It sure seems like they should. Anyone who has taken Economics 101 in college, or used a little common sense would see right through some of the hairbrained things our politicians do.
Two stories got my attention this week. Both took place in California (there’s a shock), but truly they could have taken place in almost any state.
Did no one see this coming? In April of 2023 Los Angeles initiated a policy to add a 4% tax on homes selling between $5 to $10 million and 5.5% on prices over $10 million. Those monies were intended to fund programs for the homeless.
Now, think really hard: if you had a home in that price bracket and weren’t forced to sell, would you put your house on the market? Or, if you were going to buy in the Los Angeles area, would you buy in LA?
Of course not. You’re rational. You don’t think like a politician.
The result of the Mansion Tax? One year later the tax has seen luxury house sales drop by 55 percent, while raising only 22 percent of its stated monetary goal. Some 366 single-family homes were sold in the 12 months before April 1, 2023, versus 166 sold in the year since, according to the Los Angeles Times.
The tax has also had the effect of decreasing sales prices to reflect the tax.
On first blush, one might think, ok, $20 per hour is a decent wage. But there are many problems with this extreme amount.
The $20 amount taking effect on April 1 is a 25% increase from the previous $16 per hour wage. This is a huge increase in employers’ wage costs.
To keep employment cost increases within a manageable range, businesses will end up cutting hours and laying off staff. For example, Pizza Hut restaurants in California recently laid off 1,100 delivery drivers in advance of the new minimum wage.
The new minimum may be needed in the wealthy coastal areas of the state, but in the rural parts of central California, the minimum is out of line with living costs.
The wage only applies to businesses with 60 or more outlets in the nation. But most fast-food restaurants are franchises operated by small businesses. Regardless, a single McDonald’s owned by one franchisee must abide by the law because McDonald’s has more than 60 restaurants nationwide.
This law has a major impact on these businesses:
The higher wage costs will cause restaurants to cut staff and may result in automation replacing workers:
According to the Orange County Register, “California’s unemployment rate for February was 5.3%, the highest of any state... …the higher wage might kill 3% of jobs in the limited-service restaurants… …sector, which includes fast-food restaurants. That would add about 0.12 percentage points to the state’s unemployment rate, raising the total to 5.42%.”
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While we’re talking about the minimum wage, here are a couple of other points that politicians ignore:
The Minimum Wage Hurts the Most Disadvantaged
Imagine a person who is having trouble getting hired at a job paying the current federal minimum of $7.25 per hour. They may not have ever had a job. Their communication skills may not be adequate or they may not be fluent in the language. They may not have finished basic schooling. They may not have learned to follow instructions, show up on time, or diligently complete tasks they don’t like.
On the opposite end of the socio-economic spectrum, there are the more privileged who may have been working odd jobs such as life guarding, babysitting, and dog walking for years before they ever apply for a job. These individuals have probably had more and better schooling and are prepared to hold a job.
Imagine both people are competing for the same minimum wage job. If you were a prospective employer, who would you hire?
The minimum wage discourages those from poorer areas. Ideally, with no minimum wage, the underprivileged and inexperienced worker could be hired for a job where they would have the opportunity to develop skills that would yield a higher pay later on. But that may never happen if they can’t compete.
So, for a disadvantaged worker, which is better: a job at $5 per hour or no job at $7.25 (or more) per hour?
The Minimum Wage Should Be a Living Wage
The minimum wage was never intended to be a “living wage.” In fact, about a quarter of minimum wage workers are ages 16 to 19. Another quarter of those on minimum wage are under age 25. This means that a full 50% of those working for minimum wage are younger than 25.
Although the minimum wage is often intended to be a means of fighting poverty, demographics suggest that raising the minimum wage helps middle class teenagers more than lower class adults.
According to the Bureau of Labor Statistics, in 2019, “workers with wages at or below the federal minimum made up just 1.9 percent of all hourly paid workers.”
The fact is, few workers support a family on the federal minimum wage.