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Minimum Wage: Tilting At Windmills

A growing number of Americans, academics, and politicians herald a rise in minimum wage as a solution to fight poverty. The concept seems simple, politicians agree what is a livable minimum wage and it becomes the law of the land. However, government solutions to economics typically resemble Don Quixote tilting at windmills.

While politicians may concoct a faux pas minimum or living wage, real wages are determined by a marketplace, not the government. As economist Paul Krugman once remarked, “Wages are a market price—determined by supply and demand, the same as the price of apples or coal.” In capitalist societies, corporations will pay dearly for specific skills or if labor is in short supply. Just ask Wal-Mart workers in Wilston, North Dakota who start at $17.40 an hour.

JoeGNow that government sets the minimum wage, employers must decide if the wage, benefits, taxes and training are worth the value of the task at hand. People with no experience or no diploma find it hard to enter the workforce. They are impeded from opportunity of economic mobility into future, better jobs. You won’t move up the ladder if you can’t get on the ladder.

Minimum wage not only shrinks job market perspectives, but also has a weak correlation to low wage workers and poverty, according to U.S. Census Bureau data. Economist Joseph Sabia found minimum wage increases on both the state and federal level between 2003 and 2007 “had no effect on state poverty rates.” According to Michael Strain of the American Enterprise Institute, “Less than 3% of hourly wage earners over the age of 24 earn at or below the federal minimum.” Most minimum wage earners are teenagers who are seeking work experience. These same teens face a 24% unemployment rate.  It could be argued that high school and college workers with the need for experience should forgo any minimum wage. In the past, college students voluntarily traded labor for the experience gained from internship.

I discovered how differently fast food restaurants were operated while travelling around Europe playing baseball this summer. At a McDonald’s in La Rochelle, France, there was no counter person taking orders, instead it was a computer. Why would an American corporation be more technologically advanced in France than in their domestic franchises? I asked a French worker, who said McDonald’s found it more economically feasible to buy an expensive computer system rather than pay France’s minimum wage of $12.09 plus a multitude of benefits and payroll taxes gifted by French politicians.

When labor is costly and can be replaced by machines, most businesses invest in capital intensive systems. Even in the US, we are now witnessing technology replace the demand for workers. Check out your local bank with half the amount of tellers as it had ten years ago. Home Depot has automated cashiers. At Applebee’s, your “Neighborhood Grill and Bar,” don’t expect Flo, your favorite, neighborly waitress, to take your nachos order in the future. “Presto”—the tablet computer—has secretly been added to your table, next to the salt and pepper shakers.  Since Presto works for free, should we tip Presto more than the customary 15%?

Small businesses are the engine of our economy. There should be little or no regulation on them, so long as it does not affect the safety of their employees or the public. Small businesses are typically underfunded and unable to immediately buy systems to replace people.  In fact, these businesses can thrive by giving a human-touch experience versus their larger counterparts. However, the more we increase and mandate minimum wages and fringe benefits, once negotiated privately by consenting adults, the more we increase the problems we see in France. George W. Bush once quipped, “The trouble with the French is that they don’t have a word for entrepreneur.” If we keep on passing minimum wage laws, this country might not have a word for enterprise.

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Is Marriage the Greatest Tool for Lifting Families out of Poverty?

“Marriage” is a hard topic to broach in public debate, particularly in the context of economics. Many women, like myself, view it with a certain amount of trepidation when the subject comes up; the floodgates seem to be open to derogatory comments about “welfare queens” and single-motherhood, with poor women bearing the brunt of poorly-disguised scorn and highly insensitive gaffes. The conversation and ensuing media rigamorale can be so off-putting.

sarahHowever, it’s not a conversation that we should tune out. Some have suggested that the collapse of the married, two-parent family – the result of decades of rising divorce rates, out-of-wedlock births, and rising numbers of couples who do not marry – has resulted in much of the poverty we see today.

Indeed, Senator Marco Rubio (R-FL) recently made bold a speech on the fifty year anniversary of the War on Poverty in which he said “The truth is, the greatest tool to lift children and families from poverty is one that decreases the probability of child poverty by 82%. But it isn’t a government spending program. It’s called marriage.”

I would agree with Rubio, though with a few objections. To begin with, I don’t think marriage is a panacea to the current economic climate. (Granted, it’s not clear that in context of his speech that Rubio was assuming that it was.) I’m not even sure that it’s “the greatest” tool to combat poverty, either. That lends itself too much to a messianic definition of marriage, which I don’t think is appropriate. (It also seems to cheapen other equally important strategies to combat poverty.)

However, whether we like it or not, marriage and other social relationships do affect us and how rich and how poor we are. As Nick Schultz of the American Enterprise Institute points out in “Home Economics: the Consequences of a Changing Family Structure,” economics is not solely a study of numbers and monetary transactions. The most important economic questions of our time – rising income inequality, depressed wages, and slow economic growth – cannot be answered without touching upon our social institutions. If this is the case, marriage must be addressed.

Marriage delivers on a number of good things that can help relieve poverty. For one, it seems to  promote economic  mobilization. Our modern version of marriage has all the promise to provide a stable home for children, helping them succeed later in life. Though they acknowledge that the effects of marriage are not the only factor, a new Brookings Institution study makes the claim that “children born into continuously married family  [sic] have much better economic mobility than those in single parent families.” So, marriage seems to be good for the kids.

It’s also good for the adults. In the absence of marriage, single parents, particularly single moms, have to struggle working one or more job, along with the regular housework and childrearing.  According to a study undertaken by the Atlantic, poor women and single moms are more likely to have higher levels of anxiety, to live with regret, to stress about their kids, and rely on their family and friends for money. Marriage can relieve some of the pressure by turning one income into two.

Altogether, marriage creates a miniature economy that has the potential to benefit all parties and, in the best marriages, this is fueled by a love and warmth that cannot be reproduced elsewhere.

That being said, the solution to poverty in the United States can’t just be “get married,” nor should we expect that to be the solution for every individual. However, marriage is nonetheless an important aspect to resolving poverty and one of our greatest tools. Given its benefits, why don’t we encourage it enough? Let’s stop tuning out the conversation based on political rhetoric and start looking at marriage as the great thing that it is.

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Two Views: Would Widespread Economic and Political Freedom Create Global Peace?

Though I would agree with Sarah Slater’s point that global peace could never be entirely accomplished due to the presence of scarce resources and competing cultural values, it is hard to negate the evidence that democracies – systems in which political freedom is the foundation – rarely go to war against each other. It is also hard to ignore that economies that practice economic freedom and are increasingly dependent on each other also find it difficult to go to war. For these reasons, it seems fair to conclude that the expansion of political and economic freedoms contributes to domestic and global peace, even if they may not resolve the entire issue.

2view-sarahhThese arguments ultimately rest on cost-benefit analysis. As Immanuel Kant, one of the early writers on global peace, wrote in 1795, wars do not frequently benefit the ordinary people in a country. Often, citizens have to bear the load of war, “having to fight, having to pay the costs of war from their own resources, having painfully to repair the devastation war leaves behind, and, to fill up the measure of evils, load themselves with a heavy national debt that would embitter peace itself and that can never be liquidated on account of constant wars in the future.” In a republic or a democracy where citizens are free to exercise political control, it would make sense that they try to refrain from going to war as much as possible. Political freedoms, then, become safety valves that citizens may exercise against their politicians when conflicts begin to get overheated.

Theoretically, Kant’s proposition makes sense, but how does it play out in recent history?

Political freedom – by which we mean the ability of the public to engage in a political process without being coerced or compelled in any way – is a relatively recent phenomenon in history and the phenomenon only took hold in the past 50 or 60 years. According to scholar Michael Mandelbaum, “In the second half of the twentieth century … democracies consistently preferred butter to guns” due to their political choices which reflected their preferences for social welfare programs than to foreign activity and wars. Even the United States, which has acquired the reputation of bellicosity “was subject to the same popular reservations about and objections to war” in the twentieth century that was present in other countries, albeit at a smaller scale.

Increased globalization and the dependency between economies that practice economic freedom also create situations in which the desire for peace outweighs the desire for conflict. Conflict can interrupt trade between nations, the production of goods, and the transactions between consumers and producers which encourages these economies to refrain from war. Again, this argument rests on a cost-benefit analysis between the costs of war and the benefits of peace. As Sarah Slater noted in the previous article, no European state in the European Union has attacked another – a miracle if we examine Europe’s recent history.

We should look at expanding political and economic freedom as a positive force in expanding the capacity of people to behave nonviolently, but we shouldn’t assume that it is a guarantee that people will take the opportunity of these freedoms. As Nobel Prize-winning economist Amartya Sen wrote concerning democracy in Development as Freedom, “Democracy does not serve as an automatic remedy of ailments as quinine works to remedy malaria. The opportunity it opens has to be positively grabbed in order to achieve the desired effect. This is … a basic feature of freedoms in general – much depends on how freedoms are actually exercised.” While political and economic freedom may indeed contribute to global peace, it still depends on what people make of it.

In conclusion, I do not believe that there is a one-size-fits-all solution to the issue of global peace and that if only we could snap our fingers and declare that all countries were politically and economically free, then the world would be immediately at one. This approach ignores cultural and historical conditions and, as we have seen in the Balkans, the transition from an authoritarian government to a system that promotes political and economic freedom can be a violent one. (The current state of affairs in many Middle Eastern countries today would be other examples.) By the same token, however, the evidence exists that, in the long run, these expansions may indeed increase global peace and contribute to the capacity of people to behave nonviolently.