Rent control rhetoric vs. reality

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Last November, Ontario’s government scrapped rent controls for new rental properties. Activists called it class warfare against low-income renters and predicted huge rises in rents.

“The class war fare (sic) launched by Doug Ford’s mean-spirited government continues. Their regressive policies including removal of rent control is going to make Toronto and Ontario less affordable and livable. That’s unacceptable. We must fight this,” tweeted a self-described “human rights activist” in Toronto.

A Toronto city councilor tweeted: “Doug Ford’s decision to remove rent control from new buildings will make Toronto even less affordable. It removes tenants’ rights & drives young people out of our city.”

Eight months later, Bloomberg reported that a spike in new apartment construction and permits had created a “record apartment surge” in Toronto. The rapid addition of new units pushed the vacancy rate up to its highest level in four years and slowed the high rate of rent increases.

“The vacancy rate rose to 1.5% in the second quarter, the highest since 2015, when research firm Urbanation began tracking the data. Rent increases eased to 7.6% from 10.3% last year, bringing the cost of an average-sized unit of 794 square feet to C$2,475 ($1,894).”

This outcome should have been as surprising as hearing a Canadian say “eh.”

Reams of research show that removing rent control laws raises rental property values, encouraging construction and leading to an increase in the supply of rental housing. That increase in supply, if not artificially restricted, puts downward pressure on rents.

A Stanford University study published in March found that rent control in San Francisco reduced the supply of rental housing by 15 percent. “Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.”

“In addition, the conversion of existing rental properties to higher-end, owner-occupied condominium housing ultimately led to a housing stock increasingly directed towards higher income individuals. In this way, rent control contributed to the gentri􏰃cation of San Francisco, contrary to the stated policy goal. Rent control appears to have increased income inequality in the city by both limiting displacement of minorities and attracting higher income residents.”

New Hampshire has its own version of rent control: Local land use regulations.

Needlessly burdensome restrictions on the size, location and type of apartments reduces the number of available units. These government-imposed constraints on the supply of rental units raise rents.

That, in turn, makes it harder for high-school and college graduates to afford to stay in New Hampshire after they leave the nest. And a shortage of rental units makes it more challenging for employers to recruit new talent, which puts an artificial restraint on economic growth.

It’s been widely reported this summer that many New Hampshire employers face a severe shortage of workers. A contributing factor is that many local governments have priced younger people out of the housing market.

More apartments would mean lower rents, which would make the state (Rockingham and Hillsborough Counties in particular) more accessible and attractive to the people employers are trying to hire. The same goes for single-family homes.

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Of 55 Sununu vetoes, 56% were for bills that would harm the economy or free speech

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Much has been made of Gov. Chris Sununu’s record number of vetoes in 2019.  Less has been made of the content of those bills.  

Media coverage of the governor’s vetoes has tended to skew toward the most contentious issues, such as voter identification and residency requirements or firearm regulations.  But more than half of the vetoes involved bills that can be expected to have a negative effect the state economy.  

A small and almost entirely overlooked subset of vetoes involved bills that would restrict citizens’ constitutionally protected free speech rights. 

As economic growth and free speech are issues for which the Josiah Bartlett Center for Public Policy advocates, we highlight in this brief the vetoed bills that would have a negative impact on both.     

Of the 55 bills that Gov. Sununu has vetoed, 28 (or 51 percent) were bills that would make New Hampshire less economically competitive through the imposition of new taxes, fees or regulations.  Three others would suppress constitutionally protected free speech rights.

Not every regulatory bill is on this list, however. For example, although it is a regulation on employers, it is unclear what economic effect Senate Bill 100, banning employers from inquiring about criminal histories on a job application, would have. Reducing recidivism and increasing the economic independence of people with criminal records would be positive outcomes. But these laudable goals have not been shown to follow from this type of legislation. Some research even suggests that such ban-the-box laws increase negative outcomes for law-abiding minority applicants. In his veto message, Gov. Sununu stated that the bill’s intended outcome is best pursued voluntarily. That is consistent with our general approach to economic regulation. Given the uncertainty clouding the outcomes of such legislation, we exclude SB 100 from this list.     

For readers following along at home, the 31 bills covered in this brief are outlined below. 

Vetoed bills that impose new taxes, fees, or economically costly regulations

House Bills 1 & 2, the state budget.  The Legislature’s budget spent nearly $500 million more than Gov. Sununu’s proposed budget, raised business taxes, imposed costly business regulations, and created a structural deficit that would require large spending cuts or tax increases in the future. 

House Bill 183, establishing microgrids and requiring electric utilities to buy base-load power from biomass facilities. This bill forces utilities to subsidize biomass plants.  The Public Utilities Commission estimated that the bill would impose above-market energy costs of $18 million on utility companies.  Utilities would pass those costs on to consumers. 

House Bill 211, banning employers from asking about salary history.  This ban began in Massachusetts in 2016 and is spreading nationwide.  Its intent was to weaken wage discrimination on the assumption that employers would pay people more if they were ignorant of their past history.  This may be a good practice for employers to adopt, but supporters and opponents both assume that the bill would force compensation cost increases for businesses. 

House Bill 292, expanding the insurance premium tax to include broker fees.  The Department of Insurance stated that the bill would increase tax revenue, but it could not say by how much.  This functions as a tax increase on insurers with no corresponding increase in services provided. 

House Bill 293, banning employers from checking applicants’ credit history.  This bill would ban most employers from using a person’s credit history in employment decisions.  However, it exempts banks, financial holding companies, government agencies, and numerous positions.  The exemptions are an acknowledgement that credit checks are valid for many positions and that disallowing them imposes costly risks on employers. 

House Bill 326, redefining “prime wetland” to include portions less than 50 feet wide.  Contractors and the state Department of Transportation expressed concerns over the bill’s vague language and its impact on development.  The House exempted state highways, but not other development.  The New Hampshire Association of Natural Resource Scientists opposed the bill, calling it too vague.  It is an unworkable, needless impediment to development.  

House Bill 365, expanding the size of solar and hydropower facilities to which electric utilities are forced to pay above-market rates for power.  This bill would make solar and hydro generators of up to 5 megawatts in size eligible for net metering, which was created for small, home-sized solar arrays.  It would compel utilities to pay about twice the current rate to those generators.  The costs, estimated at about $10 million a year, would be borne by ratepayers. 

House Bill 409, allowing municipalities to double the current $5 transportation improvement fee they charge for registered vehicles.  This is a 100 percent fee increase. 

House Bill 582, repealing the consumer rebate for the Regional Greenhouse Gas Initiative.   This bill would halt consumer rebates from the RGGI program, costing electricity ratepayers more than $5 million a year. 

House Bill 664, removing insurers from much of the auto repair coverage process.  This bill would force insurers to pay for any repair “to the extent the claimant’s vehicle is repaired in conformance with applicable manufacturer’s procedures.” That sounds harmless, but in effect it would prevent insurers from negotiating lower prices for many auto repairs, thus raising costs for consumers.  

Senate Bill 1, creating a state-run, tax-funded paid family and medical leave program.  This bill would impose a $168 million tax on businesses to fund a government entitlement program that would cost taxpayers more than $6 million a year to administer.  There is no evidence that employees want this benefit more than any other, and the governor proposed an alternative that would require no new state taxes.

Senate Bill 2, tripling state job training funds deducted from unemployment compensation tax revenues.  The bill would raise this funding from $2 million to $6 million a year and allow $600,000 of that to be spent on administration.  The state already spends millions on various job training initiatives.  By taking this money from the unemployment trust fund, it could trigger additional unemployment insurance tax payments in the future.  Legislative staff pegged the additional payments at $13 million in 2021 if the trust fund falls below its required reserves.

Senate Bill 10, raising the state minimum wage to $12 an hour.  This bill would force employers to pay higher wages to employees without corresponding increases in productivity.  It would function as a tax on hiring the lowest-skilled Granite Staters, reducing their job opportunities. 

Senate Bill 20, amending the youth employment laws and employment records and notification requirements for employers.  This bill would make employing minor teens more difficult, placing the first rung on the economic ladder out of reach for more people.  It would forbid employees from volunteering to work on their designated days off.  It would allow the state to force employers to keep employment record indefinitely, instead of for three years.

Senate Bill 72, repealing a requirement that the Public Utilities Commission grant utilities Renewable Energy Credits for the purchase of small-scale solar power.  The purpose of this bill is to force utilities to buy Renewable Energy Credits.  The PUC testified in committee that it would prefer to modify the formula it uses for granting credits rather than repealing the credit.  “Repealing the credit will cause ratepayers to pay more for RPS compliance” than the PUC’s proposal would. This bill would increase New Hampshire’s already high electricity prices. 

Senate Bill 74, raising the $25 fee on deeds and mortgages for funding the Land and Community Heritage Investment Program.  It would add $10 to the cost of recording a deed or mortgage. 

Senate Bill 99, changing the definition of gainful employment for workers compensation purposes.  This bill would force employers to make disability payments to people who can work, but who wind up taking a job that pays less than they earned in their last job. 

Senate Bill 140, allowing local school districts to deny students academic credit earned through State Board of Education-approved outside courses.  The Legislature last year passed a bill allowing students to earn high school graduation credits for approved courses outside of the public school system.  Businesses supported the program as a means of improving public education and job readiness.  This bill would cripple that alternative education initiative by authorizing school districts to deny credits already earned through the alternative courses. 

Senate Bill 146, eliminating the one-week waiting period before someone can receive unemployment benefits.  Forty-four states use this waiting period.  The Department of Employment Security estimated that this bill would trigger an additional $12 million in unemployment compensation tax payments in the first quarter of 2020 alone.  The department warned that in an economic downturn with high unemployment, this change could lead to a significant reduction of the unemployment trust fund. 

Senate Bill 148, regulating notifications public employees must be given regarding union membership.  This bill was intended to notify public employees of their constitutional right not to join a union and to inform them how much a union charges in dues.  The “constitutional right” language was removed and the bill became an attempt to codify in law rather than through contracts various union accommodations.  It would write into law that unions must have access to information employees might not wish to share, such as employees’ complete personal contact information, including cell phone numbers and personal email addresses.

Senate Bill 151, establishing administrative procedures for employers who fail to make payroll or obtain workers’ compensation coverage.  Current procedures give business owners notice that they might be in violation of the law, and they allow for a swift hearing.  This bill allows the state to force immediate work stoppages before a hearing, but suspends the stoppage pending the outcome of a hearing.  Violations of a work stoppage order would be a criminal offense.  It replaces a procedure that gives businesses the benefit of the doubt with an aggressively adversarial procedure that presumes guilt and imposes potentially fatal penalties. 

Senate Bill 167, creating a clean energy resource procurement commission and directly assessing only gas and electric distribution utilities to cover its expenses.  This bill creates a commission stacked heavily with renewable energy producers and advocates, tasks it with pursuing long-term contracts for renewable energy generation, and passes the costs on to an industry the commission aspires to destroy.  It also would push up energy rates. 

Senate Bill 168, increasing the amount of solar energy utilities are required to purchase by 900 percent.  By raising from 0.6 percent to 5.4 percent the percentage of a utility’s energy mix that has to come from solar power generators built after 2006, the bill intentionally creates a direct transfer of wealth from electricity ratepayers to solar energy companies.  The subsidy could tally more than $120 million by 2025, and $30 million a year after that, according to an analysis by the New England Ratepayers Association. 

Senate Bill 205, removing the requirement that systems benefits charge increases be approved by legislators.  Electricity consumers pay what the state calls a systems benefits charge each month to fund energy efficiency programs and assistance for low-income residents.  This bill allows the energy efficiency portion to be increased without legislative approval, effectively creating a tax that can be increased without being put to a vote of the people’s representatives.

Senate Bill 271, requiring prevailing wages on all state-funded public works projects.  This bill artificially inflates labor costs on public-sector, taxpayer-funded construction projects.

Senate Bill 275, requiring all state vehicles to be zero-emission vehicles by 2041.  The bill’s fiscal note estimates a $28 million price tag to rush the state to reach this artificial goal. 

Senate Bill 307, specifying the “color corrected temperature” of outdoor lightbulbs used by state agencies.  The bill states that “such luminaires have a color correlated temperature of 3,000 degrees Kelvin or less when initially installed or replaced….”  Though there is not likely to be an immediate cost, as the state already uses that standard, the bill needlessly writes this standard into law, making it hard to change in the future as technologies evolve. 

Vetoed bills that limit citizens’ free speech rights

Senate Bill 18, requiring that public employees give 30 days notice if they wish to stop the automatic deduction of union dues from their paychecks.  This bill is intended to weaken public employee free speech rights guaranteed under the First Amendment and upheld by the U.S. Supreme Court’s 2018 Janus ruling.  It would compel employees to continue paying union dues against their will for 30 days.  

Senate Bill 106, changing the definition of a political advocacy organization.  This bill is a deliberate attempt to suppress criticism of elected officials before an election.  It requires any organization that spends at least $2,500 on “communications that refer to a clearly identified candidate or candidates or the success or defeat of a measure or measures” to file as a political advocacy organization and disclose its donors.

Senate Bill 156, changing reporting requirements for political contributions from limited liability companies.  This bill would recategorize contributions from LLCs as contributions from individual LLC members.  The effect would be to discourage constitutionally protected rights to associate and engage in political speech.  It would carve out political activity as the one area of law where LLCs are not treated as a legal entity separate and distinct from its members. 

To download our full brief on these vetoed bills, use the pdf version here: Bartlett Brief — 56% Vetoed Bills

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Five ways a $15 minimum wage would be bad for New Hampshire

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The U.S. House on July 18 passed the “Raise the Wage Act,” mandating a $15 minimum wage (a 107% increase) by 2025. The bill also eliminates the exemption for tipped employees, forcing a 562% increase in wait staff labor costs by 2026. New Hampshire’s U.S. Reps. Chris Pappas and Annie Kuster voted for the bill. (Pappas’ own restaurant hires experienced employees for less than $15 an hour.) Below are five ways a $15 minimum wage would hurt New Hampshire. 

  1. It would reduce job opportunities for Granite Staters. Extensive research has shown that minimum wage increases disproportionately hurt the lowest-skilled Americans by eliminating low-skill jobs. Roughly 163,000 Granite Staters work at jobs that pay less than $15 an hour, according to state Employment Security data. About 11,000 of them earn the minimum wage. Those in the lowest-paid jobs would see the biggest job losses. For example, federal Bureau of Labor Statistics data show that the average wage in New Hampshire for ushers, lobby attendants and ticket takers is $9.43 an hour. These are entry-level jobs for high school students. Forcing employers to raise the hourly rate by 60 percent would prompt theater owners to accelerate the transition to automated ticket kiosks. 
  1. It would pressure local governments to raise property taxes. New Hampshire municipalities and school districts pay less than $15 an hour for many positions. A few job openings posted this July include: Department of Public Works laborer, Manchester, $13.25 an hour; lifeguard, City of Claremont, $7.25-$15 an hour; library page, Nashua, $10.08 an hour; lunch/recess assistant, North Salem Elementary School, $12.21 an hour. In fiscal year 2018, Manchester Public Schools spent $10.7 million in salary for paraprofessionals, tutors, certified instructors, food service workers and support staff. Mandating a $15 minimum wage for all government employees will force a large increase in government labor costs, which will lead to budget cuts elsewhere, job losses, tax increases or all three. 
  1. It would reduce entrepreneurship. New Hampshire’s business-friendly economic climate is less friendly for startups, according to several national measurements. The latest Kaufmann State Report on Early Stage Entrepreneurship ranks New Hampshire below its neighbors and the national average on three of four metrics: rate of new entrepreneurs, early stage job creation, and startup early survival rate. WalletHub just ranked New Hampshire 48th in Best & Worst States to Start A New Business. Would-be entrepreneurs calculate anticipated profits before deciding to risk their capital on a new venture. Artificially inflating labor costs for the lowest-skilled, least-productive employees by more than 50% would make that math even more challenging, resulting in fewer new businesses — and fewer new jobs.
  1. It would make native businesses less competitive. A quaint, New England inn cannot transfer profits from the industrial manufacturing division to make up for government-mandated losses in the bed and breakfast division. Where small, local businesses compete against corporate rivals (the hospitality industry, manufacturing, retail), a $15 minimum wage would advantage national firms, which can better absorb these costs.    
  1. It would make New Hampshire less competitive. Employers can locate anywhere in the world. They tend to prefer places that have a large talent pool, low costs, high quality of life, and a favorable business climate. New Hampshire is highly competitive on quality of life and general business climate. Though energy costs are extremely high here, lower labor costs help us compete against Massachusetts, where the average wage is $5 per hour higher, according to BLS data. Artificially inflating labor costs reduces the incentive for employers to locate in more remote areas.  
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A $15 minimum wage would put the population of N.H. out of work

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Raising the federal minimum wage to $15 an hour would put approximately 1.3 million Americans out of work, the Congressional Budget Office concluded in a study released Monday. For perspective, that’s the equivalent of the entire population of New Hampshire. 

The CBO found that a $15 minimum wage likely would

  • “Boost workers’ earnings through higher wages, though some of those higher earnings would be offset by higher rates of joblessness;
  • “Reduce business income and raise prices as higher labor costs were absorbed by business owners and then passed on to consumers; and
  • “Reduce the nation’s output slightly through the reduction in employment and a corresponding decline in the nation’s stock of capital (such as buildings, machines, and technologies).
  • “On the basis of those effects and CBO’s estimate of the median effect on employment, the $15 option would reduce total real (inflation-adjusted) family income in 2025 by $9 billion, or 0.1 percent.”

Those are the mid-range effects in the CBO’s analysis. The $15 minimum wage could cost as many as 3.7 million jobs, the study concluded. That’s more than the population of Connecticut. 

New Hampshire legislators recently passed a bill to mandate a $12 minimum wage by 2022. The CBO study found similar but smaller effects for a $12 minimum wage. Job losses in the median range would reach around 300,000, or the equivalent of the entire population of Rockingham County. 

“Like the $15 option, this option would boost wages, but it would also increase joblessness, reduce business income, raise prices, and lower total output in the economy,” the CBO wrote of the $12 minimum wage. “On balance, real family income in 2025 would fall by $1 billion, or less than 0.05 percent.”

Advocates of a higher minimum wage have challenged Gov. Chris Sununu to live on the $7.25 minimum wage for a week. But people earning the minimum wage are not typically heads of household. They tend to be young, single, and working part-time. It is an entry-level wage meant to give unskilled employees opportunities to enter the labor market and gain skills.

Artificially inflating entry-level wages prices the lowest-skilled workers out of the labor market, as the CBO analysis shows. A high minimum wage is, in effect, a subsidy for skilled workers that comes at the expense of unskilled workers.

Given a the effects a high minimum wage would have on employment, the better challenge is for activists to live for a week on zero dollars. That’s how much someone earns when his or her job opportunities are eliminated by an arbitrary, government-decreed wage floor. 

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With credit report restrictions, did legislators just hurt minority job applicants?

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To protect minorities from hiring discrimination, state lawmakers just passed legislation shown in academic studies to reduce the odds that minority applicants are hired. Hello, law of unintended consequences.

It’s recently become a progressive article of faith that employer credit history checks must be discriminatory in their effect if not their intent because minorities tend to have lower credit scores. Bans on employer credit checks have swept across the country in the last dozen years, and Sen. Elizabeth Warren has tried repeatedly to pass a national ban.

As with so many feel-good political measures, the issue is fraught with myth and hyperbole.

In Senate debates on Thursday, advocates for House Bill 293 suggested that people wouldn’t know if employers checked their credit or decided not to hire them because of a credit issue.

In fact, the federal Fair Credit Reporting Act requires employers to get written permission before checking an applicant’s credit history, and it requires employers to notify applicants exactly what credit issue caused them not to be hired. This allows applicants to dispute the report.

It also prohibits the use of credit history information to discriminate based on “race, national origin, color, sex, religion, disability, genetic information (including family medical history), or age (40 or older).” That is, using particular credit issues to weed out black or female applicants while hiring white applicants with the same credit history is already illegal. So is checking the credit of only minority applicants.

Legislators expressed concern that employers could access an applicant’s credit score or that a person could be denied a job because of a poor score.

“This bill is about economic opportunity for people who are getting dinged on their credit,” Senate Majority Leader Dan Feltes said on Thursday.

But employers don’t have access to credit scores when checking credit reports. Being “dinged” on your score won’t affect your employment prospects.

Employers aren’t looking for credit-worthiness anyway. Employers look for big problems that could indicate an employee might not be trustworthy or might be a security risk.

HB 293 acknowledges that there is real value in employers having access to credit histories. It exempts any “bank holding company, financial holding company, bank, savings bank, savings and loan association, credit union, or trust company,” any “state or local government agency which requires use of the employee’s or applicant’s credit history or credit report” and anyone required by federal law to check an applicant’s credit.

It also exempts numerous executive and managerial jobs and any position that has an expense account or company card.

However, it doesn’t exempt front-line positions that handle cash, such as store clerks. The bill was drafted to eliminate credit history checks for lower-level hires, on the idea that this would reduce discrimination. But academic research shows that such restrictions actually harm minority job applicants.

A 2018 MIT study found that state restrictions on credit history checks “in fact have sizable, negative effects on labor market outcomes for blacks.”

The authors note that a minority applicant’s credit history provides a check against an employer who has biased assumptions about the trustworthiness of minority applicants. Seeing a black applicant with no major credit issues works against preexisting biases. Without access to credit reports, more employers appear to assume that black applicants have worse credit histories than they really do.

A 2017 Harvard/Federal Rserve Bank of Boston study found that “the changes induced by these bans generate relatively worse outcomes for those with mid-to-low risk scores, for those under 22 years of age, and for blacks—groups commonly thought to benefit from such legislation.”

“We find that the introduction of a ban is associated with a 1 percentage point increase in the likelihood of being unemployed for prime-age blacks compared with the contemporaneous change for whites. Thus, it appears that the prohibition of credit screening and the increased emphasis on other signals may actually, relatively, harm minority applicants.”

Legislators may have unwittingly made it harder for minorities in New Hampshire to find employment. They may have done so because they failed to check their own biases about how employers use credit checks.

Cue the Canadian clones singing wildly in a 1970s’ Lincoln Continental on a snow-covered road trip.

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Five reasons Gov. Sununu was right to veto paid family leave wage tax

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On Thursday, Gov. Chris Sununu vetoed a Democratic bill to impose a $168 million wage tax on New Hampshire employees for the purpose of limiting their benefit choices and forcing them to accept a state-run paid family leave program. Here are five reasons why a veto was the only responsible action for the governor to take. 

  • The tax to fund a mandatory, state-run paid family and medical leave program was entirely unnecessary. The governor had proposed an alternative program that would allow businesses to opt in. With a voluntary option on the table, there was zero need to create a state-run program funded by a $168 million annual tax on workers’ wages, and which cost $6 million a year to run.  
  • The mandatory program in Senate Bill 1 limited employee and employer choices. By forcing employers to offer this one particular benefit, SB 1 would have prevented many employers from affording other benefits that their employees might prefer. As we have reported before, national polls show that employees tend to prefer many other benefits, such as more flexible schedules and more robust health care benefits, to paid family leave. The bill also forbade businesses from offering a smaller paid leave benefit in combination with other benefits employees might prefer.
  • Because SB 1 potentially overpromised benefits, it allowed a commissioner to raise taxes. Were the bill to become law, employees would expect 12 weeks of paid leave at 60 percent of their pay. But the bill acknowledges that these benefits might exceed program revenues. It authorizes the Employment Security commissioner to reduce benefits or raise the wage tax. It also authorizes the commissioner to reduce the tax or increase benefits if the program generates a huge surplus. A huge surplus would indicate that the tax rate is set too high. The bill in that case should authorize only a tax cut, not a benefit increase.   
  • SB 1 imposed a political preference on businesses and employees that in the long run could make New Hampshire less economically competitive. Paid leave is politically trendy, but trends change. Future employees may demand a different benefit. Passing a law compelling employers to offer this benefit freezes resources that could be used to respond to changing market conditions. This makes employers less nimble and less competitive. 
  • Even if Granite Staters overwhelmingly preferred paid family leave over other compensation options, SB 1’s approach would be economically foolish. But there remains no evidence that Granite Staters demand this benefit over others. Supporters of the bill have cited several University of New Hampshire surveys to claim that Granite Staters support paid family leave. But none of the surveys, including one released on the day of the House vote last week, gives respondents the option of choosing other benefits or higher pay. Nor do they inform respondents that a paid family leave program could mean lower pay raises or reduced benefit options in the future. It’s disappointing that these surveys continue to leave out important information that is regularly included in national surveys of employees’ benefit preferences. 
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Joe Biden promotes occupational licensing reform in campaign kick-off speech

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Joe Biden kicked off his 2020 presidential campaign in Pittsburgh last week with a speech that contained a serious but overlooked policy proposal to expand economic opportunities for all Americans — one that can draw broad bipartisan support.  

“The major moral obligation of our time is to restore, rebuild and respect the backbone of America: the middle class,” Biden said. “As we rebuild it, we need this rebuilding to be all-inclusive, opening the doors of opportunity for all Americans….”

Few Americans would disagree with that idea. One serious obstacle to a broader expansion of economic opportunity, Biden pointed out, comes from anti-competitive occupational licensing laws. 

After advocating the abolition of non-compete clauses for lower-wage workers, saying they exist only “to suppress wages,” Biden said we should “do the same thing with occupational licenses.”

“Why should someone who braids hair have to get 600 hours of training? It makes no sense. It’s designed to keep the competition down. Look, folks, you can’t just transfer your licenses across one state to another. They’re making it harder and harder in a whole range of professions, all to keep competition down. Why should we get rid of these unnecessary hoops out there? Because we have to restore America’s ability and individual Americans to be able to fight for their own dignity.”

Biden is right on this — as was President Obama before him. 

Anti-competitive occupational licensing regulations reduce economic opportunities and diminish human dignity by forbidding ambitious Americans from working in many fields unless they first obtain permission from the government.

The result is a particularly regressive form of wealth redistribution — from lower-income to higher-income workers. 

“Not only does licensing redistribute earnings from unlicensed to licensed workers; it also shifts the burden of unemployment away from licensed workers,” as the Brookings Institution put it a few years ago.

Occupational licensing also limits mobility, as Biden noted and as a study for the Federal Reserve Bank of Minneapolis found. If you get a license in one state, but that license isn’t recognized by other states, you’re stuck. Licensing reduces competition in part by restricting worker mobility. 

This is not a fringe issue. A dramatic increase in occupational licensure has occurred since the middle of the last century. In the 1950s, only about 5 percent of occupations in the United States required a license, but by 2006 almost 30 percent did, a 2008 National Bureau of Economic Research study found. 

Because these requirements have been shown to reduce competition and limit economic opportunities for millions of Americans, they have drawn condemnation from across the ideological spectrum.

The libertarian Institute for Justice has produced compelling reports showing the negative effects of occupational licensure, the latest being available here. The Obama administration undertook its own review of occupational licensing laws and in 2015 released a report that called for widespread reform. 

“There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines,” the Obama administration review concluded.

The Obama administration considered occupational licensing barriers so economically harmful to people on the lower rungs of the economic ladder that it began offering federal grants to encourage state-level reductions in licensing laws. 

Matthew Yglesias of Vox noticed at the time that the administration’s push against occupational licensing laws, which are government regulations, after all, was out of synch with liberal orthodoxy. Reducing these regulations might be even more unfashionable now, as “socialism” has grown in popularity among the far left. 

Yet Biden wasn’t afraid to connect these state laws to his broader fight for economic opportunity and human dignity. For Biden to point out the harmful and demeaning effects of some government regulations in his campaign kick-off speech is both noteworthy and praiseworthy.

This is an economic problem that both the left and the right can agree to fix — if leaders of both sides are willing to address it.

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Do Granite Staters really want mandatory paid leave?

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House Democrats insisted on incorporating a mandatory paid leave program — and its $168 million wage tax — into the state budget, knowing that this could trigger a veto by Gov. Chris Sununu. It’s a strange hill upon which to die, considering that there’s no evidence Granite Staters are demanding this specific workplace perk. 

This month the UNH Carsey Center for Public Policy released a report asserting that Granite Staters support guaranteed job protection for paid family and medical leave programs and a 60 percent wage rate while on leave. 

This is about as useful to lawmakers as a ping pong table is to the Night’s Watch. It’s nice to have, but when the real work starts its minimal utility quickly becomes apparent.  

Nowhere did the survey ask whether respondents would prefer paid leave to other benefits such as flexible schedules, more health coverage or higher pay. Nowhere did it ask whether employees would prefer paid leave if it led to lower pay raises or reduced benefits in the future. Nowhere did it ask how much employees would be willing to pay for such a benefit. 

The 2016 UNH poll that purported to show broad support for paid family leave in New Hampshire also left out crucial questions. It did not give respondents the option of choosing from a list of other possible workplace benefits. The only cost it included was $5 per week, which is on the low end of the cost scale for various paid leave programs.

Other polls have asked such questions, and their results do not support the theory that paid leave is so critically important for employees that the state must guarantee it via a mandate and wage tax.

  • A 2017 Pew poll found paid leave statistically tied with more flexible work schedules as the most preferred new benefit, with 28 percent preferring schedule flexibility and 27 percent preferring paid leave. (That poll also found, by the way, that most Americans were satisfied with their workplace benefits and thought their employers cared about them and their well-being.) 
  • A 2017 study by data research firm FRACTL found that employees ranked paid parental leave 8th among a list of 17 benefit options. More popular were better health benefits, more flexible hours, more vacation time, work from home options, unlimited vacation, student loan assistance and tuition assistance.
  • A 2017 survey by payroll and benefits firm JustWorks found that flexible schedules and remote work options were far more popular among employees than unlimited paid time off or parental leave. Fewer than half of employees said unlimited paid time off or paid parental leave were important. 
  • A Cato Institute poll last December found that support for paid leave crashes when people are given the option of considering the costs. In the abstract, 74 percent of Americans support paid leave. But 60 percent oppose paid leave if it would lead to lower future pay raises. 

Paid leave is being pushed on Granite Staters as if it is universally acknowledged as the holy grail of workplace benefits. It isn’t. National polling shows that most employees prefer other benefits to paid leave. And even if it were the most popular benefit, that wouldn’t make it the right benefit for every employee or every employer. 

When employers are forced to offer this particular benefit over all others, employees are then forced to accept this particular benefit instead of others employers might have chosen. There is no compelling case for forcing this choice on all New Hampshire employees. Creating a budget showdown over an entirely unwarranted mandatory benefit would only compound the mistake.  

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Minimum wage increases hurt the lowest-skilled workers

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Bartlett Brief:

Minimum wage increases hurt the lowest-skilled workers

Legislators on Thursday are preparing to vote on bills to mandate that employers raise wages to levels some politicians find morally appealing. These mandates will hurt the lowest-skilled workers. They also have the potential to raise costs for consumers and taxpayers.

  • House Bill 186 would raise the minimum wage by $2 to $9.50 an hour immediately, then to $10.75 in 2021 and $12 in 2022. Teens younger than 17 could be paid $1 per hour less than the statutory minimum. 
  • Senate Bill 271 would mandate that contractors on state public works projects pay all their workers the prevailing federal wage for the particular construction project. The federal prevailing wage for construction projects in New Hampshire is $10.60 an hour. 

Though intended to benefit low-wage workers, these bills together are likely to harm Granite Staters who are trying to grab that first rung of the economic ladder.

Minimum wage

  • A 2015 Federal Reserve Bank of San Francisco review of minimum wage studies confirmed that “the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers—with possibly larger adverse effects than earlier research suggested.” 
  • The authors of Seattle’s famous minimum wage study reported last fall that the city’s wage hike raised pay for the most experienced workers but produced a significant reduction in employment among the lowest-skilled workers. “The entirety of these gains accrued to workers with above-median experience at baseline; less-experienced workers saw no significant change to weekly pay.”
  • A recent follow-up to the Seattle study found that the higher minimum wage raised the price of day care. “Providers’ most commonly responded to higher labor costs by raising tuition and reducing staff hours or headcount—strategies that may negatively impact low-income families and staff.” 
  • This podcast interview with University of Washington professor Jacob Vigdor provides a great analysis of the negative effects the wage increase had on Seattle’s lowest-skilled restaurant workers and those trying to enter the job market for the first time.  
  • A 2013 study for the National Bureau of Economic Research showed how minimum wage increases harm lower-skilled workers by eliminating many job opportunities for them. It found that “the minimum wage reduces net job growth, primarily through its effect on job creation by expanding establishments.” Businesses hire fewer people in the long run after governments mandate that they pay low-skilled employees an artificially high wage. 

Prevailing wage

Prevailing wage laws mandate that construction companies pay higher hourly wages to low-skilled employees than they otherwise would. Research on the effects of these laws on total construction costs are mixed. But much of the research is consistent with minimum-wage research showing that the mandates lead to a preference for higher-skilled employees. 

  • Some studies find increased costs for public works projects, as did a recent University of Kentucky study on West Virginia’s repeal of its prevailing wage law and a 2005 study of low-income housing construction costs in California.
  • Other studies, however, show that contractors adjust to mandated labor cost increases by hiring more high-skill, high-productivity employees and using capital to reduce the need for lower-skilled workers. Similar findings have been produced in minimum wage studies of specific industries. Many businesses respond to mandatory labor cost increases by hiring more productive workers and finding ways to reduce their need for the lowest-skilled labor. 
  • As automation takes off in the construction industry, government-mandated higher wages could increase the incentives for contractors to replace lower-skilled workers with machines. A study last year suggested that automation could replace 49 percent of America’s blue collar construction workforce. Self-driving graders and brick-laying robots are among the technologies already making their way onto construction sites.  

Summary 

By artificially inflating the price of low-skilled human labor, prevailing wage and minimum wage laws have the unintended effect of reducing employment opportunities for the lowest-skilled workers while artificially raising pay for people who have had the good fortune to have greater workforce experience. 

Though these wage mandates are intended to be a forced wealth transfer from businesses to low-income employees, they wind up creating a forced wealth transfer from the lowest-skilled workers to higher-skilled competitors. 

A pdf version of this brief can be downloaded here: JBC – Minimum Wage Warning.

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Five facts about the minimum wage

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The odds that legislators will vote to raise New Hampshire’s minimum wage this year are significantly better than the odds that sitting through next year’s Super Bowl halftime show will be more entertaining than going to the kitchen for more nachos.

Why?

Ideas like this, as expressed by Rep. Howard Moffett, D-Canterbury:
“If there is more money in people’s pockets, they are going to spend more. That will mean more business and they will go and hire more workers. It is a virtuous circle in the economy.”

Some really people believe that taxing businesses (the minimum wage is effectively a tax on hiring low-skilled labor) and transferring the revenue to the least-skilled employees will make those businesses more profitable than if they had been left alone to use that money in more productive ways.

That theory runs counter to the vast majority of work on minimum wages and, even if plausible, as The Atlantic’s Jordan Weissman pointed out a few years ago , its stimulating effects would be short-lived.

New Hampshire’s minimum wage is pegged to the federal minimum, which is $7.25 an hour. A lot of people believe that people who earn this wage make up a large fraction of the labor force and tend to be primary bread-winners working full time to support their families. None of that is true.

Here are five facts about the minimum wage that ought to inform whatever debate there will be on the topic as the legislature decides how much to tax employers for the practice of hiring low-skilled employees.

Nationally, only 2.3 percent of all hourly wage workers earn $7.25 per hour or less, Bureau of Labor Statistics data show. “Minimum wage workers tend to be young,” according to the BLS. “Although workers under age 25 represented only about one-fifth of hourly paid workers, they made up about half of those paid the federal minimum wage or less.” They also tend to be single. Never-married individuals make up 40 percent of those who earn an hourly wage but 68 percent of hourly wage workers who earn a minimum wage. Married individuals are 44 percent of hourly wage workers but only 21 percent of hourly wage workers who earn the minimum wage or less.

Minimum-wage employees tend to work part-time, BLS data show. Although about 75 percent of hourly wage workers hold full-time jobs, only 35 percent hourly employees with a full-time job earn the minimum wage or less. Only 25 percent of hourly workers hold part-time jobs, but 65 percent of hourly workers with part-time jobs earn the minimum wage or less. Of minimum-wage employees, fully 60 percent work part time.

In New Hampshire, the number of minimum wage workers fell by almost half in 2017, dropping from just over 15,000 people in 2016 to just 8,000 in 2017, according to the state Economic and Labor Market Information Bureau. Forty-nine percent of those 8,000 minimum-wage earners were under age 25, and the same percentage worked part-time.

The minimum wage is an entry-level wage typically paid to the lowest-skilled employees, the vast majority of whom work their way to higher pay within a year. A 2013 study by Texas A&M economists for the National Bureau of Economic Research found that “minimum wage compensation is three- and-a half times more prevalent among new workers than in the entire labor force.” Using data for 3.5 million people from 1979-2012, they found that 77.6 percent of people who earned the minimum wage in one year were still employed the following year, and of those 65.85 percent earned more than the minimum wage.

That last study, by the way, also found that “the minimum wage reduces net job growth, primarily through its effect on job creation by expanding establishments.” That is, the minimum wage doesn’t necessarily always produce an instantaneous reduction in jobs. Rather, it suppresses job growth over time, leading to fewer jobs than would otherwise be available.

In other words, it’s a tax on low-skilled labor. And like any tax, it reduces the supply of what is taxed.

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