An Idea from Last Time
Two ways that supply of labor is restricted
are minimum wages and licensing laws.
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An Idea from Last Time
People make a lot of stupid mistakes, but
they learn with experience how to protect
themselves against many of them.
http://sacramento.cbslocal.com/2014/03/31/cov
ered-california-sends-deaf-callers-to-hotlineoffering-hot-ladies/
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11: Regulating Labor
December 2, 2015
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Restrictions on Labor Supply
1. The minimum wage
2. Licensing
3. Unions
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Supply and Demand for Labor
What story can you
tell that would give us
this shape of supply
curve?
What story can you
tell for why the demand
curve shifts?
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Setting the Minimum Wage
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The Minimum Wage and
Recession
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The Workers’ Ideal if Qd=18-L
But this will create unemployment too. Some workers get paid
more, but some don’t get a job at all.
Or, maybe L does not change, but each worker works harder
than is efficient. Or the company only hires smarter workers.
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The Minimum Wage
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1938: Fair Labor Standards Act (FLSA) established a federal
minimum wage. Now $7.25/hour. $
http://en.wikipedia.org/wiki/Minimum_wage_in_the_United_States
http://www.dol.gov/whd/minwage/america.htm
The FSLA also bans child labor and says pay must rise 50% for
any hours beyond 40/week.
Current discussion: Making it illegal to have one’s children work
on farms. The Chick-Fil-A example: A son can’t help his Dad
there, even for free.
Who Benefits from the Minimum
Wage?
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Labor unions support higher minimum wages, even though their members already earn well above the minimum wage.hIt is sometimes said that this is because their wages
are tied to the minimium wage in contracts, but those seem to be only low-wage contract. http://www.unionfacts.com/article/wpcontent/uploads/2013/02/Union_Minimum_Wage_report.pdf
There is a public-interest argument: helping the poor.
But many minimum-wage workers are young or new to the workforce.
A subminimum wage is a lower minimum wage for young people.
Ireland: minimum wage is $11.94.
Workers under 18 can be paid just 70% of that and the minimum wages
in the rst and second year of employment after age 18 are at 80% and
90% to give employers incentive to hire workers new to the labor force.
In the long run, consumers bear
more of the burden
The minimum wage raises prices, but not by as great a
percentage as the wage. Why?
In the short-run, firms have upward-sloping goods-supply
curves and producer surplus there and in the employment
market. Firm PS falls. Prices rise--- so CS falls too.
In the long run, that quasi-rents pays for fixed costs, so
producers are hurt less and consumers more.
Consumers are rationally ignorant and so will not notice this
consequence of the minimum wage.
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Minimum Wage for Interns? I
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Charlie Rose, the TV interview-show host, last month settled a class-action
lawsuit against his production company for failing to pay college interns a
minimum wage. The settlement will pay 189 former interns $1,100 apiece
(calculated at $110 a week for a 10-week semester). Based on New York's
$7.25 per hour minimum wage, that reflects a 15-hour workweek.
Two similar suits pending against Hearst and Fox Entertainment argue that
such chores don't fulfill the educational purpose of an internship.
Conde-Nast ends program:
Minimum Wage for Interns? II
Was it worth the cost of my son's college tuition, which gave him entry
to the magazine internship, to have his decision-making abilities honed by
making splitsecond choices about whether to take the A train or the No. 3
train? Not really. But he learned some invaluable career lessons, such as
that his timetable didn't count—the magazine's deadline did. And by
making his deliveries ahead of schedule, he was invited into the actual
photo shoots, where his exposure to the creative process was priceless.
Internships are about self-discipline, showing up on time, dressing and
comporting oneself properly—conforming to the norms of the
organization, not merely to the fashion of the classroom. They are about
learning how to listen and observe, to be responsive and responsible.
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“A License To Be a Florist?”
25% of all U.S. workers need a license to do their jobs, according to the
White House report, compared to 5% in the 1950s. 2/3 of this is from an
increase in state licensing laws, not due to a bigger population.
Doctors. Market failure?
Louisiana: Florists. Market failure?
Greece: where almost the only way to get a pharmacist license is to buy
one from a retiring pharmacist
Why does the President oppose these laws, where the state legislatures do
not?
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Licensing: Marriage Counsellors
IC 25-23.6-3-1 Unlawful practices
Sec. 1. (a) An individual may not:
(1) profess to be a licensed marriage and family therapist;
(2) use the title:
(A) "licensed marriage and family therapist";
(B) "marriage and family therapist"; or
(C) "family therapist";
(3) use any other words, letters, abbreviations, or insignia indicating or
implying that the individual is a licensed marriage and family therapist;
or
(4) practice marriage and family therapy for compensation;
unless the individual is licensed under IC 25-22.5, IC 25-23.6-8-1, or IC
25-33.
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Licensing
Occupations: http://www.in.gov/pla/boards.htm
People: https://mylicense.in.gov/eVerification/
Litigation:
http://www.in.gov/apps/pla/litigation/advancedsearch.aspx
Indiana Criminal and Civil Records:
http://mycase.in.gov/default.aspx
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Useful Licensing?
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Fake Dentists:
Astrue on Obamacare “Navigators”
...HHS decided to build political support for the Affordable Care Act by pouring money
into supportive organizations so they could launch poorly trained workers into their
communities without obtaining criminal background checks or creating systems for
monitoring their activities. As a practical matter, these navigators are unaccountable, and
yet they will be asking people for Social Security numbers...
NY Post: “A convicted felon could be a navigator and could acquire sensitive
personal information from an individual unbeknownst to them?” asked Sen. John
Cornyn (R-Texas).
Sebelius responded flatly: “That is possible.”
Sebelius, the sole witness at the Senate Finance Committee hearing, said that states
could require a background check for navigators, but the federal ObamaCare law
doesn’t.
Labor Law
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During the New Deal, the National Labor Relations Board
(NLRB) was created in the Wagner Act to regulate unionized
firms and unions. For example, the employer cannot:
Threaten to fire employees who join a union.
Threaten to close the plant if the employees form a union.
Reject union offers without reading them (they
must“bargain in good faith”)
The union cannot:
Strike on issues unrelated to employment
Threaten or assault non-striking workers.
Single Unions
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A big principle of U.S. labor law is EXCLUSIVE
REPRESENTION: if one union gets a majority of workers to
sign up, it has the exclusive right to bargain on behalf of all the
employees.
The default federal rule is that all employees must then join
the union and pay union dues.
But states are now allowed to pass “right to work” laws, under
which workers are not forced to join the union. (Taft-Hartley
Act, more conservative, in 1947)
Indiana passed Right to Work in 2012. Michigan
followed.
Right to Work States in Green,
2013
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Market Power in Labor
21
“Why Should Stage Hands At
Carnegie Hall Make $400,000?” I
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Carnegie Hall’s IRS form 990:
The executive and artistic director:
$1,113,571
Top stagehand:
$464,632
Carpenter:
$441,223.
Chief financial officer:
$429,259.
(Three other IATSE members Electricians $425,872 and $395,207, carpenter Ken
$371,813)
The strike was over a 24-room educational wing: Management
had not wanted the stagehands to work there. In the deal
reached today, students will be able to move their own music
stands, chairs and instruments but not drums or marimbas, and
one new full-time employee will be hired.
“Why Should Stage Hands At
Carnegie Hall Make $400,000?” II
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Professor: “These labor disputes aren’t settled by who’s right and who’s wrong. It’s a
bargaining situation and the employer, Carnegie Hall, wants the cooperation of the
stagehands in exchange for their work.”
Professor: “Unions get a bad rap when they get good deals like this,” he says. “If you
went to buy a car at a dealership and you did a really good job negotiating and walked
away with a $100,000 car for $30,000, would you get blamed because you’re a good
negotiator?”
Journalist: "As Cornell professor Ileen DeVault points out, most of us don’t begrudge
the huge salaries of unionized NFL and Major League Baseball players At the risk
of inviting angry comments from Forbes readers, I’d say that Local One’s members have
achieved the American dream, working their way through the echelons of the middle
class to a level on par with Carnegie Hall’s wealthy donors. Is that such a terrible
thing?"
Union Lobbying
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Unions are influential in state politics, as sources of votes,
information, campaign workers, and contribution. Of the top 20
political action committees for federal contributions in 20112012, 6 were unions, almost as many as the 7 corporations.
Opensecrets.org:
Which Jobs Are Unionized?
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In 2011, 12% of wage and salary workers were unionized, down
from 20% in 1983. 7.6 million were in the public sector (work
for government) and 7.2 million in the private. 37% of publicsector workers are unionized, and 7% of private-sector.
The job category with the lowest rate is Sales (3%).
Why do we see this pattern?
http://www.bls.gov/news.release/union2.nr0.htm
Why have ANY fringe benefits?
?26
Why would employers offer health
insurance, free gym, pension plans, cafeteria,
housing allowances, etc… ?
Fringe benefits: 20%
EMPLOYER COSTS FOR EMPLOYEE COMPENSATION – JUNE 2012
Private industry employer costs for noncash benefits were 30% of
compensation (30% of pay + benefits) in 2012. This does not include
mandates such as “family leave,” handicapped worker access, etc.
Legally required benefits (Social Security, Medicare,
unemployment insurance, workman’s compensation): 8.2 percent.
Insurance (life, health, and disability): 8.1 percent.
Paid leave (vacation, holiday, sick leave, and personal leave): 6.8 percent.
Supplemental pay (overtime and premium, shift differentials, and
nonproduction bonuses): 2.9 percent.
Retirement and Savings: 3.5 percent. (it’s 8.5% for govt.—why?)
Paid leave and supplemental pay shouldn’t count, since they are cash.
Subtracting them, we get 20 percent.
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Employer Mandates
An employer mandate is a regulation requiring the employer to
provide something desirable to the worker.
The government doesn't pay for the mandates.
Wages fall.
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Mandates Reduce Wages even
for a Monopoly Buyer
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Suppose the workers will work for as little as $4/hour if there
is air conditioning and $6/hour otherwise. If air conditioning
costs $1/hour, the employer will provide it and pay them
$4/hour.
Suppose they value coolness at just $.50/hour, and it costs
$1.00/hour. The employer won’t provide it.
Now let’s mandate fresh air. What will happen? The employer
will reduce pay to $3.50/hour. Workers are no better off.
(Think also of the case with heterogenous workers.)
Obamacare
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1. Pre-existing conditions cannot cause denial of insurance coverage.
2. Individual mandate--- everyone must have insurance.
3. Subsidies for the medium-poor--- nobody has to pay more than a
certain fraction of income for health insurance. (The older Medicaid
program is free government health insurance for the poorest people. )
4. Employer mandate--- any business employing over 50 people full-time
must provide insurance.
5. New minimum standards for coverage, beyond the state requirements.
6. Cadillac Tax: 40% excise tax on insurance spending of more than
$10,200 per employee or $27,500 per family starting in 2018. (eventually,
with inflation repeal of tax deductibility and even beyond for lower-income
families.)
What can the employer do?
1. Shifts to high skill workers (if the mandate is a fixed cost per
worker) or capital.
2. Shifts to producing abroad.
3. Break up into one-man or family operations.
4. Break a 40-hour job into 2 20-hour jobs.
5. Fire the employee and rehire him as a contract temp.
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Health Insurance as an Efficient
Fringe Benefit
by workers
by employers
Employers: If the wage
dropped by x, they would be as
happy as originally. The wage
drops more than x, and L
increases too.
Workers: If the wage fell by less
than y, they would be as happy
as originally. It drops less, and
L increases too.
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An Inefficient Fringe Benefit: Free
Haircuts
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by workers
by employers
Employers: If the
wage dropped by x,
they would be as
happy as originally. It
drops less, and L falls
too.
Workers: If the wage
fell by less than y, they
would be as happy as
originally. It drops
more, and L falls too.
“Companies Are Cutting Part-Time Workers’ Hours.34
Blame Obamacare?”
The U.S. economy has been
gaining hundreds of thousands of
full-time jobs every month while
part-time job growth has been
flat.
Companies are cutting hours for
part-time workers in order to
avoid the ACA’s mandate that
midsized and large employers
must give health insurance to
employees who work at least 30
hours.
Older Mandates
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http://www.in.gov/legislative/igareports/agency/reports/IDOI
20.pdf
Cost of Health Ins. Mandates
Texas: Cost = 3.8% of premiums for 20 mandated benefits in
2005.
http://www.ncsl.org/portals/1/documents/health/MandatesCauchi09.pdf
Massachusetts: Cost = 12% of premiums for 26 mandates in
2008
--MA Division of Health Care Finance & Policy July 2008
maternity 3.73%
mental health 2.21%
home health 1.93%
preventive care for children 1.12%
infertility .89%
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“OSHA Targets Shooting Range,”
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Illinois Gun Works shooting range fined $111,000 and ordered to change its procedures
and protection gear by OSHA. The Asst. Secy of Labor for OSHA, David Michaels, is a
well-known anti-gun advocate.
“Among OSHA’s suggestions were to eliminate training in “larger caliber” handguns such
as “9 mm Luger and/or .45 Colt” and substitute “handguns of smaller caliber,” such as
.22LR. And “Prohibition of any shotguns and/or rifles firing in the firing range.””
Don’t let gun instructors work 8 hours at 90 db. (motorcycle,
“A gun range instructor conducting shooter instruction was observed reaching down on
the range floor to collect a loaded handgun cartridge. The employee was not wearing any
hand protection such as gloves. The gun range floor was contaminated with lead.”
Immigration
Immigration--- part of which is the importation of labor--- is highly regulated.
H1B visas allow immigration of skilled workers.
38
Thomas Piketty (Paris School of Economics), Capital in the
Twenty-First Century (Harvard University Press, 2014):
Inequality of income in America is
rising. Why?
Skilled labor (high incomeearners) and high-risk capital’s
return is growing faster than
unskilled labor’s. Why?
Some reviews from the Left:
http://equitablegrowth.org/2014/03/25/2366/dialogue-ten-so-far-worthwhilereviews-of-and-reflections-on-thomas-pikettys-capital-in-the-twenty-first-centurywednesday-focus-march-26-2014#DowntonAbbey
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Changes Favoring Capital Returns
1. Immigration.
2. Increase workforce participation of women.
4. Imports of goods from low-wage countries.
4. Export of capital to low-wage countries.
5. The high government deficit.
6. Higher taxes on capital.
7. Technical change making capital more
productive.
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Immigration– The Policy Change
President Obama just announced that he is going to
instruct Homeland Security not to deport some 5
million of the 11 million illegal aliens in the United
States, and to give them work permits (green cards). In
2012 he did much the same thing with respect to 1.2
million illegal aliens who had come as children.
Immigration statutes say that the President can grant
work permits to aliens in "deferred action status",
though one might question whether Congress can
constitutionally delegate so much authority.
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Immigration--- Big Picture Economics
The Borjas Triangle: How to do a simple
calculation of the benefits to natives from
immigration.
First, suppose there is just one type of labor, and
the only other input is capital. (We could use
unskilled and skilled labor instead as our two
inputs.)
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Stylized Facts
Immigrants are about 15% of the labor force now,
steady since the Great Recession but rising a lot since
2000.
Labor earns about 70% of GDP (the rest goes to
capital and land and natural resources).
The inverse elasticity of demand for labor--- the
response of offered wages to more labor--- is about
0.3. That means the elasticity of demand for labor is
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1/.3, which is about 3.
Calculations– Single Type of Labor
Wages must have fallen about .3(.15), 4.5%. Social
rises .5(.045)(.15)= 0.34% (not 34%). Since labor income i
70% of national income, this is 0.24% of GDP.
Workers lose 4.5% reduction in wage times the initial
amount of labor--- a 4.5% loss in income. That's
.7*4.5=3.2% of GDP. Capital gains what labor loses, plus
the triangle, so it gains 3.4% of GDP.
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The Model with Two Labors
Now suppose that immigrants are unskilled,
and initially 25% of US labor is unskilled. For
simplicity, assume they earn the same wage as
skilled labor; they just produce a different
product. Assume inelastic demand for it. The
difference now is that the 15% immigration all
competes with the unskilled workers, so it’s a
60% increase in that labor force.
What changes?
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Two Labor Calculation
Now the wage response is .3(60) = 18%, which is the loss to the American
unskilled workers. They were getting .7*.25 = 17.5% of the old national
income so they have lost an amount equivalent to 17.5%*.18, about 3.2% of the
old national income.
The triangle gain, in terms of old GDP, is (since unskilled labor was .7*.25 of
national income), .7*.25*.5*.15*.6 = 0.8% of GDP, much larger than in the
original example, though still small relative to GDP.
It is no accident that both the redistribution effect and the increase in social
surplus are much bigger under these assumptions.
When social surplus increases, it's because there's been a big wage response,
and that's what makes the redistribution effect bigger too.
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Who Gains, Who Loses
The unskilled wage falls 18% in real terms.
Capital in the unskilled sector is gaining the new
surplus triangle of .8% from immigrant production
plus a rectangle of .7*.25*18, about 3.2% of old
GDP, for a total of a 4% gain.
It goes from 30% to 34% of the old GDP level,
an increase of 13.3% of 30%.
Skilled labor is unaffected.
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The Bottom Line
The economic benefit of immigration is positive, but it is small
and unequally distributed:under 1% GDP, though since GDP is
huge, so is 1%. The effect is like having the growth rate of GDP
have a one-time increase of 1% extra– in 2013 that would raise it from
2% to 3%. graph . (An increase in the growth rate in one year of 1%
means GDP is 1% higher in every year after that one year.)
The distributional effect is bigger. Employers/capital win and a
the type of workers who competes with the immigrants lose--unskilled, engineers, professors, etc.
The size of the surplus gain is proportional to the size of the wage
response, so more gain means more redistribution.
48
Slides probably not used
49
Unemployment Insurance
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Employers must buy unemployment insurance.
$300/week, on average (states, jobs, differ), about $15,000/year.
It lasts 26 weeks in ordinary times. During the recession it has
been extended to 99 weeks.
http://economix.blogs.nytimes.com/2011/11/02/howunemployment-benefits-became-twice-as-generous/
Labor and Other Inputs
What if the price of capital, r, rises? How does that affect the
quantity demanded of labor?
Compl e ments— not compl i ments
or Substitutes?
There are many classes of labor, and they too can be
complements and substitutes. Doctors, computers and nurses.
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