$15

Marvel at the Stupidity of Forbes’ Tim Worstall

May 5, 2015 Goldy
5 Comments
Economics
Tim Worstall, blogger

Really bad writer, Tim Worstall

One could easily dedicate a blog just to fisking Tim Worstall, what with the obsessively anti-minimum wage Forbes blogger proving to be as prolific as he is preposterous:

We’re repeatedly told that raising the minimum wage doesn’t lead to job losses (or, in the jargon, unemployment effects).

Nobody is arguing that raising the minimum wage doesn’t lead to job losses. We’re arguing that raising the minimum wage doesn’t lead to net job losses (and in the jargon, it’s more commonly referred to as “employment effects,” Worstall’s negative spin on the term notwithstanding).

There’s a variety of reasons put forward, from the nonsensical (employers make so much profit they can just take the cash from there)…

Labor’s share of GDP has declined from an average of 64 percent from 1950 through the mid-1980s, to less than 56 percent today, while profits’ average share of GDP has risen accordingly—that’s a $1 trillion-a-year transfer of wealth from wages to profits. So yeah, on average, corporate America could afford to pay higher wages.

… to the simply wrong (if the poor have more money then they’ll spend it and this boosts the total economy. True, but given the marginal propensity to spend of perhaps 15% this isn’t large enough to have the claimed effect)…

First, in the jargon, it’s “marginal propensity to consume” (MPC), and second, 15 percent? Really? Worstall is implying that minimum wage workers will spend only 15 percent of their extra pay? I don’t know any other way to read that sentence, but it’s totally crazy.

The personal savings rate in the US the past couple years has been around 5 percent—that means, on average, Americans spend about 95 percent of everything they earn. And for minimum wage workers, the MPC is closer to 100 percent. Nearly every penny of minimum wage goes right back into the economy in the form of consumer spending. Period. Worstall rarely cites sources for the ridiculous numbers he spews, but if he did, his footnotes would all likely read: “Ibid., my ass.”

… to the truly delusional (raising waiters’ pay will mean that waiters spend more in restaurants meaning larger profits for restaurants).

It may not amount to a substantial economic stimulus on its own, but if we raise the wages of waiters, they will spend more money—at least some of it at restaurants! It would be truly delusional to suggest otherwise.

All just trying to deny that labor is a normal good and when the price of it rises people are going to want to purchase less of it.

It’s always struck me as odd how free market libertarians like Worstall see so little room for human agency in responding to things like minimum wage hikes. But for all his efforts to intimidate readers with jargon like “normal good,” Worstall’s immutable laws turn out to be eminently mutable: regardless of what employers want, the empirical data show little or no employment effect from modest increases in the minimum wage, due to all kinds of various reasons.

Whooh! That’s a lot of fisking! And I’ve only managed to get through Worstall’s first paragraph.

Worstall then goes on to cite a National Review article on a San Francisco comic book store owner’s struggles to cope with his city’s $15 minimum wage, and for the sake of brevity of I’ll skip his blockquotes. But the gist of it is that the proprietor figures he’ll need to generate an additional $80,000 a year in sales  between his two stores to cover the additional cost of his six employees.

Back to Worstall:

One of the sounder arguments against democracy is that the average voter isn’t all that well informed. The basic argument in favour of democracy is that every other system is even worse: but let’s not forget that ill informed part.

Worstall’s creepy anti-democratic sentiments aside, how can the average voter help but be ill informed, what with bloggers like Worstall authoritatively pulling numbers out of their ass? Just sayin’.

Note that that’s not the rise in wages. That’s the rise in sales he’s got to achieve, at the normal margins, in order to have the extra gross profit to pay those higher wages. And he’s also got another problem. The comic books and graphic novels that he sells are printed for the national market. With their prices listed on the cover. Meaning that he can’t in fact raise his prices. Not unless he tries to institute an SF minimum wage surcharge on all his sales.

He’s got a possible solution, which is to launch a book of the month club, run webcasts of events and so on. Great, the very best of luck too. He’s trying to solve this minimum wage problem by getting better labor productivity. But as I’ve pointed out before getting better labor productivity is the same as stating that less labor is going to be employed for the same output.

But that’s not what this shop owner is doing. He’s trying to get more output—an extra $80,000 a year—from the same labor. That’s how he plans to cover his higher labor costs.

Because that’s what it means: he’s trying to get more revenue (ie, output) out of each hour of that now more expensive labor.

Way to contradict yourself, Tim.

Whereas with the older, cheaper, rate for labor greater output would have translated into a job for someone else, or perhaps more hours for those currently employed.

The tragically missing comma aside, “the older, cheaper rate for labor” simply did not translate into additional jobs at these comic book stores. But the newer, higher rate for labor is incentivizing a higher rate of productivity.

New jobs not being created is just as much the employment of less labor because it is now more expensive as firing someone because you can’t afford them anymore is.

Is this even English? First Worstall tries to dazzle us with incorrect jargon, and now he tries to confuse us with incomprehensible sentences. Seriously. Does he get paid for this? This is some truly awful writing. I know comment trolls with greater pride in their craft. (Also, since when did Worstall drop the “u” in “labour,” or is he really just a composite avatar for Adam Smith Institute interns?)

What I think Worstall is trying to say is that not creating new jobs in the future is functionally equivalent to eliminating jobs in the present.

That is, if people react to a higher minimum wage by increasing labor productivity this is the very thing that we state a higher minimum wage produces: fewer jobs. This does not invalidate the standard case against the minimum wage and job losses, it proves it.

So let me get this straight, Tim: higher wages, more innovation, and increased productivity are bad things?

To be clear, here’s what’s happening at these comic book shops: In response to the need to cover the cost of a higher minimum wage, the owner is seeking to boost productivity—and thus revenue—by engaging his existing workforce in creating new and better products and services for their customers. Nobody is losing their job. Everybody is getting a raise. And customers are getting a better experience.

That sounds to me like a win/win/win.

But had the minimum wage not gone up, the owner would have felt no need to innovate, and no jobs would have been created or eliminated.

So, yeah, Worstall hasn’t proven anything. Except that he’s an idiot.

Forbes’ Min-Wage-Hating Worstall on $15: The Datum Supports My Thesis!

May 1, 2015 Goldy
3 Comments
Economics
Tim Worstall, blogger

Tim Worstall, righty blogger

Tim Worstall not only has a byline at Forbes and a fellowship at the impressive-sounding Adam Smith Institute, he also spells “labour” with that fancy extra “u,” so he must be a smart guy who knows an awful lot about economics, right? But then you read his actual words and, well, not so much…

Back a month and a bit there was a bit of a rumpus, a broo haha even, over the effects that Seattle’s newly enacted $15 an hour minimum wage was going to have upon employment in that great city. I, along with every economist, was saying that a minimum wage rise of that amount would reduce the amount of labour employed as against the amount that would have been in the absence of such a change in the minimum wage.

Wow. Really? “Every economist” agrees with Worstall? All of them? He couldn’t find a single a voice of dissent within a profession whose practitioners are the butt of jokes for contradicting themselves? Personally, I can think of at least one PhD in Economics who would dispute Worstall’s assertion—Dr. Kshama Sawant—but then, she only defended her dissertation at North Carolina State University, whereas the erudite labour-with-a-“u”-spelling Worstall got his PhD in Economics from… um… oh, wait… despite the implied association in “I, along with every economist,” Worstall isn’t actually an economist at all.

So what is he? He’s a blogger and a “fellow,” just like me. (And to be clear, the venerable Adam Smith has no more to do with Worstall’s think tank libertarian propaganda mill than Sam Adams has to do with that beer.)

The place we would see this would be in the restaurant industry, as that’s the industry that employs around 50% of minimum wage labour and thus that’s the industry where it is most binding.

Well, Worstall’s half right, in that he’s wrong by half: the restaurant industry actually employs about 25% of Seattle’s minimum wage workers, according to a report (PDF) commissioned last year by the city (and authored by actual economists). Not that this refutes Worstall’s larger point about the restaurant industry being a bellwether, but reality is not in fact optional.

Objections were many and varied: but it really is true that the academic literature here states that rises in prices do lead to fewer purchases of the thing that has risen in price. Labour is not an exception to this rule.

Actually, there are tons of exceptions to this so-called “rule,” and the academic literature is full of them. Health care and housing markets, for example. There’s even some debate over the elasticity of labor markets. But regardless, these “rules” are meant to describe perfect markets, economic unicorns that do not exist in the real world.

In the real world, the labor market is actually quite complex. When workers have more money businesses have more customers, and when businesses have more customers they hire more workers. Also, the power imbalance between employers and workers means that wages are often lower than what the employer can afford. As Adam Smith pointed out: “Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate.” Doesn’t sound like a perfect market to me.

Further, there’s plenty of work in the literature specifically about the minimum wage which says that modest changes will have modest employment effects. But no one at all is stating that large rises will not have some effect in reducing employment.

There is plenty of work in the literature—particularly, the most current literature—that says that empirical evidence shows little or no employment effects from modest changes in the minimum wage. As for $15, well, there just aren’t enough data points yet to know for sure what the effect will be.

But the lack of data never stops Worstall:

And so it has come to pass:

Ritu Shah Burnham doesn’t want to go out of business, but says she can’t afford the city’s mandated wage hikes.

“I’ve let one person go since April 1, I’ve cut hours since April 1, I’ve taken them myself because I don’t pay myself,” she says. “I’ve also raised my prices a little bit, there’s no other way to do it.”

And this is happening at this small business a little faster than it is at others because:

Small businesses in the city have up to six more years to phase in the new $15 an hour minimum wage. But Shah Burnham says even though she only has one store with 12 employees, she’s considered part of the Z Pizza franchise — a large business. So she has to give raises within the next two years.

It really is true. Demand curves slope downwards.

Um… how do you plot a demand curve from a single point of data? That’s one restaurant—count ’em, one—that claims it is going out of business due to a higher minimum wage. That’s datum, not data. Meanwhile, there’s plenty of data that continues to show the net number of restaurants in Seattle growing at a healthy clip.

If you raise the price of something then people will buy less of it.

Gotta admire the confidence in which Worstall declares his unsupported bullshit.

Whatever your politics and however much you’d like to improve the life of your fellow man I’m afraid that reality is not in fact optional.

On that one point we both agree: “reality is not in fact optional.” Unfortunately, it appears that Worstall’s reality is fact-optional.

Look, nobody said that some restaurants wouldn’t close. Restaurants close all the time. And I don’t doubt that for some restaurants and other businesses that are teetering on the edge, a higher minimum wage will give them the final shove. But if businesses predicated on paying a low wage close and are replaced by viable businesses paying a higher wage, wouldn’t that be a net plus for the economy and the society at large?

Again, as Adam Smith notes in The Wealth of Nations:

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.

Put that in your institute and smoke it, Worstall.

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