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Prospective Professionals Don’t Snub Minimum Wage Waivers

01 Tuesday Sep 2015

Posted by pnoetx in Free markets

≈ 1 Comment

Tags

Antony Davies, Automation, Bryan Caplan, Department of Labor, Food Service Robots, McDonald's wages, Mercatus Center, Minimum Wage, Union Wage Exemptions, Unpaid internships, Vocational training, Wage floor, Walmart wages, Wendy's wages

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Are unpaid internships of any benefit to the student/intern? If not, then why do you suppose several hundred thousand smart students accept them each year? And there are many more internships for which the pay is nominal. Clearly these students have something to gain, though some would still argue that interns are exploited. They would like to be paid, of course, but they are sufficiently forward-thinking to recognize opportunities, even if they are unpaid gigs.

What’s really silly is the Department of Labor’s “tests” for whether an unpaid internship can be offered. In truth, it would be impossible to meet the DOL’s requirements, but that doesn’t seem to matter. Bryan Caplan is on very safe ground in arguing that “Every Unpaid Internship Is Illegal“. Apparently the rules are just for show, though again, some would like to see the practice ended. But here is the truth from Caplan:

“Internships are vocational education. If schools can educate students in exchange for their tuition, why can’t businesses educate students in exchange for their labor? No reason, just anti-market bigotry.“

Caplan’s description of the transaction is apt. From the firm’s point of view, bringing an intern into the office has disadvantages. With some introduction, the intern can perform various low-level tasks, but they absorb the time of paid staff because some degree of oversight is required. And there is some risk: an intern might prove capable of performing fairly complex tasks, but some don’t work out at all. The hope is that they can make a minor contribution to the work effort, add to the firm’s recruiting pipeline, and perhaps strengthen the firm’s ties to the student’s learning institution. In exchange, the intern gains valuable experience in an actual business environment and walks away with a stronger resume and some contacts. A mutually beneficial trade.

For the sake of intellectual consistency, proponents of the minimum wage should oppose unpaid or low-paying internships. The situations differ only in terms of the typical job description and its educational requirements. In both instances, opposition to the voluntary exchange of labor for training and experience would foreclose opportunities of which many are happy to avail themselves. The worst of it is that the minimum wage itself inflicts its damage on the least skilled, who need opportunities the most. This is harmful and foolish intervention, however well-intentioned.

The harm is vividly illustrated by responses to President Obama’s proposal to raise the minimum wage to $10.10 an hour from $7.25, and to various moves on the part of state and local governments to raise the minimum wage within their jurisdictions. The end-game will be higher prices, more automation, lower employment and reduced hours among low-skilled workers (and those with less work experience). This article about Wendy’s is pertinent. It also notes that McDonald’s is planning to automate. Apparently Walmart is cutting hours after responding to pressure to increase wages.

The jury is out on the damage from changes in the minimum wage in cities like Seattle, San Francisco and Los Angeles. Initial signs have indicated some negative employment effects, but the data is noisy and reported at a higher level of aggregation. Regardless, the least skilled will suffer negative consequences. Interestingly, unions backed the increases but have found ways to gain exemptions for their own contracts.

One of the most absurd assertions about wage floors comes from the DOL itself:

“…the DOL cites numerous studies to support its claim that higher wages are associated with higher levels of worker productivity, but the agency gets the causality reversed, among other errors of interpretation.“

The correct rationale for the DOL’s claim is with reference to the productivity of remaining workers near the margin, since less productive workers will have been canned. Too bad! The last link, from Antony Davies of the Mercatus Center, shows the positive relationship between unemployment and the minimum wage for less educated workers. Of course, this does not capture the negative effect on hours worked for those who remain employed following an increase in the wage floor.

Prohibition of unpaid internships would undoubtedly reduce the total number of internships offered to motivated students and others seeking vocational experience and training. The losers are prospective entrants to the knowledge work force who gain valuable experience and credibility as future job candidates by virtue of unpaid or low-paid gigs. But the consequences to would-be interns might not compare to the impact of lost training and experience already suffered by society’s least skilled as a consequence of the minimum wage. They are rendered unemployable by the state, and their alternatives are often limited to dependency or illegal activity.

Obamanomics and Opportunity Knocked Off

10 Wednesday Jun 2015

Posted by pnoetx in Regulation

≈ 1 Comment

Tags

Coyote Blog, Department of Labor, Effective wage, Exempt employees, Non-exempt employees, Obama administration, Overtime rules, Politico, the administrative state, Warren Meyer

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Another Obama fallacy and a new, binding constraint on voluntary private arrangements: in the latest example of administrative rule-making gone berserk, the Obama Administration (via The Department of Labor) is proposing a drastic change in the definition of an exempt employee, increasing the salary threshold for the exemption from $23,660 to as much as $52,000. This is likely to change the status of a large number of workers, but as Warren Meyer explains, not in the way the administration hopes.

Obama and his advisors imagine that this change will actually increase the incomes of a large number of workers — that employers will begin paying overtime to hard-working supervisory and administrative employees. Meyer quotes Politico‘s headline: “Barack Obama poised to hike wages for millions.” But employers are not indifferent to the cost of a given labor input.

As Meyer asserts, currently exempt employees who now earn a salary between the current and the new thresholds may well be converted to hourly, non-exempt employees. And those now working extra hours are likely to be working fewer hours under the new rules. In fact, they may well see their hours and incomes reduced. Some employers will be able to automate certain tasks to compensate for the reduction in labor input, as Meyer suggests. Or perhaps more part-time workers will be hired.

There is another issue at stake, however, in addition to the mere calculation of workers X hours X the wage rate. Meyer expresses disgust at the way the new threshold could change relationships between employers and certain employees. As he tells it, the change will convert ambitious young managers into clock-punchers. In case that sounds too much like a negative personality change, a more sympathetic view is that many workers do not mind putting in extra hours, even as it reduces their effective wage. They have their reasons, ranging from the non-pecuniary, such as simple work ethic, enjoyment and pride in their contribution to reward-driven competitiveness and ambition. Hours worked gives exempt employees an additional margin along which to prove their value to the enterprise. Obama’s proposal takes that away, which may penalize employees with less talent but strong ambition. Opportunity’s knock is getting softer.

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