Raising the Minimum Wage Apparently Does Not Help All of the Poor

Recent opinion piece in the LA Times highlights the unintended consequences of Los Angeles' new $15/hour minimum wage legislation (which becomes effective in 2020). A Los Angeles based not-for-profit, Homeboy, which retrains former gang members and recent parolees, has requested an exemption from the new minimum wage law. The not-for-profit projects approximately one third of its program will have to be curtailed (60 individuals per year will be denied retraining) if there is no exemption from the minimum wage law for this not-for-profit. Thus, the most vulnerable and in need of training will be the ones to suffer the consequences of the new minimum wage law.

Apparently organized labor chief of the L.A. County Federation of Labor has opposed an exemption for the not-for-profit (unless the not-for-profit were to become unionized). The union chief makes it pretty pretty clear to me who they are not concerned about: namely, the most vulnerable individuals who are in need of training.

The article and link are set forth below.

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http://www.latimes.com/opinion/opinion-la/la-ol-minimum-wage-homeboy-transitional-programs-20150601-story.html

Opinion

By JON HEALEYcontact the reporter

June 2, 2015

What does the City Council hope to accomplish by raising the minimum wage in Los Angeles?

The obvious answer is something along the lines of, "To lift full-time workers out of poverty." But if that's the goal, why is the council focusing on the wage and not the poverty?

Improving the fortunes of 110 Homeboy trainees for 18 months isn't worth freezing out 60 others who need help just getting started.-

I ask this in light of my colleague David Zahniser's piece Monday about Homeboy Industries seeking a partial exemption from the mandate to pay no less than $15 an hour by 2020. Specifically, the nonprofit wants to exempt workers who spend no more than 18 months in its transitional employment program, which helps former gang members with a combination of on-the-job training and counseling.

Without the exemption, Homeboy warned, it would have to cut its program by more than a third, eliminating 60 of its 170 slots. Bear in mind that this is a transitional program, designed to impart job skills, create references and otherwise help participants go on to better jobs. No one is supposed to spend years in one of these positions, trying to eke out a living while raising a family.

Still, here's what Councilman Curren Price told Zahniser: "Philosophically, I do not feel comfortable saying to transitional workers that, because they have faced challenges in their lives, they deserve to be paid less than every other worker in the city."

That's a fine sentiment for low-skill and entry-level jobs that, sadly, have become long-term occupations for many adult Angelenos. But it doesn't make sense to apply that principle to a training program that's designed to bring unemployable people into the workforce.

Put another way, improving the fortunes of 110 Homeboy Industries trainees for 18 months isn't worth freezing out 60 others who need help just getting started. If your goal is to pull people out of poverty, why would you want to leave so many behind?

And as Zahniser noted, it's not just Homeboy that's at risk. There are a number of programs that combine on-the-job training and social services into a package designed to move people off welfare and into better lives. They're typically funded by donors and, possibly, government grants, and they're no-margin businesses with little ability to cover the huge increase in cost that the higher minimum wage represents.

he most galling aspect of this is the opposition from the L.A. County Federation of Labor, which was one of the driving forces behind the push for $15 and hour. The unions oppose any carve-outs to the higher wage, with one exception: any business that's unionized.

Federation leader Rusty Hicks told Zahniser that such an exception could work for Homeboy too, if its workers could bargain collectively with management. "If those program participants had a say in what their wage would be, then that's a different conversation," Hicks said.

Setting aside the obvious hypocrisy of the federation seeking something for union members that it would deny everyone else, Hicks misses the point of training programs like the one Homeboy offers. The jobs being performed weren't created to fill a demand in the market, they were created to provide a service to the workers themselves. That's why groups such as Homeboy Industries have to raise countless dollars to keep the programs going.

I know, there are plenty of low-margin businesses in Los Angeles that say the higher wage floor will force them to eliminate positions too. City leaders, however, are putting their faith in studies that predict the higher wages will stimulate the local economy, leading businesses to create almost as many jobs as are lost, if not more. Of course, the jobs that are created won't necessarily be filled by the people who get laid off. At any rate, the council is expected to approve the wage hike Wednesday with a one-year delay for very small workforces, and Mayor Eric Garcetti is expected to add his signature.

After initially proposing a waiver for transitional programs like Homeboy, the council decided last month to hold off on that pending further study. Whether unionized workforces are exempted from the higher wage remains to be seen.

By this logic, they should really pay something approaching zero, so that the number of people they can help approaches infinity.

Congratulations. We've solved poverty.

Much of what is done to "help the poor" does the exact opposite. I have trouble telling if this is just misguided but well intended deeds done by those who are just ignorant of how the world works, or if its cynical self interest.

I think most everyday people who support these types of counter-productive interventions probably fall into the former camp. My guess is that most of the elites know better, but can't pass up the political opportunity.

Let's leave it the way it is... where our tax dollars provide food stamps to minimum wage workers. It's a less visible way of having taxpayers subsidizing businesses.... just the way they like it.

Did anyone ever claim that raising the minimum wage would help all poor people?

mjh said:
Did anyone ever claim that raising the minimum wage would help all poor people?

But you don't understand - if you can't help everyone, don't try to help anyone.

That's "Libertarian Compassion".

http://www.dol.gov/minwage/mythbuster.htm

sprout said:
Let's leave it the way it is... where our tax dollars provide food stamps to minimum wage workers. It's a less visible way of having taxpayers subsidizing businesses.... just the way they like it.

Are we talking specifically farm subsidies here?

mjh said:
Did anyone ever claim that raising the minimum wage would help all poor people?

Not a straw man. Read the thread.

nohero said:

mjh said:
Did anyone ever claim that raising the minimum wage would help all poor people?

But you don't understand - if you can't help everyone, don't try to help anyone.
That's "Libertarian Compassion".

That is some SJW logic there. To clarify, Libertarians don't believe that authorities shouldn't harm anyone. What you are saying is that its OK if some workers are better off at the expense of other workers.

Some people are harmed by these policies. Minimum wage is a price floor. Price floors create a surplus of goods or services. In labor markets we refer to the surplus as Unemployment. See more below.

ml1 said:
http://www.dol.gov/minwage/mythbuster.htm

That's quite a bit of propoganda to get around the basic mechanics of the minimum wage and price controls. These simple and universally accepted economic theories are explained in real simple terms by the Khan Academy

TylerDurden said:

nohero said:

mjh said:
Did anyone ever claim that raising the minimum wage would help all poor people?

But you don't understand - if you can't help everyone, don't try to help anyone.
That's "Libertarian Compassion".

That is some SJW logic there. To clarify, Libertarians don't believe that authorities shouldn't harm anyone. What you are saying is that its OK if some workers are better off at the expense of other workers.

No, that's not what I'm saying at all. So, you're not responding to me.

And the "SJ" in "SJW" stands for "social justice" if I am not mistaken. Using the term "social justice" as part of an insult is another example of "Libertarian Logic".

Oh I'm sorry. You just fail to see that by artificially rising the price of labor, that some people will either become unemployed or fail to get a job that would have been created if there was a lower price point. I will assume that you fail to understand this fact. The other possibility is that you just don't care about those people at all.

I'm glad you are willing to wear the SJW label on your sleeve. It fits you well!

TylerDurden said:
Oh I'm sorry. You just fail to see that by artificially rising the price of labor, that some people will either become unemployed or fail to get a job that would have been created if there was a lower price point. I will assume that you fail to understand this fact. The other possibility is that you just don't care about those people at all.
I'm glad you are willing to wear the SJW label on your sleeve. It fits you well!

Oh, I'm sorry, but I don't accept your conclusions, especially since "Libertarian Logic" decrees that wages should go down, down, down, no matter whether it's a living wage or not.

The current wage is artificial, too.

nohero said:

TylerDurden said:
Oh I'm sorry. You just fail to see that by artificially rising the price of labor, that some people will either become unemployed or fail to get a job that would have been created if there was a lower price point. I will assume that you fail to understand this fact. The other possibility is that you just don't care about those people at all.
I'm glad you are willing to wear the SJW label on your sleeve. It fits you well!

Oh, I'm sorry, but I don't accept your conclusions, especially since "Libertarian Logic" decrees that wages should go down, down, down, no matter whether it's a living wage or not.

That is not true.

dave said:
The current wage is artificial, too.

Much of our economy is engineered. And not for the better. Interest rates, some wages, subsidies, taxes, licensing, etc.

The minimum wage will do less damage the lower it is. This is why they tend to raise it incrementally. If minimum wages don't cause any problems, I don't understand why a $100 minimum wage would cause problem. Why isn't anyone arguing for that? Power to the people!

"Power to the people!"

Thank you, that's what I'm talking about... I'll drink to that; more power to "We The People"!

this is a sad discussion. seriously, welfare for corporations = good, and a minimum wage above poverty lever = bad?

easy to call something propaganda, but there are many studies that show raising the minimum wage to be healthy for the economy as a whole and one that does not force unemployement. Its a specious false argument.

hoops said:
this is a sad discussion. seriously, welfare for corporations = good, and a minimum wage above poverty lever = bad?
easy to call something propaganda, but there are many studies that show raising the minimum wage to be healthy for the economy as a whole and one that does not force unemployement. Its a specious false argument.

Who is making the case that welfare for corporations = good?

There are studies that prove all sorts of things. But the physics of the matter don't change. I don't care if they can find economists who agree with the equivalent of gravity doesn't exist. My guess is that the vast majority of these exact same economists thought housing was doing just fine in 2008. The specious argument is that raising a price floor on any good or service above market will have nothing but positive effects.

TylerDurden said:
Much of what is done to "help the poor" does the exact opposite. I have trouble telling if this is just misguided but well intended deeds done by those who are just ignorant of how the world works, or if its cynical self interest.


I think most everyday people who support these types of counter-productive interventions probably fall into the former camp. My guess is that most of the elites know better, but can't pass up the political opportunity.

And much of what is done to help the poor (no scare quotes here) does help them.

If you were are as aware of how the world works as you pretend to be, you would know that an economy the size of ours is complicated and there is no policy you can pursue that will do exactly 100% of what you intend, no action you can take that doesn't have unintended consequences.

That includes doing nothing.

tylerdurden, we comprehend the concept you are espousing. We're not stupid. We're saying that things are not as simple as the model of supply/demand/shortages/surpluses. We know what raising and lowering prices does. But there are more subtle forces at play than just those. Raising the minimum wage raises the actual value of labor, and it has a ripple effect through many parts of the economy. The bottom earner in a company (or sector or market) earns $10/hour (or whatever we set the minimum to be), and the person above that person will earn more. If he was previously earning less than current minimum wage, his wage will rise to a level above minimum wage. This might causes wages to go up through several strata. The money might indirectly come from the upper strata. Currently, the uppermost strata can afford to give up some income.

tom said:

TylerDurden said:
Much of what is done to "help the poor" does the exact opposite. I have trouble telling if this is just misguided but well intended deeds done by those who are just ignorant of how the world works, or if its cynical self interest.


I think most everyday people who support these types of counter-productive interventions probably fall into the former camp. My guess is that most of the elites know better, but can't pass up the political opportunity.

And much of what is done to help the poor (no scare quotes here) does help them.
If you were are as aware of how the world works as you pretend to be, you would know that an economy the size of ours is complicated and there is no policy you can pursue that will do exactly 100% of what you intend, no action you can take that doesn't have unintended consequences.
That includes doing nothing.

All the things that are done to help the poor that actually help the poor could be done by charity. And charity would perform these duties more efficiently and with better results.

And let's be clear. We're not talking about "doing nothing" or "doing something". What we are talking about is making everybody behave in some way under the threat of violence. We are making it illegal for 2 parties to enter in a labor agreement under a centrally set price floor. Essentially, we are saying that working for less than the price floor or minimum wage is punishable by law.

And I think you're right that the economy is way too complicated for anyone to understand the ramifications of these centralized policy decisions. The American economy is made up of billions of decisions by hundreds of millions of diverse individuals spread over a large and diverse area of land . It is impossible for any centralized authority to make rules, regulations, etc in an effort to get some outcome without it having some real unintended consequences. The efforts by central authorities to do this despite the obvious problems is commonly referred to as the fatal conceit.

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account. -FA Hayek

When it comes to issues like this I always thought HL Mencken was onto something:

Explanations exist; they have existed for all time; there is always a well-known solution to every human problem — neat, plausible, and wrong.

"We are making it illegal for 2 parties to enter in a labor agreement"

There's a solution to that which doesn't involve the minimum wage -- it's called a union. Then you really do have two parties negotiating. Without that, it's not a negotiation at all, since the employer has vastly more power than a single employee (or prospective employee).

Not every industry requires unions. Where supply and demand ensures workers have decent power to negotiate (ie where demand is high and labor is scarce), then workers and their employers really can negotiate. But outside of that happy, and rare, market equilibrium, it takes a pretty dedicated ignorance to pretend that employment is truly a freely entered agreement between two parties.

Now there _is_ a legitimate question at which point a minimum wage gives diminishing returns, or if there are more efficient ways policies available - but that kind of discussion does, at least, does have to start with acknowledging the reality of employers' disproportionate power.

Well of course it's being done under threat of violence. That's the way laws work. Hopefully we'll all just understand the need to not park our car diagonally across the intersection and follow the law that dictates that. But if you don't, your car is going to get towed; and if you resist you're going to get arrested; and if you try to escape, you'll likely be shot. That's the underlying threat of violence that just has to be there. Otherwise, why comply?

So this constant whine "oh I have to this or that because the government is threatening me with violence if I don't" is just silly. Just because the government threatens you with violence (as a last resort) if you steal a loaf of bread doesn't mean stealing bread is the right thing to do.

There is only one group of people who benefit from government "antipoverty" programs - the people administering it.

Ok, I posted this on another MOL thread, but LA and SF are two of America's most strictly zoned cities. Even if the $15 / hour minimum wages there don't reduce employment, these cities don't even come close to permitting enough apartments to satisfy demand. If classical economics is correct those higher wages are just going to disappear into rent.

the City of Los Angeles, is about to hit its development limit. According to planner Greg Morrow, the city is now zoned to house at most 4.2 million people. The current population is 3.9 million.
Los Angeles and its satellites — once the land of the American homeowner dream — now form the most stunted urban region in the country. There were 28,000 new housing starts in the L.A. Metro last year (pop. 13 million), versus 64,000 in Houston (pop. 2 million). There were fewer permits per capita in Los Angeles than in San Francisco.
This has become expensive for homeowners and tenants alike. The former spend 40 percent of their income on mortgage payments; the latter spend 48 percent of their income on rent. Both figures are the highest in the country.

ramzzoinksus said:
There is only one group of people who benefit from government "antipoverty" programs - the people administering it.

In 1959, before the "War on Poverty," 35.2% of people over age 65 lived below the poverty line. In 2013 that number stood at 9.5%. Data according to the Census Bureau.

The argument that charity COULD do something is a very poor argument. Tell us why charity hasn't done it thus far. Don't offer the excuse that taxes are too high for people to donate to charity.

Tom_Reingold said:
The argument that charity COULD do something is a very poor argument. Tell us why charity hasn't done it thus far. Don't offer the excuse that taxes are too high for people to donate to charity.

We relied on charity before the Great Depression. It wasn't up for the job so we needed something more reliable.

"Libertarian Logic" says that charity will take care of the poor. Which is another way of saying, "You do it, I'm not going to help."

I'm not thrilled with the condescension implicit in "charity" for "the poor." One strong point in favor of a minimum wage is that it's tied to work. Instead of a charity, it's an attempt to help people earn a living.

It's tough being poor in America -- ask for a decent wage and you're told to rely on charity. Ask for charity and be told you should get a job...

Economic growth will take care of the poor. If the medlers stopped medling.

ramzzoinksus said:
Economic growth will take care of the poor. If the medlers stopped medling.

It never has before, what makes you think it would start now?