Beyond Intentions: Disabled and the Minimum Wage

Edition #1
I am beginning a series of posts on the blog that centers around the intentions of governmental policy vs. the actual results. We will be examining federal policy and issues that everyone knows really well and go "Beyond Intentions."

Thinking Rightly
Before I talk briefly about this subject, I want to make sure that I approach the sensitivity of the subject rightly. I know many people that have been disabled and have been blessed by their impact in my life. It always gives me comfort to know that if they believe in Christ, then the Bible teaches: the Lord Jesus Christ...will transform our lowly bodies so that they will be like his glorious body. (Philippians 3:20-21). What a great promise! So, in that mindset, I want to point out a part of the Federal Minimum Wage Law that I believe exposes the law for what it is: a law with good intentions but destructive consequences.

Minimum Wage and the Disabled
The minimum wage law signed by FDR in 1938 is pretty well known to most people; however, there is a particular provision of the law that provides an exemption for people with disabilities. The Columbus Dispatch brought this issue to my attention with this article. Thousands of adults with developmental disabilities such as autism work at jobs in Ohio that pay less than the minimum wage. Some work for $2.15 assembling auto parts and some sew table linens for 79 cents. A majority do not earn half of the minimum wage. This little known provision allows businesses to pay less than the minimum wage if the disability limits the worker's productivity. Comments from the article:

"It's immoral," said Curtis L. Decker, executive director of the National Disability Rights Network.

"This has been a godsend," said Ted Williams, whose autistic son earns a low wage at his job in Columbus

The debate comes down to this: Critics say low wages show that disabled workers are being exploited, but supporters say the pay rates reflect opportunities – that even the most disabled Ohioans are being given a chance to pursue work and build full lives.

The Question
What do you think? Are the disabled being exploited? Or, is the exemption giving them an opportunity that would not be there otherwise? Think about it: If an employer did have to pay a person who is disabled the minimum wage of $7.25, would they be hired? Or, would the employer opt to hire the young high school or college student who needed the money but could be more productive? As a result, are you, through the good intentions, pricing more disabled out of the market? Now, would less disabled workers be able to be work, build their lives, build their skills, and contribute greatly to society?

If you look at this situation and think that it would adversely affect the disabled, then good, we agree (ha ha). But, just as important, taking this argument to an extreme has revealed a principle. If a mandated floor prices disabled out of the market of employment, wouldn't it also price young, unskilled workers out of the market as well without disabilities. I made this point on a previous post on the blog:

The fact is that the minimum wage is hurting the very people that it was most intended to help. Instead of letting a low-skilled or uneducated person be employed at a rate to suit the employer like $5 an hour, they government has made that practice illegal and is forcing a business to employ them at $7.25 an hour, plus mandated fringes such as social security tax, health care, and unemployment insurance . The government is effectively denying low-income folks and teens an opportunity to gain experience and some cash flow that could lead to a more stable life and potential opportunities in the future.

I believe this is a classic example of good intentions having destructive consequences. The poor and young workers have borne the brunt of the good intentions. I have included an interesting article about how the minimum wage began to help break down preconceived notions you've had. This is the issue that was the first domino to fall that turned me to liberty minded economic views. Good for me. Bad for anyone that has to listen to me, I guess.

Blake

A Brief History (Written in 1998)

Sixty years ago on June 25, 1938, President Franklin Roosevelt signed into law America’s first minimum wage: 25 cents an hour, rising to 40 cents an hour over the next seven years, which is equivalent to almost $5.00 in 1998 dollars. Today, many increases later, Senator Ted Kennedy of Massachusetts is pushing for yet another hike in the minimum wage. Now is a good time to reexamine the origins of this important law and its impact on the job market.

Once the original bill was passed, many economists and politicians predicted that more workers would be thrown out of work and that the Great Depression—already in its ninth year—would get worse. That’s exactly what happened and during the fall elections, Roosevelt lost an astonishing 80 House seats to the Republicans.

It turns out that Ted Kennedy’s Massachusetts is where the impetus for the minimum wage actually began. The working poor struggling to eke out a living were not the driving force behind the 1938 law. New England’s highly paid textile workers were.

During the 1920s and 30s, the American textile industry had begun to shift from New England to the South, where the cost of living was lower and where Southern workers produced a high quality product for lower wages. Politicians in Massachusetts, led by Senator Henry Cabot Lodge, Jr. and House leader Joseph Martin, battled in Congress for a law that would force Southern textile mills to raise wages and thereby lose their competitive edge.

Governor Charles Hurley of Massachusetts bluntly demanded that Southern wages be hiked so that "Massachusetts [would] have equal competition with other sections of the country, thus affording labor and industry of Massachusetts some degree of assurance that our present industries will not move out of the state."

Southerners were well aware of what Massachusetts was attempting and they scuttled all minimum wage laws before Congress during 1937 and well into 1938. In doing so, they handed President Roosevelt his first major legislative defeat.

"Northern industries are trying to stop the progress of the South," Congressman Sam McReynolds of Tennessee observed, "and they feel if they can pass this [minimum wage] bill it will really be a tariff against Southern goods."

Southern congressmen joined those economists who argued that Congress couldn’t make a man worth a certain amount by simply making it illegal to pay him any less. They said that people whose skills and experience were worth less than whatever Congress decreed as the minimum wage would be priced out of the labor market. The Great Depression, they said, would get worse by Congress telling workers, in effect, "If you can’t find a job that pays at least the minimum, then you’re not allowed to work."

The desperate plight of unskilled workers trying to hold on to their jobs disturbed Congressman Carl Mapes of Grand Rapids, Michigan. "The enactment of this legislation," Mapes concluded, "will further increase unemployment, not reduce it. It is bound to increase unemployment unless all human experience is reversed." Mapes cited the case of a local minimum wage law passed in early 1938 in Washington, D. C. Immediately after its passage, the Washington Post lamented, scores of maids and unskilled workers were laid off by local hotels.

Roosevelt’s political muscle eventually prevailed and the national law was passed, but Mapes’s prediction has proven to be prophetic. Over the years, steady hikes in the minimum wage have priced out of the market the most vulnerable workers, including blacks, teenagers, and women with limited skills. Also vulnerable have been workers with developing skills whose labor is not yet worth what the law says they must be paid.

The bias of minimum wage laws against disadvantaged minorities has been conspicuous ever since 1956, when the minimum wage shot up from 75 cents to $1.00 an hour. During the next two years, nonwhite teenage unemployment spiralled from 14 to 24 percent. The recent 1996 hike in the minimum wage to $5.15 an hour had a similar effect: unemployment among black male teenagers jumped from 37 to 41 percent almost immediately, at a time when the economy was doing well for almost everyone else. That’s why Milton Friedman, the Nobel Prize winning economist, once called the minimum wage "the most anti-black law on the books."

Data from President Clinton’s own labor department show that at least 20,000 jobs were eliminated by the 1996 hike. The Employment Policies Institute calculates that the real job loss was closer to 128,000.

Senator Kennedy would have us believe that hiking the minimum wage again would be good for Massachusetts, and that what’s good for Massachusetts is good for Michigan and the nation, too. That was wrong in 1938, and it’s still wrong sixty years later.



-Article Courtesy of Mackinac Center for Public Policy

Future of Education?

"Future of Education?"

I stumbled across this video while trying to distract my mind from working, and I was just enamored. Salman Kahn is a former analyst in hedge fund and began tutoring his cousins remotely over YouTube. It has turned into what many think to be the future of education (Bill Gates' words, not mine). More importantly, it also nestles nicely into the framework the world is beginning to make sense to me--economics, innovation, productivity, free markets, education, and the like.

Anyone interested in the educational model out there, take a look. The 20 mintues is well worth it. If not here is a brief summary. Enjoy.

Summary
At about the 8th minute, Khan describes the traditional classroom:

…homework-lecture-homework-lecture-homework-snapshot exam. And then whether you get a 70%, 80%, 90% or 95%, the class moves onto the next topic.

Even the 95% student, what’s that 5% that he missed?

That’s analogous to learning to ride a bicycle where I give you a lecture, give a bike to you for a couple weeks and then come back and evaluate you. You can’t quite stop, you can’t make left turns. You’re an 80% bicyclist. I put a “C” stamp on your
forehead and then I give you a unicycle.

You fast forward and you see smart students start to struggle because they have these Swiss cheese gaps that kept building.

This is a good point. The one-size fits all nature of the classroom lends itself to broad brushes and gaps that build and build on each other. In this world of specialization, customation, and your own pace, why still do it that way? We have coke machines that do that now. Who would of thought?

Khan continues:

Our model is learn math the way you learn anything. The way you learn to ride a bicycle. Stay on that bicycle.Fall off that bicycle. Do it as long as necessary until you have mastery.

Next, Khan articulates amazingly well a problem I have recognized with our education model, but have struggled to explain it:

The traditional model penalizes you for experimentation and failure, but does not expect mastery [e.g. time to move onto next subject even if you only
mastered 90% of the last one].

We encourage you to experiment. We encourage you to fail. But we do expect mastery.

Bingo. Communciate expectations, expect mastery, but allow flexibility.About 14 minutes in, Khan talks about the progress students make in his model vs. the traditional model.

When you go five days into it [learning a new subject], there are a group of kids who have raced ahead and a group of kids who are a little bit slower.

In the traditional model, you do the snapshot assessment. You say these
are the gifted kids and these are the slow kids. You say things like maybe
we should put them in different classes.

But, when you let every student work at their own pace, we see it over and over and over again, you see students who took a little bit extra time on one concept or the other, but once they get through that concept they just race ahead.

So the same kids you thought were slow six weeks ago, you now would think are gifted.

It makes you wonder if a lot of the labels that maybe many of us have benefited
from were really just due to a coincidence of time.

I believe these are penetrating points that cause us to turn the convential teaching model on its head. Technology and specialization have allowed for more choices. Kahn by introducing this model could spark some massive innoviation in the school systems.

The Money Ball

Most exciting to me is in the 11:30 mark as Kahn explains a teacher can walk in each day and visually observe the progress of each student. Look below:

Each row represents a student in the classroom and column the subject matter/module. As the teacher walks into the classroom for the day, he or she can see that "green" means they have mastered the topic (10 questions in a row correct), "blue" is working on it, and "red" means they are stuck. So, they teacher can best use the time and intervene on the red kids or get a green kid to be first in line to utor the red kid.

If it couldn't get any better, it does. Kahn states that he "wants to arm the educators with the most data that he possibly can just like you would in finance or any other sector." Look below:

What are they spending their time on? What questions are they missing? Where are they stopping in a session? A teacher has all the tools necessary to target problems and use technology to use her time most effectively.

Conclusion

So, I sometimes pretend to know way much more about education than I do. But, this is extremely interesting to me. Education should obey fairly the same laws of economics and response to incentives and circumstances. In Steve Moore's brilliant article in the WSJ on productivity gains and progress over the 20th century, he details the gains in productivity per worker in the private sector as nothing short of amazing over the past century. But, the output per government worker or teacher to be negative or far less. He explains:

Where are the productivity gains in government? Consider a core function of
state and local governments: schools. Over the period 1970-2005, school spending
per pupil, adjusted for inflation, doubled, while standardized achievement test
scores were flat. Over roughly that same time period, public-school employment
doubled per student, according to a study by researchers at the University of
Washington. That is what economists call negative productivity.

But education is an industry where we measure performance backwards: We gauge school performance not by outputs, but by inputs. If quality falls, we say we didn’t
pay teachers enough or we need smaller class sizes or newer schools. If
education had undergone the same productivity revolution that manufacturing has,
we would have half as many educators, smaller school budgets, and higher
graduation rates and test scores.

This is an interesting revelation. If education had followed the same path as technology grew in industry over the past century, we would have half as many educators, smaller budgets, and higher scores. Is education exempt from the regular laws the govern human progress, specialization, and economics? Many would argue so. I am not so sure. Here's to hoping that Kahn's work spreads like economic progress over the past century. Kids will be better off.

Blake

If Supermarkets Were Like Public Schools

Helpful analogy from our friends at Cafe Hayek:

Suppose that groceries were supplied in the same way as K-12 education. Residents of each county would pay taxes on their properties. Nearly half of those tax revenues would then be spent by government officials to build and operate supermarkets. Each family would be assigned to a particular supermarket according to its home address. And each family would get its weekly allotment of groceries—"for free"—from its neighborhood public supermarket.

No family would be permitted to get groceries from a public supermarket outside of its district. Fortunately, though, thanks to a Supreme Court decision, families would be free to shop at private supermarkets that charge directly for the groceries they offer. Private-supermarket families, however, would receive no reductions in their property taxes. Of course, the quality of public supermarkets would play a major role in families' choices about where to live. Real-estate agents and chambers of commerce in prosperous neighborhoods would brag about the high quality of public supermarkets to which families in their cities and towns are assigned.

Being largely protected from consumer choice, almost all public supermarkets would be worse than private ones. In poor counties the quality of public supermarkets would be downright abysmal. Poor people—entitled in principle to excellent supermarkets—would in fact suffer unusually poor supermarket quality.

How could it be otherwise? Public supermarkets would have captive customers and revenues supplied not by customers but by the government. Of course they wouldn't organize themselves efficiently to meet customers' demands. Responding to these failures, thoughtful souls would call for "supermarket choice" fueled by vouchers or tax credits. Those calls would be vigorously opposed by public-supermarket administrators and workers.

Opponents of supermarket choice would accuse its proponents of demonizing supermarket workers (who, after all, have no control over their customers' poor eating habits at home). Advocates of choice would also be accused of trying to deny ordinary families the food needed for survival. Such choice, it would be alleged, would drain precious resources from public supermarkets whose poor performance testifies to their overwhelming need for more public funds.

As for the handful of radicals who call for total separation of supermarket and state—well, they would be criticized by almost everyone as antisocial devils indifferent to the starvation that would haunt the land if the provision of groceries were governed exclusively by private market forces.

Conclusion

Of course, this analogy pushes at the margins, but it sometimes it takes pushing to an extreme to reveal the principle. If it seems ludicrous for our vital goods and services to be allocated in the way described above, is it not also ludicrous to administer education in this manner? Groceries, goods, and services are in fact supplied much more effectively by competitive markets in response to consumer need. So, it isn't that I am inherently cynical with government, but I see the free-market as far surperior. It has a much better track record.

"Underlying most arguments against the free-market is a lack of belief in freedom itself." -Milton Friedman


Blake