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The Negative Effects of Minimum Wage Laws
The Negative Effects of Minimum Wage Laws
Source: Cato Institute
The federal government has imposed a minimum wage since 1938, and nearly all the states impose their own minimum wages. These laws prevent employers from paying wages below a mandated level. While the aim is to help workers, decades of economic research show that minimum wages usually end up harming workers and the broader economy. Minimum wages particularly stifle job opportunities for low-skill workers, youth, and minorities, which are the groups that policymakers are often trying to help with these policies.
There is no “free lunch” when the government mandates a minimum wage. If the government requires that certain workers be paid higher wages, then businesses make adjustments to pay for the added costs, such as reducing hiring, cutting employee work hours, reducing benefits, and charging higher prices. Some policymakers may believe that companies simply absorb the costs of minimum wage increases through reduced profits, but that’s rarely the case. Instead, businesses rationally respond to such mandates by cutting employment and making other decisions to maintain their net earnings. These behavioral responses usually offset the positive labor market results that policymakers are hoping for.
This study reviews the economic models used to understand minimum wage laws and examines the empirical evidence. It describes why most of the academic evidence points to negative effects from minimum wages, and discusses why some studies may produce seemingly positive results.
Some federal and state policymakers are currently considering increases in minimum wages, but such policy changes would be particularly damaging in today’s sluggish economy. Instead, federal and state governments should focus on policies that generate faster economic growth, which would generate rising wages and more opportunities for all workers.
The American Welfare State: How We Spend Nearly $1 Trillion a Year Fighting Poverty–And Fail
On January 8, 1964, President Lyndon B. Johnson delivered a State of the Union address to Congress in which he declared an “unconditional war on poverty in America.” At the time, the poverty rate in America was around 19 percent and falling rapidly. This year, it is reported that the poverty rate is expected to be roughly 15.1 percent and climbing. Between then and now, the federal government spent roughly $12 trillion fighting poverty, and state and local governments added another $3 trillion. Yet the poverty rate never fell below 10.5 percent and is now at the highest level in nearly a decade. Clearly, we have been doing something wrong.When most Americans think of welfare, they think of the cash benefit program known as Temporary Assistance to Needy Families (TANF), formerly known as Aid to Families with Dependent Children (AFDC). But in reality TANF is only a tiny portion of a vast array of federal government social welfare programs designed to fight poverty. In fact, if one considers those programs that are means-tested (and therefore obviously targeted to low-income Americans) and programs whose legislative language specifically classifies them as anti-poverty programs, there are currently 126 separate federal government programs designed to fight poverty.
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Cato Policy Report, vol. XXXIV, no. 2 (March/April 2012)
- “Capitalism, Peace, and the Historical Movement of Ideas” by John Mueller [PDF] [HTML]
- “Reflections on Inequality” by Robert A. Levy [PDF] [HTML]
- The Social Costs of Patent Trolls [PDF] [HTML]
- Private Property, the Rule of Law, and the Perils of Political Discretion [PDF] [HTML]
- Demography, Democracy, and Global Capitalism [PDF] [HTML]
- Scholar Profile: Daniel J. Ikenson [PDF] [HTML]
- Is Immigration Good for America? [PDF] [HTML]
- The Internet Is Not .gov’s to Regulate [PDF] [HTML]
- How Guns Stop Crimes [PDF] [HTML]
Tough Targets: When Criminals Face Armed Resistance from Citizens
Tough Targets: When Criminals Face Armed Resistance from Citizens
Source: Cato Institute
The ostensible purpose of gun control legislation is to reduce firearm deaths and injuries. The restriction of access to firearms will make criminals unable to use guns to shoot people. Gun control laws will also reduce the number of accidental shootings. Those are the desired effects, at least in theory. It is important, however, for conscientious policymakers to consider not only the stated goals of gun control regulations, but the actual results that they produce.
What would be the effect of depriving ordinary, law-abiding citizens from keeping arms for self-defense? One result seems certain: the law-abiding would be at a distinct disadvantage should criminals acquire guns from underground markets. After all, it is simply not possible for police officers to get to every scene where they are urgently needed.
Outside of criminology circles, relatively few people can reasonably estimate how often people use guns to fend off criminal attacks. If policymakers are truly interested in harm reduction, they should pause to consider how many crimes — murders, rapes, assaults, robberies — are thwarted each year by ordinary persons with guns. The estimates of defensive gun use range between the tens of thousands to as high as two million each year.
This paper uses a collection of news reports of self-defense with guns over an eight-year period to survey the circumstances and outcomes of defensive gun uses in America.
Federal and state lawmakers often oppose repealing or amending laws governing the ownership or carrying of guns. That opposition is typically based on assumptions that the average citizen is incapable of successfully employing a gun in self-defense or that possession of a gun in public will tempt people to violence in “road rage” or other contentious situations. Those assumptions are false. The vast majority of gun owners are ethical and competent. That means tens of thousands of crimes are prevented each year by ordinary citizens with guns.
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Reputation under Regulation: The Fair Credit Reporting Act at 40 and Lessons for the Internet Privacy Debate
Reputation under Regulation: The Fair Credit Reporting Act at 40 and Lessons for the Internet Privacy Debate
Source: Cato Institute
More than 40 years ago, Sen. William Proxmire (D-WI) guided the Fair Credit Reporting Act (FCRA) through Congress, seeking to improve the operations of the credit reporting industry. The complexities and tensions in a reputation system like credit reporting are formidable, however, and the FCRA has not satisfied consumer group demands for accurate, responsive, fair, and confidential credit reporting. In fact, new problems have emerged, such as credit repair fraud and identity fraud.
Credit reporting today is anything but the confidential service Proxmire hoped for. Passed in tandem with a financial surveillance law called the Bank Secrecy Act, the FCRA has been turned toward government and corporate surveillance, providing little or no privacy or control for consumers.
As economic theory predicts, the credit reporting industry appears to have benefited from the ossifying effects of regulation. Though the information and technology environments have changed dramatically over the last four decades, the credit reporting and reputation marketplace has seen little change or innovation. A potential related market for identity services is also stagnant thanks in part to government policies.
When Congress chose to preempt common law remedies for wrongs done by credit bureaus, it withdrew a tool that could have guided credit reporting toward better service to consumers and a more innovative and vibrant marketplace. With uniform national regulations, we cannot know how credit reporting might have evolved for the better.
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How Much Ivory Does This Tower Need? What We Spend on, and Get from, Higher Education
How Much Ivory Does This Tower Need? What We Spend on, and Get from, Higher Education
Source: Cato Institute
It is commonly asserted, especially by people within higher education, that the American Ivory Tower is strapped for cash and tightfisted taxpayers are to blame. Taxpayer support for postsecondary education has long been in decline, this narrative goes, and has forced schools to continually raise tuition to make up for the losses.
Tallying taxpayer-backed expenditures on higher education over the last quarter-century, and separately tallying 15 years of taxpayer burdens after accounting for student loans being paid back, reveals that this narrative is inaccurate. No matter how you slice it, the burden of funding the Ivory Tower has grown ever heavier on the backs of taxpaying citizens. Whether one examines taxpayer dollars in total, per enrollee, per degree, or per tax-paying citizen, real spending has gone up.
Unfortunately, financial costs are only part of the story. While the evidence is not conclusive, it appears that the additional spending and the additional students and degrees it has helped to fund do not ultimately constitute a net societal gain. Instead, all the coerced, thirdparty support has likely produced several damaging, unintended consequences: credential inflation, sky-high noncompletion rates, and rampant tuition inflation. In other words, the money taken from taxpayers, in total and on an individual basis, to “invest” in higher education has been on the rise, and it appears to be hurting both taxpayers individually and society as a whole. We have taken money from people who would have used it more efficiently than has the system to which it was given.
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Publication Practices for Transparent Government
Publication Practices for Transparent Government
Source: Cato Institute
Government transparency is a widely agreed upon goal, but progress on achieving it has been very limited. Transparency promises from political leaders such as President Barack Obama and House Speaker John Boehner have not produced a burst of information that informs stronger public oversight of government. One reason for this is the absence of specifically prescribed data practices that will foster transparency.
Four key data practices that support government transparency are: authoritative sourcing, availability, machine-discoverability, and machine-readability. The first, authoritative sourcing, means producing data as near to its origination as possible — and promptly — so that the public uniformly comes to rely on the best sources of data. The second, availability, is another set of practices that ensure consistency and confidence in data.
The third transparent data practice, machine-discoverability, occurs when information is arranged so that a computer can discover the data and follow linkages among it. Machine discoverability is produced when data is presented consistent with a host of customs about how data is identified and referenced, the naming of documents and files, the protocols for communicating data, and the organization of data within files.
The fourth transparent data practice, machine-readability, is the heart of transparency, because it allows the many meanings of data to be discovered. Machine-readable data is logically structured so that computers can automatically generate the myriad stories that the data has to tell and put it to the hundreds of uses the public would make of it in government oversight.
Federal Higher Education Policy and the Profitable Nonprofits
Federal Higher Education Policy and the Profitable Nonprofits
Source: Cato Institute
Undergraduate education is a highly profitable business for nonprofit colleges and universities. They do not show profits on their books, but instead take their profits in the form of spending on some combination of research, graduate education, low-demand majors, low faculty teaching loads, excess compensation, and featherbedding. The industry’s high profits come at the expense of students and taxpayer.
To lower the cost of education, federal government policies should encourage competition. Regulations should not favor nonprofits over for-profits. Further, the accreditation process should be reformed so that any qualified institution can easily enter the industry. The financial-aid process should be redesigned to remove the bargaining advantage that colleges currently hold over prospective students.
The higher-education industry is heavily subsidized by the federal government. These subsidies play a significant role in the high profitability of the industry and represent a massive transfer of wealth from the taxpayer to the industry. This should change. All tax credits and deductions should be eliminated immediately, as should all direct subsidies. The federal loan program should be restructured to eliminate the government subsidy and ensure that any deserving student can graduate from college without excessive debt, and eligibility for Pell grants should be tightened significantly. The net result of these changes would be greater efficiency and annual savings of $50 to $60 billion. To the extent that the federal government continues to play any role in higher education, its goal should be to ensure that all deserving students have access to higher education, not to maintain high industry profits.
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Intercity Buses: The Forgotten Mode
Intercity Buses: The Forgotten Mode
Source: Cato Institute
The debate over President Obama’s fantastically expensive high-speed rail program has obscured the resurgence of a directly competing mode of transportation: intercity buses. Entrepreneurial immigrants from China and recently privatized British transportation companies have developed a new model for intercity bus operations that provides travelers with faster service at dramatically reduced fares.
New-model bus companies save money by selling tickets over the Internet and loading and unloading passengers at curbsides rather than in expensive bus stations. They speed service by running most buses non-stop between major cities rather than making numerous intermediate stops. Some companies distinguish themselves from their competition by providing leather seats, free wireless Internet, more legroom, and — in a few cases — onboard meal service and movies.
In 2006, scheduled intercity bus service reached its lowest level in decades, yet intercity buses still carried almost three times as many passenger miles as Amtrak. Since then, intercity buses have become the nation’s fastest-growing transportation mode, with ridership growing almost twice as fast as Amtrak.
Intercity buses carry at least 50 percent more passenger miles than Amtrak in Amtrak’s showcase Northeast Corridor. They do so with almost no subsidies and at fares that are about a third of Amtrak’s regular train fares and little more than 10 percent of Amtrak’s high-speed Acela fares. Intercity buses are safe and environmentally friendly, suffering almost 80 percent fewer fatalities per billion passenger miles than Amtrak and using 60 percent less energy per passenger mile than Amtrak.
Policymakers can encourage expansion of intercity bus services by ending subsidies to Amtrak and minimizing regulatory barriers to new bus start-ups. Cities concerned about congestion and parking problems caused by curbside bus operations can sell curb rights — the right to load and unload passengers at various locations — at prices equal to the market rate for parking. Federal and state agencies can enforce existing safety rules but should hesitate to impose new rules that could increase costs and reduce competition without clear safety gains.
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