Saturday, March 27, 2021

Are minimum wages and the Davis-Bacon Act relics of Jim Crow?

"Labor economists William Even and David Macpherson’s study of the impact of state minimum-wage mandates in 2007-09 found that they cost younger blacks more jobs than the Great Recession did.

This is exactly what the early 20th century minimum-wage proponents were hoping these laws would do: keep black workers from competing for jobs. We hear a lot today from Democrats who want to ditch the Senate filibuster, which enables the minority party to block legislation that doesn’t have a 60-vote majority, ostensibly on the grounds that it has been wielded in the past to thwart black progress. Last summer, President Obama referred to the filibuster as a “Jim Crow relic” that was used to block civil-rights bills. We’ll know that Democrats are arguing in good faith when they hold minimum-wage laws and the labor unions that back them to the same standard" (WSJ, Feb. 2021). 

"The last year in which black unemployment was lower than white unemployment – 1930 – was also the last year in which there was no federal minimum wage law. The Davis-Bacon Act of 1931 was openly advocated by some members of Congress on grounds that it would stop black construction workers from taking jobs from white construction workers by working for less than the union wages of white workers." (Sowell, 2009, pp. 94-95, footnote deleted)

Addendum
"In the late 19th century, amid an influx of foreign immigrant labor, New York and other states began adopting prevailing-wage laws. Twenty-two states still have them on the books. The federal version—known as Davis-Bacon—was enacted in 1931 after a builder using a mixed-race work crew from Alabama won a bid to construct a veterans hospital on New York’s Long Island" (WSJ, April 2022).

Friday, March 26, 2021

What happens when people expect demand to decrease?

Suspension of COVID vaccines => people expect demand for oil to decrease => expect price of oil to decrease in the future => decrease in the demand for oil now => decrease in the price of oil now. (WSJ, March 2021)

Wednesday, March 17, 2021

What happens when a freeze shuts down plants that make chemicals?

The WSJ (March 2020) reports that disruptions in the supply chains have created shortages in raw materials used for chemical compounds and plastics and that prices for these products have increased. The report is a great example of what happens when supply decreases. Supply decrease => shortage at original equilibrium price => price increases to new equilibrium.

Tuesday, March 9, 2021

Evidence for UBI

Several studies of pilot programs show that giving people small amounts of money each month really helps them. (The Best Welfare Reform: Give Poor People Cash - The AtlanticDo the Poor Waste Transfers on Booze and Cigarettes? NoOne concern about giving people money is that they will "waste" it. The studies report little evidence of waste. Instead, recipients tend to make good decisions and the money helps them pay for unexpected expenses, improves their mental health, and gives them time and security to search for and take better jobs. 

The Editorial Board of the WSJ thinks that the study in Stockton is flawed and does not contain evidence that the UBI is a success. (WSJ, March 2021)

UBI stands for Universal Basic Income. UBI is the proposal that the government pay everyone a basic income. This basic income would be a guaranteed minimum for everyone and everyone would pay taxes on income greater than the guaranteed minimum.

Milton Friedman advocated for a Negative Income Tax (NIT) in the 1960s. The NIT would also guarantee a guaranteed minimum income.

Most observers agree that UBI or NIT addresses poverty more effectively and efficiently than the minimum wage. 

Friday, March 5, 2021

How do producers respond to higher prices?

Farmers are planting more row crops in response to higher prices. (WSJ, March 2020) The reaction illustrates that the quantity supplied increases when price increases, all else constant.

Tuesday, March 2, 2021

Has discrimination created a profitable business opportunity for Shaq?

Shaquille O'Neal is co-founding an ad agency that promises to be "strive for a talent pool that’s 75% “black, brown, women and LGBTQ." (WSJ, March 2021) Perhaps he is has found a competitive advantage. If discriminatory employment practices by other firms make the wages of black, brown, female, and LGBTQ employees less than the wages of white, cis-gendered, straight males, Shaq's firm would have lower costs than its rivals. His statement that most firms struggle to hit a 25% target makes me wonder if discrimination is reducing wages for the employees he seeks. One way to increase the employment of minority workers is to increase the wages paid to them. I also wonder if clever lawyers are preparing to sue the firm for discrimination against white, cis-gendered, straight males.