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  • State of the Union: More on the President's Debunked Wage Gap Claim

    January 29, 2014 2:14 PM

    Aloysius Hogan has already debunked the president's wage gap claim in his State of the Union Address in an earlier post, noting that labor economist Diana Furchtgott-Roth found that "men and women make about the same" per hour in each "individual" occupation after taking into account factors like “job responsibility" and "experience."

    What's noteworthy is that even fact-checkers for some liberal newspapers such as The Washington Post are finally taking issue with the president's claims in this area. In his State of the Union address, President Obama said,

    Today, women make up about half our workforce. But they still make 77 cents for every dollar a man earns. That is wrong, and in 2014, it’s an embarrassment.

    But as the fact-checker for The Washington Post (which hasn't endorsed a Republican for President since 1952) noted yesterday, this figure is quite misleading, since it involves comparing apples to oranges: Women on average do not work the same number of hours men do per year, nor do female workers have the same individual or occupational characteristics as male workers:

    Obama is using a figure (annual wages, from the Census Bureau) that makes the disparity appear the greatest. The Bureau of Labor Statistics, for instance, shows that the gap is 19 cents when looking at weekly wages. The gap is even smaller when you look at hourly wages — it is 14 cents — but then not every wage earner is paid on an hourly basis, so that statistic excludes salaried workers.

    In other words, since women in general work fewer hours than men in a year, the statistics used by the White House may be less reliable for examining the key focus of legislation pending in Congress — wage discrimination. The weekly wage is more of an apples-to-apples comparison, but it does not include as many income categories.

    Economists at the Federal Reserve Bank of St. Louis surveyed economic literature and concluded that “research suggests that the actual gender wage gap (when female workers are compared with male workers who have similar characteristics) is much lower than the raw wage gap.” They cited one survey, prepared for the Labor Department, which concluded that when such differences are accounted for, much of the hourly wage gap dwindled, to about 5 cents on the dollar.

  • State of the Union: President Gets Minimum Wage and Gender Pay Gap Wrong

    January 29, 2014 9:53 AM

    President Obama surprised few in his State of the Union address, which was dominated by egalitarian and populist themes. The president is entitled to his ideology, but not to his own facts. On both the minimum wage and gender pay gap, the president's position runs counter to the economic reality.

    President Obama voiced strong support for legislation sponsored by Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-Calif., to raise the federal minimum wage from $7.25 to $10.10 per hour. He also encouraged cities and states to raise their minimum wages, citing the five states to have done so in the past year, while calling on businesses themselves to increase employee pay. Every employee would certainly like to be paid more. Unfortunately, increasing the minimum wage will decidedly not promote economic growth nor help our present employment woes.

    Writing in the The Wall Street Journal nearly two decades ago, Nobel laureate economist James Buchanan called out such populist rhetoric as economically baseless: “[N]o self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.”

    Nonetheless, President Obama proclaimed, “In the coming weeks, I will issue an Executive Order requiring federal contractors to pay their federally funded employees a fair wage of at least $10.10 an hour -- because if you cook our troops’ meals or wash their dishes, you shouldn’t have to live in poverty.”

    What the president fails to note is that his proposed minimum wage of $10.10 per hour would still leave a full-time breadwinner’s family below the poverty line.

  • State of the Union: Economic Band-Aids for Poverty and Unemployment

    January 28, 2014 10:46 PM

    One of progressivism’s most admirable traits is its concern for the little guy. But many progressive policies for alleviating poverty, unemployment, and other social problems don’t work as advertised. This is because those policies often focus only on the desired outcome, and ignore the deeper processes that ultimately generate those outcomes. This misplaced focus was on full display in President Obama’s State of the Union speech.

    This is a subtle point that would benefit from an analogy. Suppose, while slicing vegetables, that you accidentally cut your finger. The sensible thing to do is put on a band-aid. But in the long run, you are far better off knowing and practicing proper knife safety. The band-aid eases the immediate problem. But if you focus on the long-term process of safety, you are far less likely to get hurt in the first place.

    Now apply this thinking to the President’s call for passing the $10.10 federal minimum wage bill currently winding its way through Congress. A lot of people aren’t making very much money. The obvious thing to do is legislate a raise for them. Pass it! Some people will clearly benefit; no doubt many of them will appear at press conferences if the increase is enacted. But there is a tradeoff. Those raises are offset by reduced hours and even firings for other people.

    There is also an unseen cost to the minimum wage: workers who are never hired in the first place. These minimum wage casualties cannot be trotted out in front of cameras because we don’t know who they are. But we do know that they exist. They are mostly young, and they are disproportionately minorities. These workers lack experience and skills because they haven’t lived long enough to gain them yet. It may not be worth it to pay an employee at that skill and experience level $10.10 per hour.

    Pricing people out of employment prevents them from getting the experience they need to get higher-paying jobs later in life. It makes the old paradox even more painful: without experience, you can’t get the job, but without the job, you can’t get experience.

  • CEI Experts on the State of the Union

    January 28, 2014 11:10 AM

    Iain Murray, Vice President for Strategy:
    “The fact is: Today’s America is divided between those who work for government and those who don’t. Those who work for government have a job for life, guaranteed retirement and other benefits, and financial security,” said Murray. “Those who don’t, have uncertain prospects. They are at the mercy of an administration that is making their benefits more expensive and restricting their access to credit with more and more regulations. That is the true inequality in President Obama’s America.”

    Ryan Young, Fellow:
    “Given what reports suggest will appear in the president’s State of the Union address, we need to keep in mind three things. First: A higher minimum wage is not a free lunch, and will force some employers to reduce hours or fire workers. And, second, extending unemployment benefits will keep unemployment unnaturally high,” said Young. “The third thing is: If the president is truly concerned about the poor, he should support policies that would make the poor better off instead of focusing on income inequality. One of these policies could be a deregulatory stimulus that would make it easier to start a business and hire workers.”

  • Reforming Air Traffic Control Is Key to the Future Health of American Aviation

    January 15, 2014 1:12 PM

    When we travel by air, the hassles of getting through airport security and delayed flights tend to weigh most on our minds. Few of us pay any attention to the institutions governing the 50-million-plus takeoffs and landings handled annually by Federal Aviation Administration (FAA) air traffic controllers that form a critical backbone for a sector that now accounts for over 5 percent of U.S. GDP.

    For something so important, would you be shocked to learn that air traffic control in practice has experienced very little change since the 1960s? Increasingly, policy makers are aware that this unfortunate status quo will be unable to meet future air travel demand and that something must be done.

    In a groundbreaking new study published by the Hudson Institute, Reason Foundation founder and Director of Transportation Policy Bob Poole lays out the case for dramatically reforming air traffic control to fully take advantage of new technologies and modern management practices. Adopting these, Poole convincingly argues, will result in a large and diverse benefits, including:

    • savings in cost and time for aircraft operators and air travelers;
    • reduced airport and airspace congestion, and hence fewer constraints on continued aviation growth;
    • increased safety, thanks to more accurate information in the hands of pilots and controllers and better communications throughout the system;
    • environmental benefits, as more direct routes and low-power landings reduce fuel consumption, noise, and emissions;
    • increased exports of U.S.-developed technologies and services to the global air traffic market. (Executive Summary, p. 3)

    The purpose of FAA's NextGen program is modernizing technology and increasing air traffic control efficiency. So far, however, the FAA has proven inept in its deployment. Poole identifies several institutional factors that are holding back modernization.

    The main obstacle preventing us from realizing these benefits is the fundamental conflict between the FAA's role as safety regulator and its role as air traffic control provider, which has led to an overcautious culture within the FAA's Air Traffic Organization (ATO). This is compounded by the fact that FAA's ATO faces a number of political oversight constraints, leading to it treating politicians and bureaucrats as its customers, rather than the airports and aircraft that rely upon its services. In addition, Poole cites technical "brain drain" to the private sector and an over-reliance on outside contractors as key institutional challenges.

  • Loss of Economic Freedom Takes a Toll on Small Businesses

    January 9, 2014 1:16 PM

    The 2014 edition of the Heritage Foundation/Wall Street Journal Index of Economic Freedom is set for release next week, and for America, the news isn't good.

    This year, the United States continued to lose ground to its competitors in the global race to advance economic freedom and prosperity. The U.S. score has declined almost 6 points since 2007, placing the U.S. among those countries considered to be only “mostly free.”

    Sounds bad, but what does it really mean? Don't many new regulations affect mostly large businesses, such as the giant firms bailed out in the wake of the financial crisis? Not necessarily.

    In fact, burdensome rules affect businesses all sizes. A stark example of how petty regulators can get is the case of Rhea Lana Riner, an Arkansas small business owner who organizes consignment sales and was recently warned by the U.S. Department of Labor that she may not get help from volunteers. The Washington Examiner's Sean Higgins reports:

    Rhea Lana, Inc., hosts what are essentially big semiannual yard sales. People who donate clothing or other items get 70 percent of the profits from the sales of their items as well as first crack at the other merchandise.

    The donors also often volunteer at the events, doing things like hanging clothes or working the cash register. This helps to ensure that their items get sold. That’s also what got Riner in trouble with the feds.

    Forbidding private parties from entering into a mutually beneficial voluntary business arrangement is about as bad a violation of the freedom to contract as you can get.

    But sadly, it's not that surprising, considering the escalating array of labor regulations all employers face. And, as CEI's Wayne Crews notes in his annual 10,000 Commandments report (page 34), it begins at the very first rung.

  • With Declining Membership, Wisconsin Teachers Unions Consider Merger

    January 8, 2014 1:16 PM

    The the corporate world, mergers are generally considered a sign of confidence, as companies seek to expand their operations. Within organized labor, by contrast, they're often a sign of weakness. The latter is certainly the case with two Wisconsin teachers unions currently considering a merger.

    The two unions -- the Wisconsin Education Association Council (WEAC), affiliated with the National Education Association (NEA), and AFT-Wisconsin, affiliated with the American Federation of Teachers -- have experienced steep declines in membership since the enactment of Act 10, the 2011 budget repair bill that brought union militants out in droves to Madison, the state capital, in opposition. The Milwaukee Journal Sentinel reports:

    After Act 10, WEAC has lost about a third of its approximately 98,000 members and AFT-Wisconsin is down to about 6,500 members from its peak of approximately 16,000, leaders of both organizations have reported.

    This episode illustrates three important points.

    One is the extent to which unions rely on compulsory labor market policies to boost their membership numbers.

  • CEI Podcast for January 2, 2014: Rethinking Unemployment Insurance

    January 2, 2014 4:26 PM

    With unemployment still painfully high more than five years after the financial crisis, Senior Fellow in Labor Policy Aloysius Hogan thinks that re-extending unemployment insurance would only make the problem worse.

  • The Great Italian Auto Bailout -- Courtesy of U.S. Taxpayers

    January 1, 2014 7:09 PM

    At the beginning of 2014, Detroit may be bankrupt, but they're cheering the five-year-old U.S. auto bailout in Italy. That's because after being the beneficiary of billions in U.S. taxpayer largesse, Fiat, the leading Italian auto company, is going to buy its final stake in Chrysler from that other big bailout recipient, the United Auto Workers (UAW).

    "Chrysler's Now Fully an Italian Auto Company," reads the Time magazine online headline. But wait a minute! Wasn't the bailout supposed to be about saving the American auto industry?

    As Mark Beatty and wrote in The Daily Caller in November 2012, after presidential candidate Mitt Romney made the controversial claim that Fiat would be expanding production of Chrysler's Jeep in China (a claim that turned out to be correct),

    The real outrage arising from the 2009 Chrysler bailout is not that its parent company, Fiat, is planning to build plants in China. It’s that the politicized bankruptcy process limited Chrysler’s growth potential by tying it to an Italian dinosaur in the midst of the European fiscal crisis. The Obama administration literally gave away ownership of one of the Big Three American auto manufacturers to an Italian car maker struggling with labor and productivity issues worse than those that drove Chrysler to near-liquidation.

    As we noted in the piece, much of Chrysler’s profits from its overhauled line are going to prop up Fiat’s failing, money-losing Italian business, rather than to expanding production and jobs in the U.S. Moody’s had downgraded Fiat’s credit rating to “junk” even before the Obama administration arranged for it to acquire a Chrysler stake, and in Autumn 2012, Moody’s gave Fiat another downgrade that the Financial Times described as even “further into ‘junk’ territory.”

    Around this time, Barron’s put it like this in a headline, “This time, Chrysler could bail out Fiat.” Actually, the Barron’s headline is slightly misleading in one respect — Fiat didn’t contribute much of anything to the Chrysler’s bailout.

  • Minimum Wage Increases Harm the Young, Unskilled, and Less Educated

    December 12, 2013 4:58 PM

    Minimum wage increases eliminate some jobs. Real world examples abound. As a business owner explains:

    The minimum wage kills jobs. End of story. I am a perfect example. I run a very successful financial advisory practice, and I would gladly hire two or three teens to work for me personally. But I will not do it at the minimum wage. They simply don’t bring enough economic benefit to warrant me paying them that much. So, what’s the end result? Two or three teens go without a job and instead do nothing. No job. No experience. No learning. Nothing.

    I personally know at least a dozen seniors in high school and freshmen in college who would jump at the opportunity to work with me for nothing, let alone $3 per hour or $5 per hour. All of the ancillary skills and benefits would far outweigh any wage they may earn. Yet, the minimum wage laws prevent this from happening. And instead they are just unemployed – economic casualties.

    Warren Meyer of Recreation Resource Management, Inc., has also been prevented from hiring people because of the minimum age, as he chronicles at this link.

    Studies show minimum wages disproportionately increase unemployment among the youngest and least-educated and least-skilled workers. Increasing the minimum wage increases unemployment rates among young people and minorities, noted economics professor Walter Williams in his 1982 book, The State Against Blacks. The economist Thomas Sowell makes the same point in his recent two columns “Minimum Wage Madness” Parts I & II. A 2013 study released by George Mason University's Mercatus Center concluded that due to a relatively-modest “minimum wage increase," “the unemployment rate for young workers without high school educations" would “rise by almost two percentage points," compared to “almost one percentage point” among older workers. Sowell notes that a "survey of American economists found that 90 percent of them regarded minimum wage laws as increasing the rate of unemployment among low-skilled workers. Inexperience is often the problem. Only about two percent of Americans over the age of 24 earned the minimum wage." A 2012 study by Sabia, Burkhauser & Hansen reached similar conclusions.


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