California’s Economic Dive Picks Up Speed (updated)

George Rebane

[This is the transcript of my regular KVMR commentary broadcast a bit belatedly on 1 April 2016 due to mutual scheduling problems.]

California is ready to hasten its spiral into economic destitution with its new legislation to make $15/hr the new statewide minimum wage over the next few years.  As such our state will be the first in the nation to so burden its businesses and people.  This new law will be the latest spawn of California’s socialist legislature and powerful unions led by the SEIU working together to increase union memberships and provide them the fiscal clout to re-elect co-operating politicians to architect California’s continuing decline.

According to Governor Jerry Brown, with this legislation “California is proving once again that it can get things done and help people get ahead.”  Those who get their news from the leftwing media have little idea that at $10/hr our state already imposes the highest minimum wage in the nation which along with its other business throttling laws, regulations, and ordinances continue to drive employers out of the state at an increasing rate.

Today 40% of the state’s residents are on some form of government aid.  And with vast inland regions of unemployment stubbornly above the 10% level, California already is home to the largest number of welfare recipients in the country.   The Sacramento politicians know they are walking a fiscal tightrope by placing this additional cost burden on employers that will not do anything to help people get ahead.  A moment’s thought raises the question, if $15 is good, why stop there?  Why not raise it to $30, $40, or even $50/hr?

But given special interest momentum and voter ignorance, this economy stifling bill will become law in spite of analyses by the state’s Department of Finance, university academics, and other institutions that correctly predict the loss of more jobs – 700,000 by some estimates - more companies leaving, and finally the reduction of state tax revenues to further increase the state’s debt burden.  Evidence that such initiatives kill jobs is abundant, as shown by recent data from Seattle’s similar moves which reduced its job growth for low-end workers to 1.4% as compared to Washington’s 6.9% overall employment growth.

Here, the hardest hit will be the Central Valley workers in places like Fresno and Merced where unemployment already is 10.5% and 12.6%.  More people will be laid off as businesses, especially manufacturers, attempt to cut costs, move out of state, or simply shut down.  Every such government wage increase mandate has motivated another surge to adopt new worker replacement technologies.  The governor’s latest attempt at “economic justice” promises to increase unemployment benefit payouts and government wages by over $3B by 2019 as our minimum wage ratchets toward $15/hr.

Not enough people know we have a growing systemic unemployment problem with tens of millions of workers without marketable skills.  MIT professors Erik Brynjolfsson and Andrew McAffee, authors and experts on technology’s impact on jobs, tell us that “most of the technologies we’re currently developing replace or obsolesce far more employment opportunities than they create.”  In short, today technological progress eliminates jobs and leaves average workers worse off than they were before.  And in every case where government mandates increasing the cost of low-skilled labor, the result is greater income inequality across our country’s workforce as employers seek alternatives to hiring people. (more here, here, and here)

So in this election year while Republicans attack each other with gusto, Democrats are doing their best to destroy the fundamental underpinnings of our economy spouting homilies that liken communism to capitalism while advising the uninformed to just ‘choose what works’.

My name is Rebane, and I also expand on this and related themes on Rebane’s Ruminations where the transcript of this commentary is posted with relevant links, and where such issues are debated extensively.  However my views are not necessarily shared by KVMR.  Thank you for listening.

[update]  The 1apr16 Union reports - Assemblyman Brian Dahle, R-Bieber, today voted against a massive minimum-wage increase that one major media outlet described as making California “a guinea pig in a bold economics experiment. … Following on a 25 percent increase in the state minimum wage in just the past two years, the plan — negotiated behind closed doors, announced Monday and rushed through the Legislature in just three days — will raise the minimum hourly pay from $10 to $15 over the next several years. (paywalled here)

To underline the points made here, today the Labor Department included the following little vignette in its report on the nation's overall economy - "a broad measure of unemployment that includes Americans stuck in part-time jobs or too discouraged to look for work rose slightly to 9.8% from 9.7% in February, when it reached its lowest level since 2008."

Comments

[Gregory]

If your labor does not produce goods or services worth at least $15 an hour, you don't rate a job in tomorrow's California.

It's easy enough to understand but most of the current cheering seems to come from folks that don't understand it.

[Todd Juvinall]

Democrat policies and regulations over the years are now proving out. We business minded people and other free traders said if the political class and their lackey's in the bureaucracies don't let up you will end up like California today. The best jobs will be 15 bucks and businesses will become the branch of the government tree.

How the government can tell a "free" business in a capitalist system what to pay is still a mystery to me.

[Jon]

Because there is no such thing as free business, that would a Pure Greed system. If business did what it wanted free and unfettered, the societal costs would be astronomical.

[Don Bessee]

The 'jon' - If business did what it wanted free and unfettered, the societal costs would be astronomical.
Thanks for making my point about the pot growers even though you did not mean to. ;-)

[George Rebane]

Jon 1134am - Not sure on what you base your argument that if businesses are free to pay labor what they see fit, that then "the societal costs would be astronomical."

Could you explain such an economic theory or why you believe that. Perhaps a trip to Stockholm will be in store for you.

[Russ Steele]

Meet the New Minimum Wage Employee

https://img.buzzfeed.com/buzzfeed-static/static/2015-07/20/15/enhanced/webdr03/edit-15679-1437421012-8.jpg?no-auto

[Russ Steele]

San Francisco launched it's own minimum wage of $15.00 an hour and it is instructive to look at the results, results that will be duplicated across the state. Ben Boychuk writes in the City Journal: Welcome to the Machines.

Will a $15 per-hour wage really help workers in San Francisco? As the city began phasing in its own $15 minimum wage law last year, locals were shocked to discover the law of unintended consequences. Business owners who supported the city’s ordinance have found themselves raising prices, cutting hours, or in a few notable cases, shutting down altogether. “If you can only raise prices so much,” one political consultant with the Los Angeles Area Chamber of Commerce told the L.A. Times this week, “you’re going to be forced to cut hours, cut employees, change your business model and frankly, automate.”

Governor Brown is right California will be leading the nation as big and small businesses accelerate the automation of low-end jobs. The pace of automation will accelerate as we approach 2022, and the tipping point is reached in economic model. At some point in the individual business models, it is more economic to automate than use minimum wage employees. There will be more shock and more unintended consequences as the jobs markets tighten.

[Michael R. Kesti]

I see that Steve Frisch has, in commentary on the FUE's blog, claims that increasing the minimum wage has many advantages while being all but completely free of negative consequences and that, "Supporting minimum wage increases makes one neither cruel nor ignorant, rather demonstrates compassion and economic good sense." If there is so much good to be accomplished with such little potential for harm, I'd like to ask Mr. Frisch why we should limit ourselves to stepping up to $15 per hour over the course of several years. Wouldn't an immediate raise to, say, $100 per hour be even more compassionate and make even better economic sense?

[Todd Juvinall]

MK is spot on. I think the downside will be a number of things, Loss of jobs to automation. More people going into the underground economy at cheaper wages. And I am sure there are more.

[Todd Juvinall]

Russ Steele | 01 April 2016 at 03:26 PM

It matters not if the policies work from the government, it is the "intentions" that count. The left feels soooo good about themselves using your resources to do so.

[Jon]

Don Bessee, proving once again you're not too observant...I have to ask you- when have I ever supported unregulated, unfettered pot growing in CA? You're quite confused about me in your verve to pin any progressive voice here as some advocate of pot growing without strict regulations and taxation. The only time I ever even mention pot on this forum is to support STATE REGULATED legalization.

[Jon]

Hey Todd 3:55, who's using "your resources" to hire someone at the minimum wage? Makes zero sense. Why would it be you or Russ' resources? LOL.

[Walt]

I asked the "jon" just yesterday where employers are going to get the money to pay the "new" labor costs.. Answer,,, crickets. It's obvious he has no clue of the costs of doing business. Think your so smart "jon"? A simple question. What is the full cost to employ one person @ 10 bucks an hour for an 8 hour day, say, at the gas station?

[Don Bessee]

The 'jon' obviously did not read my whole post. I noted he did not mean to make my point but that does not change the fact that what he described is a perfect fit for the pot growers. No one had any doubt that the 'jon' was a legalizer! LOL ;-)

[Don Bessee]

I just got the funniest screen shot sent to me. Over in the Dark Lord's liberal lament land Steve Frisch said he actually talks to blacks and Hispanics. Kid you not. This from the same guy who bragged about having a black man talk to his group once (the same 1 black guy?). Now if the grossly misleadingly named sierra business council would actually hire a person of color Frischy might not look so much like the elitist limousine liberal he is!
I also got one that showed the Dark lord is mad that MK called him the FUE on RR, Michael, he wants you to know his name is _____. ;)

[Bill Tozer]

I am beginning to question what side of the diamond is cracked and which side is good. Strike that, I am beginning to question the whole diamond. Euphoria erupts when Big Brother announced the unexpected good news of more than a couple hundred thousand jobs created recently. But, with expected layoffs at companies dipping to a several year low, manufacturing sheds 44,000 jobs and layoffs took an unexpected surprise upswing. Which is it? Guess we take the good with the bad and let the morons sort it out.

https://www.facebook.com/RowdyConservatives/photos/a.217983685002343.55586.217926015008110/822246487909390/?type=3&theater

[Bill Tozer]

Another take on our complex economy.

http://patriotpost.us/articles/41664

[Michael R. Kesti]

I see that Steve Frisch has responded to my question (this thread, 01Apr16 03:37 PM) but in no way answered it on the FUE's blog (02Apr16 8:48 AM). He said that my question is a straw man but it is not as I never claimed that he favored a $100 per hour minimum wage. He then went on, at characteristic length, to explain his support for the current minimum wage increase which is only tangentially related to what I had asked.

I find his non-answer to be in no way surprising.

[Todd Juvinall]

MKesti's question is absolutely relevant and Frisch just crapped out some ridiculous response (I bet he paid lower than minimum wage to his servers before his BK). The minimum wage has no basis in the real world. It is contrived and forced on free markets labor force. The amount is not analyzed it is simply a political ploy to get low wage votes and votes from "good" liberals. So if 15 bucks is a contrived number, why not make it 100 bucks. The concern to the free market by political do-gooders is the same. It is a experiment by politicians without regard to the end game.

[Michael R. Kesti]

Steve Frish has again responded on the FUE's blog (02Apr16 10:14). He explains that the minimum wage demonstrates diminishing returns and that analysis shows that at $15 per hour more jobs are created or retained but at $100 per hour more jobs would be destroyed than created. This implies a point of equilibrium.

His response leads to these questions. Is $15 per hour (allowing for some reasonable tolerance) the balance point? Whose analysis is it to which he refers and where can it be read?

Steve also suggests that I should debate him on the FUE's blog. I agree but my submissions there are not published.

[George Rebane]

MichaelK 1201pm - Mr Kesti, you and I know that no one has yet to demonstrate that distant third parties artificially raising a company's costs of production/services above the market's equilibrium does anything to increase the number of its employed. All such force majeure mandates do is reduce profit margins, attract replacement technologies, motivate moving the business to friendlier climes, or simply shutting down. Anything but this is simply another Great National Lie promoted by pernicious progressives.

Frisch knows what he has to do to regain his platform here. Other than that, the FUE is desperately hunting for visitors to his blog.

[Bill Tozer]

Wow. Good zinger Good Doctor. Our State's pencil pushers are already churning out how much the phrased in staggered minimum wage increase will COST the State. Only 17 million at the start, then straight up to 250 million/year from there. And that is only going out 2 plus-3 years (fiscal years).

Dr. Rebane, this has nothing to due with anything. At least by statistical analysis.

https://www.facebook.com/RowdyConservatives/photos/a.217983685002343.55586.217926015008110/822632907870748/?type=3&theater