment: Raise the legal minimum price of labor above the productivity of the least skilled workers and fewer will be hired.


The idea of using a minimum wage to overcome poverty is old, honorable - and fundamentally flawed. It’s time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.

Guess? Guess? Hmm? Give up? All right then, the individual who wrote this was…

The Summer of Wreckovery continues

No doubt all of us would take some good economic news right now, but that won’t come from the jobs report for June, which was released this morning showing the unemployment rate rising slightly to 9.2% and adding only 18,000 jobs:

U.S. employment growth ground to a halt in June, with employers hiring the fewest number of workers in nine months, dampening hopes the economy was on the cusp of regaining momentum after stumbling in recent months.

Nonfarm payrolls rose only 18,000, the weakest reading since September, the Labor Department said on Friday, well below economists’ expectations for a 90,000 rise.

Many economists raised their forecasts on Thursday after a stronger-than-expected reading on U.S. private hiring from payrolls processor ADP, and they expected gains of anywhere between 125,000 and 175,000.

The unemployment rate climbed to 9.2 percent, the highest since December, from 9.1 percent in May.

Numbers from the two previous months were revised down by 44,000 jobs; April dropped from 232,000 to 217,000 and May from 54,000 to 25,000. In case you’re wondering, the economy needs to create around 120,000 jobs each just to keep up with population growth.

Another bad sign is the U-6 rate, what many economists call the “real unemployment rate,” jumped from 15.8% to 16.2%.

Just like government intervention in the economy in the 1930s prolonged the Great Depression, intervention and uncertainty with President Barack Obama’s economic policies are slowing the pace of recovery today.

Lessons from the Auto Bailout Controversy

This past week, the US Senate failed to concur with the House of Representatives in passing a bailout package for the nation’s large domestic automakers. This bailout had the support of the Democratic leadership in Congress as well as the Bush White House. Already, doomsayers are bemoaning this lack of financial infusion from an already depleted federal budget. However, I applaud this decision as a victory for principle over pragmatism. Hoping that conservatives will learn from this effort to continue enlarging government, consider some lessons from the bailout controversy.

House Seeks to Temporarily Shut Down National Labor Relations Board


Back in January, the DC Circuit Court of Appeals ruled that President Barack Obama acted outside of his constitutional authority when he made three recess appointments to the National Labor Relations Board (NLRB), a relic of the New Deal, in January 2012.

While the Constitution does provide a president with the power to make recess appointments, the Senate was in pro forma session, and hadn’t formally adjourned.

On Friday, the House of Representatives passed HR 1120 — the Preventing Greater Uncertainty in Labor-Management Relations Act — which would prevent the NRLB from taking any action until either the Supreme Court settles the legal case on the recess appointments or until Congress adjourns for the year:

The legislation would force the National Labor Relations Board to cease making any rulings until the Supreme Court rules on the validity of two recess appointees the White House made to five-member board.

The effort is mostly symbolic since the Democrat-majority Senate is unlikely to take up the bill.

Julie Borowski on why raising the minimum wage is bad policy

Rasmussen has a new poll out today showing that 54% of Americans support raising the minimum wage to $9 an hour. While this latest part of President Obama’s agenda may give people a warm and fuzzy feeling — because, after all, who doesn’t want to “reward an honest day’s work with honest wages,” as President Obama put it in his State of the Union address — the economics behind the minimum wage don’t make much sense.

Julie Borowski has a new video out this week explaining why the minimum wage ultimately hurts the very people its intended to help. Listen up, folks:

Michigan Set To Become Next Right-To-Work


If you’ve been sleeping under a rock, Michigan — a heavily unionized state — is about to become the next state to adopt right-to-work laws:

LANSING, Mich. — Michigan, considered the birthplace of the American organized labor movement, was on a fast track Thursday to becoming the nation’s 24th right-to-work state after the state House and Senate approved bills as part of a package to pass the law.

Labor and Democrats were pushing back hard against the Workplace Fairness and Equity Act, but the efforts seemed futile as the controversial measures moved like greased lightning — and without going through committees or public debate — and could land on Gov. Rick Snyder’s desk by next week.

The debate raged across Michigan, and the country, as to whether the legislation would do what proponents say, bring fairness to workers and spark economic growth; or do as opponents claim, lower wages and benefits and destroy the middle class.

“The goal isn’t to divide Michigan, it is to bring Michigan together,” said the governor, who previously had said the issue was not on his agenda.

It should be noted that the law exempts police and firefighter unions, who are perhaps the most powerful unions of all (next to teachers, who from my understanding are not exempt), and also exempts current contracts. The latter doesn’t bother me; those contracts will eventually expire and be up for grabs later. The former does; caving into the police and firefighter unions sets a bad precedent. However, I don’t think it will be a problem in the short run.

The Detroit Free Press does a decent job explaining the law:

July Jobs Report: +163,000, Unemployment Rate up to 8.3%

Unemployment Rate

It’s that time of the month again. Everyone closely following the presidential election is closely looking at the Bureau of Labor Statistics’ monthly jobs report. According to the BLS, the economy added a net of 163,000 jobs in July, but the unemployment ticked up to 8.3%.

The good news for President Barack Obama is that the report beat the 100,000 consensus estimate from observers. The +163,000 does, though just barely, surpass the number of +125,000 to +150,000 needed just to keep up with population growth. The bad news is that some 150,000 workers left the labor force last month, the U-6 employment increased to 15%, and the numbers for June were revised downward, from +80,000 to +64,000. Also, the number of unemployed increased by 45,000 in July.

Basically, the hard number of jobs created last month is good for Obama. But the fact that unemployment is still over 8% for the 42nd straight month is a point that is going to be hammered home by Mitt Romney and Republicans.

James Pethokoukis, an economist at the American Enterprise Institute, notes that unemployment would 11% if the labor force participation were at the same size as when Obama took office. He also points out that “[i]If labor force participation rate hadn’t declined since just last month, unemployment rate would have risen to 8.4% [in July].”

There are three more jobs reports to go between now and the election in November. Things have to get better than this if Obama hopes to be re-elected.

Image courtesy of the American Enterprise Institute

Liberty Links: Morning Reads for Monday, February 21st

Below is a collection of several links that we didn’t get around to writing about, but still wanted to post for readers to examine. The stories typically range from news about prominent figures in the liberty movement, national politics, the nanny state, foreign policy and free markets.

Dems bow to pressure, exempt labor unions from insurance tax

Democrats may have come to an agreement on an excise tax for high-end insurance plans to help fund ObamaCare:

The White House reached a tentative agreement with union leaders early Thursday to tax high-cost insurance plans, officials said, removing one of the major stumbling blocks in the way of a final compromise on comprehensive health care legislation sought by President Barack Obama.

Complete details of the tentative deal were not immediately available, although the White House was expected to present it to senior lawmakers later in the day. Union leaders also were returning to the White House.
In a win specifically for union members, negotiators were working out a plan to delay the tax from being imposed on collectively bargained health plans for several years.

So, to make sure you understand this…a tax high-end insurance plans, aimed at the evil “rich” (even though this tax will hit the middle class), will apply to private health insurance plans, that is unless they are part of a labor deal (collective bargaining agreement).

Our president just got a sweetheart deal for his number one political constituency, exempting them from major tax hike. Once again, President Obama bows to labor interests.

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