Do minimum wage hikes spur unemployment?

President Barack Obama will announce in tonight’s State of the Union speech an increase in the minimum wage for federal workers on new contracts to $10.10, up from the current level of $7.25.  Putting the constitutionality of such a plan aside for a moment, what effect will an increase in the minimum wage have on American corporations?

Newton’s third law states for every action, there is an equal and opposite reaction.  Meaning, when a burden is placed upon a business, the business reacts to appropriately adjust to the added burden in an effort to maintain standard operating procedure relative to the past.

Economists from around the world have studied how companies respond to minimum wage increases.  Several studies, like this one from the London School of Economics, found a link between higher minimum wages and unemployment.  But other studies have produced a much more complex relationship at play.

Although it can happen, companies rarely roll over and accept lower profits due to the increase in minimum wage.  The laws of economics almost always dictate some kind of response to higher wages for primarily low-skilled workers.  How do companies respond to higher wage requirements?

Some businesses are forced to lay off workers or hike their prices.  Others cut back on hours for their current staff.  Many businesses will slash benefits instead of cutting jobs.

“The last time the minimum wage went up in two steps, we tried to not raise our menu prices, but the cost of food went up a lot,” lamented Blane Beschta, owner of a small diner in Cedar Rapids, Iowa.  “People are going to say that $3 for a cup of coffee is crazy, but that’s what it’s going to take if we need to raise wages to what is being proposed”.

One piece of research suggests that for every 10% increase in the minimum wage, prices increase about 4%, hardly the mark of smart policy.

New research indicates that higher minimum wages actually reduce employee turnover, which boosts productivity and reduces the costs related to training new employees and staff.  Even so, how do minimum wage hikes effect a business’ willingness to hire new employees?  The jury is still out, and the numbers are wildly unconvincing in either direction.

One thing is certain: many businesses do react to new wage requirements for workers.  We can only hope that a nearly $3 hike in wages for low-skilled labor jobs on federal government contracts does not increase the costs of already expensive and wasteful federal programs.

RESOURCES:

Gov’t biggest part of the problem, poll finds

A majority of Americans polled recognize the ineptitude of government to be the main cause of societal and budgetary problems in the United States of America, leaving those Americans who refuse to vote for Republicans and Democrats, once again, puzzled about why voters continue to elect inferior political leaders.

A Gallup Poll found that 21% of respondents to a poll asking what the most important problem facing Americans today is cited the government as the answer.  Uncertainty with the economy and high unemployment came in second and third, with issues like a lack of respect for other people and immigration fell towards the bottom of the list.

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In addition, American’s discontent with our nation’s healthcare system has skyrocketed with the botched roll out of the so-called “Affordable Care Act” known as Obamacare.  “Compared with a year ago, mentions of government are up slightly. Mentions of healthcare, on the other hand, have quadrupled — from 4% in January 2013 to 16% today, likely related to highly visible problems with the rollout of the 2010 healthcare law,” Gallup noted.

“Mentions of the government as the top problem remain higher than they were prior to the partial government shutdown in October. During the shutdown, the percentage naming the government as the top problem doubled to 33% from 16% in September.”

 

Forget Christie; How about big fat traffic jams?

Traffic JamOne unmentioned irony of the Chris Christie road-revenge scandal is that the powers-that-be finally found a traffic jam they didn’t like. Now, don’t get me wrong, having always lived in the NY metropolitan area and often having wanted to split a vein while in the midst of the NY/NJ road experience, I think that anyone who purposely exacerbates traffic problems should be confined to a small cell and forced to listen 24/7/365 to Nancy Pelosi’s nails-on-blackboard speeches.

I have to tell you though: it has always seemed that NY and NJ public officials have utter disregard — if not contempt — for drivers in their states. In fact, their policies have long had the effect of exacerbating traffic problems.

Consider a common NY/NJ driving experience. You’re traveling north on the New Jersey Turnpike — passing exits 10, 11, 12, 13, 14 — and then all of a sudden the road transitions into a parking lot that you’re trapped in for a hour and a half. The cause?

The turnpike toll plaza some miles ahead.

Of course, it’s not always that bad, although it can be during holidays, bad rush hours and when other complicating factors manifest themselves. But the point is this: where is the logic in collecting revenue by stopping traffic on a heavily traveled roadway in a densely populated urban area? With the Christie situation, it seems that some officials have finally discovered that traffic jams lead to wasted resources (fuel), diminished productivity and possibly lost lives (the 91-year-old woman who died in an ambulance stuck in the traffic). But politicians don’t seem to care when these problems are visited upon the citizenry in the name of a government cash cow.

Moreover, few remember that many tolls were only meant to be in place until the projects they were associated with, such as certain bridges, were paid off. Instead, they became de facto taxes that the government can raise almost with impunity. And for all of you folks dealing with politicians who propose instituting tolls with the reassurance that they’ll only be this or that much, understand how expensive they can get. The fleecing when crossing the GWB is now $13 dollars for cars, and the peak E-ZPass rate for trucks with 6 or more axles is $84. (Mind you, since most products are shipped via truck, we all pay for the latter through higher consumer costs.) And if you then travel the NJ Turnpike from the GWB to the roadway’s end (Exit 1, the Delaware Memorial Bridge) — a mere 113.8 miles — the turnpike toll is another $13.85. That means a round trip taking you back over the GWB will run you $40.70 in tolls alone. And while the average commute might cost $15 less, one still wonders how the common man could afford it.

Then there is the incessant construction that anyone who lives in the NYC metro area knows painfully well. You hit a traffic jam, and 15 minutes later you find out it’s because a lane or two have been closed. You then drive at a snail’s pace past one and a half miles of orange pylons — without observing any work or workers at all. But then finally you do see three union hacks doing their thing. This consists of one, let’s say, doing some digging. Another seems to watch him.

The third is eating a doughnut.

Perhaps I exaggerate slightly, but the proof is in the pudding. It took a mere year and 45 days to build the Empire State Building, and the GWB — which upon its opening in 1931 was the world’s longest main span in the world — was completed in only 4 years. In contrast, how long do you think it took to effect basic road repair on the 10-mile-long Cross Westchester Expressway (I-287) in NY?

More than 10 years.

And it was the usual story: many lane closures, traffic jams from Hell, and very little apparent work.

I concluded a long time ago that road repair in NY and NJ was basically a quasi-welfare program. In fact, I remember when, a generation ago, former NY governor Mario Cuomo appeared in TV spots encouraging people to vote “yes” on a “Proposition 1,” which allocated one billion dollars for road repair. I always wondered why Cuomo was so anxious to get that bond passed and where the money went — especially since NY roads still stink.

As should always be the case in government, the GWB affair should be sifted to the very bottom. But the real road scandal in NY and NJ involves government-authored traffic jams that neither Gov. Christie nor Gov. Andrew Cuomo seem to care a whit about.

5 things you THINK you know about food stamps

food-stampsAs budget negotiators lurch toward their December 13 deadline for funding the government, another conference committee is struggling to reach an agreement over the farm bill. Unsurprisingly, the dispute is not over the bill’s completely unjustifiable subsidies for agribusiness (both parties support those) but food stamps.

House Republicans passed a bill calling for $39 billion in reductions in the planned budget for food stamps (technically known as the Supplemental Nutrition Assistance Program, or SNAP) over the next ten years. A bipartisan Senate bill included just $4 billion in cuts. A couple of weeks ago it looked like negotiators were ready to settle on roughly $10 billion, but now it looks like that agreement has fallen through, at least for the moment.

The timing for the negotiations happens to be problematic, coming during the holiday season and shortly after the 2009 stimulus’s temporary increase in SNAP benefits expired on November 1. Those extra benefits, incidentally, expired in part because the Obama administration diverted some of the funds to other projects, including Michele Obama’s anti-obesity efforts.

Democrats and the media are raising the usual outcry over Republican hard-heartedness and suggesting that the proposed Republican cuts will lead to widespread hunger and hardship. Most of the handwringing is based on myths. Among them:

The massive increase in food-stamp spending was caused by the recession, so cuts are insensitive to economic reality. The food-stamp program certainly has exploded in the weak economic years since 2009, from 33.5 million beneficiaries at a cost of $53.6 billion a year to 47.7 million beneficiaries at a cost of $82.9 billion. Much of that increase was indeed due to the recession and increased unemployment. But the growth in food stamps actually started long before the recession began — under George W. Bush, in fact. President Bush nearly doubled both the program’s cost and the number of recipients.

In addition, studies show that the increase in food stamps was much greater during this recession than in previous ones, suggesting that at least some of the increase was due to policy decisions rather than economic conditions.

The CBO projects that long after the recovery solidifies and unemployment declines, both costs and participation will remain at much higher levels.

Food stamps keep Americans from going hungry. It’s hard to imagine that the government could spend almost $83 billion per year without having some impact on hunger in America. Yet there is little real evidence that it does. The Government Accountability Office (GAO) found that “the literature is inconclusive regarding whether SNAP alleviates hunger and malnutrition for low-income households.” Similarly, a study for the U.S. Department of Agriculture found that for nearly all vitamins, minerals, and macronutrients assessed, the dietary intake among SNAP participants was comparable to that of nonparticipants in similar situations.

Food stamps are just a temporary safety net, not a form of dependency. No one wants to deny children, the elderly, or the disabled some temporary assistance to help them get through hard times. But the evidence suggests that for many recipients food stamps are becoming not a temporary safety net but a way of life.

Nearly 56 percent of SNAP households are on the program for five years or longer. And roughly 4.5 million recipients are able-bodied adults. In 2011, the most recent year for which data is available, only 27.7 percent of nonelderly adult participants were employed, while just another 28 percent reported that they were looking for work. Importantly, one of the largest “cuts” that Republicans have proposed is simply to restore the program’s work requirements.

Food stamps are effective economic stimulus. Led by Mark Zandi and other Keynesian economists, food-stamp advocates have made wildly exaggerated claims about the program’s role in stimulating the economy. Zandi, for instance, claims that “extending food stamps is the most effective way to prime the economy’s pump.”

But aside from the fact that those economic models just as well predict an alien invasion would be a boon to the economy, there is little evidence to support the theory. Even the Agriculture Department’s own inspector general concluded that it was unable to determine whether the additional dollars in the stimulus’s food-stamp expansion were in any way effective in meeting the 2009 Recovery Act’s goals. Three of the four performance measures the program was supposed to use, the office found, “reflected outputs, such as the dollar amount of benefits issued and administrative costs expended” and did not provide any insight into outcomes.

On the other hand, we do know that a failure to get government spending under control will have long-term economic consequences. Food stamps are hardly the major cause of deficits and debt — that distinction lies with middle-class entitlements such as Social Security and Medicare — but every little bit helps.

The Republican proposals would slash benefits. The proposed Republican cuts would reduce food-stamp spending over the next ten years relative to the projected budget by just 5 percent. Even after the cuts were fully phased in, spending would remain higher than it was in 2010. Slashing this is not.

But more importantly, most proposed cuts don’t actually reduce benefits. For example, as noted above, one Republican proposal would simply restore work requirements. Some worry that recipients might not be able to find jobs. Fair enough. But recipients could also satisfy those requirements through job training or job-search programs or by participating in volunteer and charitable activities. That doesn’t seem all that onerous.

A second Republican proposal would eliminate so-called “categorical eligibility,” which makes people eligible for food stamps if they participate in other welfare programs. Republicans would target food stamps to the truly needy by restoring the programs income and asset tests. How cruel.

The one proposal that could actually be considered a benefit cut, rather than an eligibility adjustment, is closing the LIHEAP loophole, which allows states to increase benefits for individuals who also receive government utilities assistance. Approximately 16 states have used this loophole to leverage nominal (often as little as $1) LIHEAP payments into an increase in a household’s SNAP benefits. Proposed reforms would set a $20 LIHEAP threshold before increased benefits kick in. That could be a modest benefit cut perhaps, but it is supported by Senate Democrats.

One can question the political wisdom or necessity of picking a fight over food stamps right now. But if we’re going to debate the issue, it would be helpful to debate facts rather than rhetoric.

Originally published at: http://www.cato.org/publications/commentary/five-food-stamp-myths

TSA’s Pre-Check program convenient, or invasive?

Transportation Security AdministrationThe Transportation Security Agency has quietly rolled out the Pre-Check program that allows frequent travelers to voluntarily submit to a background check, interview and fingerprints in exchange for a much faster experience through TSA checkpoints in airports.  Is this program convenient for frequent travelers or something much more invasive?

Since 2011, the TSA has tested the program at 40 different airports.  It allows pre-screened travelers to proceed through TSA checkpoints without removing their shoes and belt.  Light jackets can be worn and computers / liquids can remain in carry-on luggage.

The program requires an $85 enrollment fee, but there is no guarantee that travelers will pass the background check and get approved – or be provided a reason if denied.  Worse, approved travelers are still not guaranteed to swiftly breeze through TSA checkpoints due to the agency’s random screening of pre-checked passengers and lengthening Pre-Check lines.  Approved passengers can be removed from the program at any time, without notice or reason.  However, their background information remains saved.

The FBI keeps fingerprint records on file for 75 years and are used in the investigation of crimes by local and federal law enforcement agencies.  Along with a background check and personal interview, financial information is also required before passengers are approved for the program, which is NOT protected under the Privacy Act of 1974.  As a result, travelers are not permitted to request a copy of the information that the TSA investigation keeps on them, which makes it nearly impossible for law-abiding travelers to ensure accuracy and protect against abuses of personal information.

Privacy rights activists are concerned over the information that average Americans are willingly giving up to the government.  “I would not apply for one of these trusted-traveler programs, which in the past have involved giving the government more information or authorizing it to get more information about me,” said Electronic Frontier Foundation attorney Lee Tien.

Even if you are lucky enough to get approved for the program, there is no guarantee that the “elite-line” will be any faster than the regular TSA checkpoint lines, or more organized.  “Most recently, I was flying Delta from LaGuardia and the TSA PreCheck line at the terminal looked like it was a mile long and not moving very fast at all while the normal and elite security lines were chugging along and a lot shorter,” remarked one traveler.  “The non-TSA agents manning the lines were not checking for TSA Precheck and frankly the whole situation was out of hand. Something is wrong with this picture. Or many somethings.”

After the TSA expanded the Pre-Check program to 60 airports earlier in the year, passengers nationwide have noticed a distinct lengthening of lines through the very Pre-Check areas that were designed to avoid long and frustrating wait periods that the unwashed traveler is subjected to.

Now, 97 airports participate in the program.

McAuliffe’s narrow victory is no gun control referendum

McAuliffe-thumbs-upAnti-gunners across the nation are reveling in the victory of Terry McAuliffe in the hotly-contested Virginia Governor’s race with claims that McAuliffe’s “F” rating by the National Rifle Association indicates the American people are rejecting the so-called gun agenda.

But in reality, the McAuliffe victory proves once again the powerful roll that money plays in political elections in our fair nation.  McAuliffe was expected to easily win the election, but ended up barely squeaking out a victory on election night despite dramatically outspending his opponent.

In the days leading up to the Virginia election, McAuliffe outspent Republican challenger Ken Cuccinelli $705 to $285k.  The Governor-elect also enjoyed support from Michael Bloomberg’s well-funded anti-gun group to the tune of $346,000.  Further, a rich Texas Democrat funded a professional signature-collection effort to get Libertarian Robert Sarvis on the ballot in the hopes of taking away votes that would otherwise have been placed for the Republican.

McAuliffe outspent his Republican challenger by nearly $15 million and raked in funding by some deep-pocketed political interests, including a nearly $2m donation by the Virginia League of Conservation Voters, the Sierra Club ($464,000) and Tom Steyer, a California billionaire, who contributed at least $2m for television and other media ads for the Democrat.  McAuliffe’s negative advertising campaign surpassed that of Cuccinelli’s nearly 10 to 1.

“Democrats have abandoned their initial revulsion about outside money in favor of a recognition that they have to play and win by the same political rules as their opponents,” wrote the Politico.  Republicans are often accused of representing the rich elite, but when it comes to fundraising, it is tough to match the financial resources of wealthy American liberals.

It is disingenuous – at best – to try and link the McAuliffe victory to voter-rejection of gun freedom and the National Rife Association.  The fact of the matter is McAuliffe ran a well-funded campaign and out-fundraised and out-spent his Republican challenger by a large margin.

On the contrary, the fact that Cuccinelli did so well against the well-funded McAuliffe in an election where the Democrat was widely expected to run away with the election suggests a very different trend.  It was not McAuliffe’s anti-gun agenda that got him elected.  Instead, it was his position on Obamacare that nearly secured his defeat.

There is no shortage of rhetoric from both sides after McAuliffe’s narrow victory, but it does not change the fact that the Democrat nearly snatched defeat from the jaws of victory due to his support of Obamacare, clearly one of the most unpopular pieces of legislation to ever escape the walls of Congress.

Instead of grasping at straws under the lazy pretext of some gun-control referendum, McAuliffe would be wise to recognize the Virginia governor election results for what it truly is: a well-funded victory in a race that should have been a walk in the park, grasping tight to a failed piece of legislation that almost sent him packing, in one of the most gun-friendly states in the union.

Money well spent, right Mr. McAuliffe?

FDA-approved drugs kill 100,000 every year

DoctorsMedications approved by the United States Food and Drug Administration result in 100,000 deaths every year from what the federal agency describes as “Adverse Drug Reactions”, or ADRs.  Worse, over 2 million Americans suffer non-deadly adverse reactions to drugs every year that the FDA has approved “safe”.

ADRs refer to negative reactions that Americans suffer from taking drugs as directed by their doctor or the drug’s manufacturer.  These cases DO NOT include overdoses or drug abuse.

In fact, the FDA claims that adverse drug reactions account for the 4th leading cause of death “ahead of pulmonary disease, diabetes, AIDS, pneumonia, accidents and automobile deaths”.  Who is the FDA truly protecting, and what responsibility does the FDA accept in the number of deaths that result from its approved drugs?  These deaths give the phrase “FDA Warning” a whole new meaning.

The bureaucratic mess of the FDA makes the formulation of effective new antibiotics cost-prohibitive, according to Steve Forbes, by changing the rules in the middle of clinical trials and adding significant and arbitrary new requirements into the testing process.  This results in an increase in drug costs for everyone and demonstrably fails to make Americans more safe.

Thanks to the Food and Drug Administration, you are much more likely to be killed by FDA-approved drugs than you are from terrorism.  How many terrorist attacks on U.S. soil would it take to keep pace with the number of Americans that FDA-approved drugs kill every year?

2,996 people died in the September 11th attack.  Doing the math, that amounts to more than 33 9/11-style terrorist attacks every year.

The United States spends around $75 billion every year in its combined anti-terrorism efforts.  The FDA’s budget of just over $2 billion pales in comparison, but what are Americans truly getting for their money?  The real threat to American lives comes from expensive drugs and bureaucratic legalese that makes effective testing expensive and cumbersome, leaving Americans to literally fight for their lives amid a slurry of expensive medications that our government has deemed “safe”.

In a healthcare system considered the best in the world, Americans should expect better than 100,000 deaths a year.  The first step is recognizing that government almost never knows best.