Climbing A Broken Ladder

The Ladder of Success. A ubiquitous metaphor, used to describe both the structure and the process of economic self-betterment, and the subject of countless political memes of both the progressive and conservative variety.

Progressives argue that our land of opportunity suffers because some identity groups tend to have lower starting points on that ladder than others. Certain minorities, for reasons they attribute to “society,” have to climb several rungs in order to reach the point where others begin. We hear this argument with regard to unskilled jobs, with regard to education, with regard to housing, and with regard to just about any measure that can be used to break people into identity groups. Naturally, they deem this an injustice, and declare that it is their (i.e. the government’s) job to equalize matters.

One of their current initiatives in this regard is raising the minimum wage. Under basic economic theory, the various actors in an economy, each pursuing self-advancement based on personal wants and needs, will result in equilibrium wage pricing for the various jobs in the economy. When an equilibrium wage falls below the arbitrarily established minimum wage, a distortion occurs. The distortion will include both fewer available jobs and more people competing for those fewer jobs. The former will result from multiple reactions to the minimum wage: automation of some jobs suddenly becomes cost-effective, some jobs will be eliminated (e.g. grocery baggers) because they no longer provide net benefit, some employers at the margins of profitability will fold up. The latter will crowd out the least skilled workers, since more-skilled workers who wouldn’t take the low-wage job would do so, and employers will tend to choose better candidates over weaker ones if the weaker ones can’t be hired at lower wages.

In terms of the ladder metaphor, the minimum wage, intended to place workers on higher rungs, instead removes the lowest rungs for some of them.

While progressives have succeeded in their campaigns to raise the minimum wage in a number of cities and states, the Administration hasn’t managed to do so at the federal level, because it requires a legislative change and the opposition party controls Congress. It is apparently within the Administration’s bailiwick, however, to tinker with rules regarding overtime, and that’s what is being implemented currently.

Some employees must be paid time-and-a-half for hours in excess of 40 per week. Others are considered “exempt” from this mandate, under various rules that include a salary demarcation. The Administration is increasing that demarcation, and in doing so it will put millions of exempt workers into the overtime category. This is another form of manipulation intended to transfer money from employers to employees by government diktat, and another appeal to economic ignorance over market force realities. More money for the working folks sounds wonderful, but it ignores the fact that economic actors change their behavior when rules change, and such initiatives never produce the results that are promised.

Going back to our ladder metaphor, this new overtime rule serves to remove rungs somewhere in the middle. We now have a ladder that is missing both its lowest rungs and has a gap between lower and upper rungs.

What does this do to the lower economic classes? It makes it harder for those entering the job market with no skills or experience to get any, and it works against those who want to rise up from the lower ranks. It makes life more difficult for these people. It incentivizes them to become part of the dependent class.

Some will argue that this is the intent, and I believe that there are cynical manipulators who embrace this as an agenda, but I also believe in Hanlon’s Razor: never attribute to malice that which can adequately be explained by stupidity (or ignorance, or incompetence). The pols who push these rules are responding to the clamor from those who don’t get that these rules will actually hurt them, instead of educating and demonstrating to them that the path to prosperity does not go through the bureaucracy.

But, lets consider the possibility that this maneuver IS Machiavellian in some fashion. Employers can be expected to react to the new overtime rules by curtailing overtime. This may induce them to hire more workers, full- or part-time.

That may be the hidden goal of this move. The government hides behind its farcical U3 unemployment rate, downplaying the awful labor participation rate, but the opposition press is quite aware of the latter problem (Drudge routinely headlines it). If firms find it advantageous to spread hours around some more rather than let their best workers work more, thanks to government-induced distortions, they’re going to do so. So, the government’s move might actually get more people into the labor pool, improving the labor participation rate.

This comes at the expense of those who are most motivated to work and to advance themselves through their own efforts. This is fully consistent with progressive politics, of course. Those who pursue success are hampered by progressive tax rates, by the “benefits gap” that they face as their income improves from poverty levels, by affirmative action programs that dilute the high-achievement education programs, by the least-common-denominator formula of public education, by the vilification of “tiger moms” who push their children to work harder instead of letting them play video games all day, and so forth.

The flip side is, as with the minimum wage, that any distortions introduced into the labor market will have an adverse effect on employment and economic productivity. As with the minimum wage, the money for these extra wages has to come from somewhere, and that somewhere is a combination of fewer jobs, work-arounds, crowding out of less-qualified by more-qualified, and employers at the tipping point of profitability closing up shop.

This move plays well politically, since employers are few and employees are many. Small government types see through the BS, but they’re already the opposition, so the administration has little to lose. It’s yet another divisive chumming of the political waters, but that’s the MO of this president.

Those who are content at the bottom of the ladder are taken care of. Those who are at the very tip top have little to worry about, no matter the incendiary anti-wealthy rhetoric that pours out of DC and the press. Those who want to climb the ladder are, unfortunately, those who suffer the most from all this “help” the government doles out.