Unfortunately, there is a terrible myth going around about teachers. This myth is pervasive and has been around for decades. It is the belief that teachers are badly underpaid.

Jay Greene, Distinguished Professor of Education Policy at the University of Arkansas, wrote about it in his influential 2005 book, “Education Myths: What Special-Interest Groups Want You to Believe about Our Schools and Why It Isn’t So.” Greene argued that when we compare a teacher’s hourly rate to those of other professionals, the pay is quite comparable. He also noted that we must consider other employment benefits, such as health care and retirement, which are typically more generous in education than the private sector.

Despite these arguments, the myth of grossly underpaid teachers has persisted. Recently, an Education Next poll asked respondents if they thought teacher pay should increase, decrease, or stay the same. Overwhelmingly, respondents said we should “increase” (47%) or “greatly increase” (14%) teacher pay. That in and of itself isn’t telling; if it were feasible, most of us would happily pay teachers more. The telling part is what happens when survey participants are given actual teacher salaries. When people are told how much teachers are paid, support for pay raises drops.

Most people greatly underestimate how much teaches actually paid. In the survey, the average guess for the national average teacher salary was $40,587. That is $17,672 less than the actual average of $58,258. It is also less than the average here in Missouri, where the average total teacher salary in 2016 was $49,060. In Saint Louis City and County, the average climbs to $58,701 (author calculations).

 About two years ago I had to battle this teacher pay myth in my own home. My son came home from school saying teachers didn’t make very much money, at least that’s what his teacher said. I said, “I bet she makes more than me.” So, we looked it up (both of our salaries are public information). As it turns out, his teacher made several thousand more than I do.

The problem with the teacher pay myth is that it undermines a very noble and valuable profession. As Harvard education professor, Marty West suggests, “To the extent that the public has a falsely low impression of [how] much teachers earn, that only makes it harder for us to attract talented individuals into the teaching profession.”

 If we keep perpetuating the notion that teaching is a thankless job and teachers are underpaid, we shouldn’t be surprised when we have teacher shortages. Instead, let’s be honest—teaching is a great profession and the pay isn’t bad!

The post Teachers Are Great, and the Pay Isn’t Bad! appeared first on Show-Me Institute.

The U.S. Labor Department has extended mandatory overtime pay to more than four million white-collar workers, including some 100,000 workers in Missouri. A new ruling from the department more than doubles the weekly threshold for salaried workers exempt from overtime pay to $913 a week (or $47,476 a year), and it requires employers to pay time and a half to employees at or below the threshold for any week in which they work more than 40 hours.

With five hours of overtime pay, a salaried worker at the threshold level will go from making $913 in a week to $1,172.

That may sound good, but it reflects a fundamental lack of understanding of what leads to wage and job growth and upward mobility for workers. It sets a new high-water mark in government meddling in other people’s business—or businesses.

As the CEO of one restaurant chain points out, the new ruling will demote thousands of mid-level managers into “glorified crew members” whose overriding incentive is to log more time rather than get results and be rewarded with bonuses and promotions.

In calling for cumbersome timekeeping systems that will rein in those who see showing initiative and always doing more than the required minimum as a ticket to success, the new ruling restricts the freedom and flexibility of employers and a large portion of their front-line managers to come to mutually beneficial agreements on compensation and working hours.

Other unfortunate side-effects will also follow. According to a National Retail Federation study, the rule will cause employers to move about a third of salaried retail and restaurant workers to hourly status. Further, it will lead to reduced hours for many of those workers and a shift to hiring more temps.

The idea that government can force businesses to take money out of profits in order to pay more to different classes of workers is itself delusional. To force any business to pay more to a worker than his or her value to the enterprise is to ensure that the business will do its best to keep employment of such workers at an absolute minimum. Unlike governments, companies that can’t make money are unable to expand, and are subject to extinction. That is especially true for low-margin, hypercompetitive businesses such as hotels, restaurants, and retailing that have been especially critical of the ruling.

The White House is saying that millions of salaried workers will get a raise under the new overtime rule. However, according to the Federation of Independent Businesses, that is contradicted by the Labor Department’s forecasts of a decline in average pay rates of newly covered salaried workers of about 5.3% in 2017.

To paraphrase Churchill, the Obama administration’s plan to order up a raise for middle-class Americans through an administrative edict is as foolish as the man who stands in a bucket and expects to lift himself up by pulling on the handle.

In fact, the administration’s plan is worse than that. At least the man who pulls on the bucket handle does not descend to a lower level. But that is exactly what will happen through the ministrations of our know-it-all government.

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In California, where unions such as SEIU and Unite Here successfully pushed through a $15-dollar minimum wage law, the very same unions are seeing a backlash after workers discover they’re left out of the deal. It turns out these unions also pushed through exemptions to the minimum wage for unionized workers. Now businesses have a choice of paying $15 an hour for a nonunion worker or about $10 an hour for a union worker. A clear incentive to buy union labor.

Needless to say, workers feel betrayed. Alicia Yale, 42, a waitress at a hotel in Los Angeles and a mother of two children, is critical of the union’s policy.

"Why is it more of a benefit to be in a union? The union isn't really doing anything for us," she told the LA Times. "It's completely upside-down. They want to pay us less than the minimum wage… We should get the raise just like everybody else does."

From a union executive’s position, advocating lower wages for union workers may make a lot of sense. True, your members get paid less, but if the end result is more union workers, that will translate to more union dues.

Here in Missouri, union money is still going to the $15 minimum wage campaign. One of their slogans is “$15 and a union.” Union workers who are part of their campaign might want to ask their union’s executives for some clarification: “Will I be cut out of this deal, like union members in California were?”

The post When Unions Bargain for Lower Pay appeared first on Show-Me Institute.

JJ first stopped into the restaurant after smelling the food. “I could smell the smoke from Louisiana.” JJ tells me. [Louisiana is a street several blocks from Sister Cities.]

When JJ and his girlfriend went inside to check out the place, Pam needed someone to help out in the back of the house. She asked him if he’d like to make some extra money. “I was like, sure, why not?”

After starting washing the dishes, JJ quickly worked his way to the front of the house. Pam told him, “You have a good smile. You have a good personality. I need you in the front. You can’t be nice to the dishes anymore. They’re clean now.”

Now JJ seats customers, takes orders, takes care of checks, and works as a back bar man. Sister Cities put up a chalk board, so JJ taught himself chalk art from a Youtube channel. He now does much of the signage for Sister Cities.

JJ’s story is a common one. When I was a teen I got a restaurant job under similar circumstances; the manager needed someone to wash dishes. I got my foot in the door cleaning, bussing, and earning minimum wage, but soon moved up to a position where I took orders and prepared food.

Minimum wage mandates are so dangerous because they threaten people like JJ who don’t already have formal work experience. If Pam had been forced to pay a starting wage of $11, she probably wouldn’t have taken a risk on someone without previous restaurant experience. If you remove the bottom rung of the economic ladder, it’s harder for people to get the skills they need to move up.

Minimum wage laws can also keep businesses from operating altogether. “I’m afraid I’ll ultimately have to close my doors,” Pam tells me when I ask her about the impact of the minimum wage hike. If Pam has to shut down Sister Cities or move out of the city, JJ will be out a job.

The post Minimum Wage Harms the Workers It’s Meant to Help appeared first on Show-Me Institute.

I testified on the minimum wage in May; a video of the testimony is available here. Afterward, then-councilwoman Cindy Circo asked about a chart presented previously in testimony that appeared to show that worker productivity has been rising since the 1970s while wages had not. For anyone following the minimum wage issue, that claim was a familiar one. Here is a version of the chart that has been circulating most recently:

There has been criticism from the right and the left concerning this chart and what it claims to show. The Heritage Foundation weighed in with data that actually compare the productivity of hourly workers with the compensation of hourly workers. The increases over time line up nicely.

If the voters of Kansas City have an opportunity to vote on an increase to the minimum wage, they deserve an honest policy discussion about the costs and impacts of a wage hike, who will really benefit, and how it will affect the services on which they rely. 

The post More Analysis on Minimum Wage Claims appeared first on Show-Me Institute.

In a free market, as workers compete for jobs, businesses also compete for workers. If a worker won’t bring enough value to an employer to justify his/her salary, he or she will not be hired. On the other side, if a business doesn’t provide an attractive wage to a worker, that worker will find work elsewhere. Thus, both sides have to provide enough value to the other.

You might think that big business might be immune from these forces, but you’d be wrong. Even the largest companies have to offer decent wages to their employees. Take Walmart for example. It has the highest revenue of any company in the world and is one of the largest private employers in America. Even it has to compete for employees. That competition results in jobs paying higher than the (current) minimum wage.

I took the above picture at a Walmart in Saint Louis County last Wednesday. The starting wage is $9.00 an hour, which is higher than the minimum wage. Is Walmart making this offer out of the goodness of its heart? That’s doubtful. They’re probably offering a high starting wage because they recognize that if they don’t workers will head over to Target, Costco, or Walgreens instead.

That’s how the free market is supposed to work. Increasing the minimum wage is popular with the public, but it is not good policy. An individual and a business should negotiate compensation that is mutually agreeable to both parties. Mandating a higher minimum wage will end up mandating unemployment.

The post Employers Need Help-and They’ll Pay Too appeared first on Show-Me Institute.

This is interesting because Pi raised its wages voluntarily. It didn’t need the government to mandate a hike in pay, it chose to do it because it made sense from a business perspective. That is how it is supposed to be. In fact, that is what businesses do. They pay their workers a competitive rate commensurate with the value that these employees generate for the business. If they pay their employees too little, other businesses can offer these workers a higher rate and they will leave. Sommers mentioned his workers moving to another business because it offered a 25-cent increase in hourly wages (at 4:30). This is the market working.

Take what happened in North Dakota as an example. Because businesses were so desperate for workers, even fast food establishments had to significantly increase what they would pay their employees. For example, Taco John’s, a local area fast food restaurant, had to offer new employees $15 an hour salaries in order to get them to work there.

I want to help the poor do better, but there are betters options available than raising the minimum wage, like the Earned Income Tax Credit. This would ensure the benefits would go to the people who really need them, the working poor.

The post Supply, Demand, And The Minimum Wage appeared first on Show-Me Institute.

As always, we caution against putting too much weight on the outcome of one survey of one industry in one town. With that caveat in mind, what did the survey say?

In response to the higher minimum wage, two-thirds of the responding firms, the majority of which fall in the 10-49 employee size, will (or have) increase prices. More than 40 percent of the establishments plan to reduce employee hours and staffing levels. While 7 percent of the firms are now considering closing locations in San Jose, 30 percent are, after the wage increase, not likely to expand operations.

The EPI survey of food establishments in San Jose offers one observation supporting the predictions of basic economic theory; namely, that a higher minimum wage will lead to undesirable consequences, including higher product prices for consumers and, especially for those workers on the lower rungs of the job market, reduced income.

The post Do You Know The Pay In San Jose? appeared first on Show-Me Institute.

The study linked to above talks about average productivity. Average workers do not earn the minimum wage. This study does not track changes in the productivity of workers who make at or below the minimum wage. Isn’t it possible that the largest increases in productivity have been among more skilled employees who already earn above the minimum wage?

Also, if workers do not feel that they are being fairly compensated, they are free to look for employment elsewhere.  In non-monopolies, employers have to compete for workers and thus offer a competitive wage in order to attract and keep talent. Christina Romer, President Barack Obama’s former chair of economic advisers, made this point in her analysis of increasing the minimum wage: “Robust competition is a powerful force helping to ensure that workers are paid what they contribute to their employers’ bottom lines.”

Minimum wage laws simply amount to “compulsory unemployment,” as they make it illegal to hire a worker below the prescribed minimum. At an hourly minimum of $22, an employer loses money if he or she hires anybody who produces less than $22 of value an hour. One Missouri small business owner stated that he “would fire one employee, maybe two” if the minimum wage increases to $22. That is quite a lot, given that he only employs three people. Politicians understand all of this, which is why they typically propose only modest increases. After all, if the forgoing economic critique is flawed, why not raise it to $100 an hour?

Raising the minimum wage is an attractive idea to many voters (at least on the surface). Yet, it really is not an effective way to help poor families. According to David Neumark, in his 2012 study for the Show-Me Institute, “. . . minimum wages may do little or nothing to help poor and low-income families.” People from both sides of the ideological spectrum have issues with raising the minimum wage, and increasing it all the way to $22 an hour would just be silly. Let’s focus on ways to truly help the poor.

The post The $22 (An Hour) Question appeared first on Show-Me Institute.

Before I explain the factors that cause wages to increase, let’s look at two factors that do not increase wages but are commonly assumed to do so: minimum wages and unions. Elementary economics holds that a price floor will cause a surplus; in this case, the minimum wage sets a price floor for labor and results in excess unemployment. Throughout the 1990s, supporters of the minimum wage frequently trotted out a study by economists David Card and Alan Kreuger that purported to show an increase in employment in New Jersey after the passage of a higher minimum wage. Unfortunately, Card and Kreuger relied on surveys of business owners to establish employment data, and when other economists attempted to replicate their results by looking at the actual payroll data, employment was found to have fallen after the increase in the minimum wage, just as standard economic theory predicted.

More recently, David Neumark and William Wascher wrote the book Minimum Wages, published by MIT Press in 2008, analyzing more than 300 studies of the minimum wage. They found that the vast majority of the studies showed a negative effect on employment. As Neumark wrote in a 2009 Wall Street Journal editorial:

Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence — from scores of studies, using data mainly from the U.S. but also from many other countries — clearly shows that minimum wages reduce employment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.

The reduction in jobs for youths might be an acceptable price to pay if a higher minimum wage delivered other important benefits. Many people believe, for instance, that it helps low-income families. Here, too, the evidence is discouraging. There is no research supporting the claim that minimum wages reduce the proportion of families living in poverty. Research I’ve done with William Wascher of the Federal Reserve Board and Mark Schweitzer of the Cleveland Fed indicates that minimum wages increase poverty.

The minimum wage can raise the wages of some low-skilled workers, but others will lose their jobs altogether because they lack sufficient skills to make their labor worth the higher legislated price. This more than wipes out any societal gains that might result from an extra dollar or two per hour for the workers who remain employed. The minimum wage’s effect on aggregate wages is neutral at best — merely transferring wages from some low-income workers to other low-income workers who possess better skills. More often, the effect is negative.

Unions are not necessarily as detrimental as a minimum wage, but they are still a zero-sum game at best. A union’s gains must be another group’s loss. One commenter on my previous blog entry, Dempster Holland, admitted as much when he wrote that “Unions have hist[o]rically shifted money from business owners to the workers who make their business work.” That’s certainly possible, and I even agree that sometimes unions have been useful in achieving greater equity for themselves. However, those gains come at a cost, and therefore cannot explain generally rising standards of living. If George Vanderbilt’s employees took everything he owned for themselves, they might be personally wealthier than they would have been otherwise, but society would still have the same amount of wealth — redistribution of existing wealth doesn’t create new wealth. It is simply not possible that we achieved a standard of living for the average American that is higher than Vanderbilt’s in many ways simply by dividing up his wealth, or the wealth of others like him, among far greater numbers of people.

Furthermore, a union’s ability to redistribute money from business owners is limited. In most enterprises, there aren’t many owners relative to workers, so taking money from them to give to the workers would yield limited dividends. More commonly, unions benefit their members by dividing a given amount of wages among fewer people, by limiting the labor pool. A large survey of unions and employment in 17 OECD countries from 1960 to 1996 revealed that although unions increased the wages of prime age men, they led to greater unemployment among women, youth, and older men. In short, union activity does not result in wages going up across the board — it merely reshuffles existing wealth, from workers outside the union to those inside it.

If unions and minimum wages don’t make us richer as a society, what does? Higher productivity. In order for people to enjoy more goods and services, we have to produce more goods and services, and that means more capital — both physical and human. Faster computers, more efficient machines, improved delivery techniques, and more efficient methods for synthesizing drugs all enable each worker to produce more wealth than he could otherwise, and businesses need no encouragement from the government to pursue any of those strategies. Thanks to the profit and loss system, businesses have an automatic incentive to do more with less, because in the short run this will increase their profits. However, as their competitors also adopt the same innovations, those profits are competed away and instead translate into both higher wages for workers and lower prices for consumers, which also contributes to an increased standard of living.

It’s important to note that this process of maximizing efficiency in order to produce more with less is a positive-sum game, unlike the zero-sum (or negative-sum) game of redistribution through minimum wage laws or unions. That means that new wealth is created where there was none before, rather than simply moving existing wealth from one person or group to another. Only through this kind of positive-sum activity can the standard of living increase throughout society over time. There are policies that government officials can pursue that help to maximize productivity gains, but there is no magic wand that they can wave to make everyone richer by fiat. Economic growth is a dynamic process that cannot be planned or controlled from the top down.

The post Why Do Wages Increase? appeared first on Show-Me Institute.