Among the issues most commonly discussed are individuality, the rights of the individual, the limits of legitimate government, morality, history, economics, government policy, science, business, education, health care, energy, and man-made global warming evaluations. My posts are aimed at intelligent and rational individuals, whose comments are very welcome.

"No matter how vast your knowledge or how modest, it is your own mind that has to acquire it." Ayn Rand

"Observe that the 'haves' are those who have freedom, and that it is freedom that the 'have-nots' have not." Ayn Rand

"The virtue involved in helping those one loves is not 'selflessness' or 'sacrifice', but integrity." Ayn Rand

02 August 2015

New York Further Damages Economy with a Minimum Wage of $15/hr.

A minimum wage mandate is a serious infringement upon the rights of individuals to earn a living, to enter into contracts with one another, and their freedom of association.  It is a fundamentally unethical use of force in which third parties impose their ignorance and values upon others.  It should be opposed with great vigor as a matter of principle.

Too often, Americans believe they are pragmatists with little need for the principles that actually make it easier and far more efficient for them to identify the values and means by which people secure their lives and happiness.  They actually forgo valid principles thinking they can identify the practical means to achieve their values without them.  They pursue this phantom path to their perdition as often as to their happiness.

New York state just mandated a rise in the minimum wage to $15/hour throughout the state for fast food workers working for companies operating in 30 or more locations.  The full requirement has to be met in 2021, with staged increases before that.  The general minimum wage increased from $8.75/hour on 31 December 2014 to $9.00/hour.  Such state-wide minimum wage laws can cause very different degrees of harm in communities with different income levels and different costs of living.  It is also much harder for a state with a lower median household income than the national average to sustain the economic effects of a minimum wage higher than the federal minimum wage of $7.25/hour.

Let us examine how this lack of principled support for individual rights is going to cause further harm to the already sub-par New York state economy.  We will compare the median household incomes of many New York state cities to the national average of $53,046.  We will note the cost of living in those cities compared to the national average, given as 100%.  We will compute an effective median household income for these New York cities by dividing their median household income by their cost of living ratio with the national cost of living average.  We will then give the city effective median household income as a percentage of the national median household income.

Cost of Living % Compared to National Average
Median Household Income (National = $53,046)
Effective Median Household Income
% National Effective Median Household Income
Niagara Falls
New York City

Only Yorktown, home of many IBM operations, and Hauppauge on Long Island beat the national effective median household income!  Most of the cities in the state have effective median household incomes only 66 to 81% those of the nation as a whole!  The New York state economy is a very bad mess.  The people of New York are generally much worse off than the average American.  New York state was once a rich state and it still has many natural advantages that should help it to hold its own compared to other states, barring negative effects due to its Big Government state government model installed by decades of Democrat one-party control of the state.

There are two closely related reasons for this.  One is that government policies have a very large impact on the cost of living.  Big Government policies drive up the cost of living, until and unless those policies drive so many businesses away that people abandon their housing or are desperate to sell it to move to a location with jobs.  Housing prices drop precipitously in such cases.  Nine of the above cities have a housing cost of living which is 66% of the national average or lower.  These are desolate cities and include cost of housing values in Buffalo at 32%, Rochester at 35%, Niagara Falls at 34%, Jamestown at 38%,  Elmira at 39%, Syracuse at 45%, Utica at 45%, and Schenectady at 53%.

The other effect of Big Government is on businesses whose labor, regulatory, and tax costs are all driven up considerably.  Those businesses then fare worse in competition with other businesses nationally and internationally.  They expand more slowly than they would otherwise.  They have less money to invest in facilities, production equipment, employee training devoted to the company core purposes, research and development, quality control, and better pay and benefits for their employees generally.  They deliver lower returns to their investors and cause those investors to abandon them.  Highly skilled and hardworking employees move to states that pay them better and where they can find healthier companies with which to build their careers.  There is an inevitable failure of the state economy to keep up with those of states with more limited governments.

The abysmally low effective median household incomes of most of New York state's cities above are a result of and a clear indicator of the very unwise economic policies of the state of New York.  This was once a wealthy state with comparatively higher median incomes.  There is still great wealth in New York, but it is in the hands of a relative few people, thanks to government policies.  The very big government of the state of New York has been mostly controlled by Democrats for a 100 years, and when it was not, it was in the hands of Progressive Elitist Republicans.  Despite the many claims of concern for economic equality, the divergence in income levels in New York state is actually unusually large compared to most other states, especially those with much more limited power governments.

The cost of the higher than average minimum wage payments has to be spread over some combination of higher prices, lower wages for other employees, lower returns to investors, less investment in facilities except those which allow a facility to operate with fewer employees, and fewer low skill employees.  In general, the choices which will be made to meet the minimum wage demand will have the net effect of providing less money to the communities of New York.  Most of the people in these communities are already suffering by the national standard of income.  How are most of those people supposed to be able to pay a few among them much higher wages?  The present $9.00/hour general rate and the future $15/hour rate for fast food workers are well above the national average minimum wage.  The present high minimum wage is one of many factors responsible for the great income inequality and the low incomes of most New Yorkers already.

Minimum wages have less impact on communities in which most people are well-off, so they can afford to pay more for services.  When those higher minimum wages are in industries that compete outside the state, they hurt more than for local service industries.

The New York state minimum wages are going to hurt most New Yorkers.  They will hurt many businesses and eliminate jobs for the initially least productive potential employees.  Young, under-educated people will be the ones most likely not to be offered jobs.  Blacks and Hispanics will by and large suffer still higher unemployment rates than they do now.  Some will become wards of the state.  Some will leave the state to find jobs.  The working population will become older and older.  This will be a further drain on businesses over time.

It is not hard to figure out these effects.  Generally, economists recognize that labor pay increases with demand for labor.  Demand for labor increases when the added production of an employee more than covers all of the many costs associated with putting an employee to work.  Democrat Socialists who most often support minimum wage increases often know this, but they also know that most people would like to see low-paid workers paid more.  Some low-paid workers would like to be paid more.  Employers are in comparatively small numbers.  Vote maximization suggests that one count on the ignorance and the emotions of most voters on the effects of minimum wages.  They are popular.  But, wise leaders would steer away from them and would work hard to educate voters in the great harm they do.  Such leaders could do much to prevent cities in well-positioned states from falling far below the national effective median household income levels.  But, it is especially hard to find such wise leadership in the bowels of the Democrat Socialist Party.

I was surprised to find just how badly depressed the effective household income of most New Yorkers is.  One does not usually think of most New Yorkers and Mississippians as being in the same highly depressed income boat.  The choice of Democrats to rule one's state has dire consequences.


Merlin Jetton said...

Per Wikipedia, median income for a Utica household was $24,916, lower than any in your list.

Charles R. Anderson, Ph.D. said...

I used Sperling's Best Places to get the cost of living rating and the median household income. For Utica, NY:

Median household income = $31,048
Cost of living = 89%
Adjusted median household income = $34,885
% of national median household income = 66%

Housing cost of living = 45%

So, Utica is in really bad shape. It is one of the worst in a state full of towns and cities in really awful shape.