Do we need OSHA?

The following text is from Dr. Thomas E. Wood's book, 'Rollback':

"We are told that workplace injuries have declined since the Occupational Safety and Health Administration (OSHA) was established in 1970. We are not told that such injuries were already on the decline before 1970, and that they have not fallen any faster with the opening of this federal agency. 

To the contrary, in roughly the quarter century before the creation of OSHA, the decline in the frequency of workplace fatalities was 70 percent larger than in the quarter century that followed. An evaluation of OSHA’s performance a quarter century after its creation discovered, after a survey of the existing literature, that its effects on workplace safety had been negligible, and that the costs it imposed on the private sector far outweighed the alleged benefits. 

 “The most optimistic figures,” wrote Professors Thomas Kniesner and John Leeth, “show OSHA currently creating three times more costs than it generates in benefits.” Increasing its funding seems unlikely to make much difference; Quebec spends over four times as much per worker and has had no more success than OSHA.

The study also found that 40 percent of recent workplace deaths had been transportation related, with half of those being highway fatalities. Another  20 percent involved assaults and violence at work. There isn’t much OSHA can do about any of this. That means only about two-fifths of workplace fatalities are in fact the kind of incidents most people associate with “workplace fatalities” in the first place. 

Firms spend about 1,600 times as much on compensating wage differentials (i.e., higher wages they must pay to compensate for potentially dangerous work) and workers’ compensation as they do on all of OSHA’s annual fines combined, so their incentives to improve workplace safety come overwhelmingly from these other sources rather than from OSHA’s trivial influence." --- Dr. Thomas E. Woods (Rollback Chp. 6)

Citation for the study Dr. Woods refers to: 

Thomas J. Kniesner and John D. Leeth, “Abolishing OSHA,” Regulation, no. 4, 1995, 49

Labor unions vs. Economic Growth

Pseudo-economists like Robert Reich often call for more unions and more power for unions so they can increase worker's wages. It;s true that unions raise workers wages in the same way that it is true that cartels can get a higher price for their product if they reduce the supply of it.

Unions are labor cartels. They increase the wages of their members above market value, leading to a decrease in the quantity of labor demanded, and ultimately a decrease in the number of available jobs and hence increased unemployment. 

Unions also reduce investment since the extra wages workers are paid often cut into profits and have the same effect as a corporate tax rate. This reduces investment in research and development, capital, and expansion. Reduced investment ultimately means less capital and correspondingly lower wages (since capital increases productivity and thus, increases wages). 

According to Thomas E. Woods Jr.: 

"In a study published jointly in late 2002 by the National Legal and Policy Center and the John M. Olin Institute for Employment Practice and Policy, economists Richard Vedder and Lowell Gallaway of Ohio University calculated that labor unions have cost the American economy a whopping $50 trillion over the past 50 years alone....That is not a misprint. "The deadweight economic losses are not one-shot impacts on the economy," the study explains. "What our simulations reveal is the powerful effect of the compounding over more than half a century of what appears at first to be small annual effects." Not surprisingly, the study did find that unionized labor earned wages 15 percent higher than those of their nonunion counterparts, but it also found that wages in general suffered dramatically as a result of an economy that is 30 to 40 percent smaller than it would have been in the absence of labor unionism." (1)

This isn't some right-wing conspiracy, economists of all stripes accept this. Keynesian economist Laurence Summers states:

"Another cause of long-term unemployment is unionization. High union wages that exceed the competitive market rate are likely to cause job losses in the unionized sector of the economy. Also, those who lose high-wage union jobs are often reluctant to accept alternative low-wage employment. Between 1970 and 1985, for example, a state with a 20 percent unionization rate, approximately the average for the fifty states and the District of Columbia, experienced an unemployment rate that was 1.2 percentage points higher than that of a hypothetical state that had no unions. To put this in perspective, 1.2 percentage points is about 60 percent of the increase in normal unemployment between 1970 and 1985." (2)

Markets should set wages. If we want wages to increase, we should focus on increasing productivity, not increasing the number of labor unions. As you can see in the graph below, which is taken from the St. Louis Federal Reserve website, worker compensation (adjusted for inflation) has exponentially increased over time whereas union membership has exponentially decreased over time. 

Citations:

(1)http://mises.org/daily/1685

 (2) http://www.econlib.org/library/Enc/Unemployment.html

 (3)This Heritage Foundation article goes into great depth as to the negative effects unions have on the economy as a whole (the graph below is taken from this article:

http://www.heritage.org/research/reports/2009/05/what-unions-do-how-labor-unions-affect-jobs-and-the-economy

Poverty

What are the causes of poverty? How can one avoid becoming poor?

1) Many people are poor simply because they are not employed:

Data from the US Census Bureau shows that the best anti-poverty measure is a full time job. According to their data, "The poverty rate for full-time workers in 2012 was just 3%, while for part-time workers it was 16% — and for those who had no job, it was 33%" [1]

In fact, the data shows that the mean number of income earners in the lowest household income quintile (the poorest Americans) is 0.4. [2] That means that there is less than half a person earning income for most low income households. This contrasts with an average of 1.3 workers for all households and 2.1 workers for households  in the top income quintile (the richest families). [2] That means that income inequality is partly fueled by the fact that higher income households  have high incomes because they have more people working and earning money.

Research from the conservative think tank, the Heritage Foundation:

"In good economic times or bad, the typical poor family with children is supported by only 800 hours of work during a year: That amounts to 16 hours of work per week. If work in each family were raised to 2,000 hours per year-the equivalent of one adult working 40 hours per week throughout the year- nearly 75 percent of poor children would be lifted out of official poverty." [3]

It should be no surprise that people who work more and belong to a household which has multiple workers will be richer than households that don't work much and have very few workers.

2) Single mothers with children are the most prevalent type of family among the poor. Also, the amount of married couples with children has decreased since the 1970's.

Data from the Census Bureau shows that among households in the lowest income quintile (the poor),  20% consist of a single-mother with children. This contrasts with 13% for all households and 3.6% for households in the highest income quintile (the rich). [2]

Additionally, of the households in the lowest income quintile, married couple families only make up 16.7% of households [2]. Once again, this sharply contrasts with the 48.7% for all households and 82.2% for households belonging to the highest income quintile [2].

The Heritage Foundation finds that:

"Father absence is another major cause of child poverty. Nearly two-thirds of poor children reside in single-parent homes; each year, an additional 1.5 million children are born out of wedlock. If poor mothers married the fathers of their children, almost three-quarters would immediately be lifted out of poverty.

While work and marriage are steady ladders out of poverty, the welfare system perversely remains hostile to both. Major programs such as food stamps, public housing, and Medicaid continue to reward idleness and penalize marriage. If welfare could be turned around to require work and encourage marriage, poverty among children would drop substantially." [3]

According to Wikipedia:

 "While the proportion of wives working year-round in married couple households with children has increased from 17% in 1967 to 39% in 1996, the proportion of such households among the general population has decreased. This means that the share the most economically prosperous type of household has been dwindling in the United States....In 1969, more than 40% of all households consisted of a married couple with children. By 1996 only a rough quarter of US households consisted of married couples with children." [2]

John McNeil of the US Census Bureau has said, ""From 1969 to 1996, median household income rose a very modest 6.3 percent in constant dollars... The 1969 to 1996 stagnation in median household income may, in fact, be largely a reflection of changes in the size and composition of households rather than a reflection of a stagnating economy." [2]

In short, the number of workers per household has declined over time, making it seem as though family incomes haven't risen over time (even if individual earners may be making more money over time). To have a high family income, people should work and get married. Coincidentally, the highest 20% of income households do these things whereas the bottom 20% of income households do the exact opposite.

3) Dropping out of high school will drastically reduce a person's ability to get a high paying job.

According to US Census data, the median annual individual income for a person who hasn't completed an education past the 9th grade was $17,422 [2]. High school dropout's median pay was $20,321 per year and a High School graduate's median pay was $26,505 per year. [2] As you could guess, the further an individual pursues their education, the more money they make (median pay for people with doctorates was $96,830 per year). Basically, High School graduates will earn much more money than High School dropouts.

Another cause of poverty and income inequality is the differences between the pay of high school dropouts and college graduates. Unsurprisingly, 26.7% of people in households in the lowest income quintile have less than a High School Degree and only 12.1% of them have a Bachelor’s Degree or more (61.1% have a high school degree or some college). In contrast, 2.2% of people in households in the highest income quintile have less than a High School Degree and 60.3% have a Bachelor’s degree or more (37.6% have a High School education or some college). [4] 

Conclusion: 

In conclusion, to stay out of a low income household, people should avoid having children without being in a committed relationship, have at least 1 full time worker per household, and graduate from high school. While some people think more government handouts are necessary to decrease poverty and income inequality, in reality the most effective way to decrease poverty and inequality would be for everyone to emulate the behavior of the top 20% of income households.

Citations:

[1] http://www.theglobalist.com/facts-americas-50-year-war-poverty/

[2] http://en.wikipedia.org/wiki/Household_income_in_the_United_States#Quintiles

[3] http://www.heritage.org/research/reports/2007/08/how-poor-are-americas-poor-examining-the-plague-of-poverty-in-america

[4] http://www.aei-ideas.org/2011/10/income-inequality-can-be-explained-by-household-demographics/

Free Trade/ Child Labor

Comments on Free trade and Child labor:

Many people believe that Free Trade (trading with other nations without restrictions such as tariffs) is somehow a net loss for the US economy. Many also believe that US companies are somehow exploiting 3rd world workers by giving them sweatshops to work in or by utilizing child laborers in those countries. Here are some things these people should know:

- 93% of economists advocate free trade. [1] Even Paul Krugman, a hero among leftists, has written articles praising globalization/free trade. [2]

- Sweatshops and child labor are goods alternatives in comparison to starvation, prostitution, subsistence farming, etc. Anti-sweatshop activists are essentially trying to destroy 3rd world families livelihoods. 

-Child labor exists in poor countries because if the children didn’t work, their families would likely starve. As countries become wealthier and workers become more productive via Free Market Capitalism, workers receive higher compensation and can afford to withdraw their children from the labor force.

-Some people believe the US should not trade with countries utilizing child labor. However, this can be disastrous for the very children they wish to help. According to Wikipedia:

"Concerns have often been raised over the buying public's moral complicity in purchasing products assembled or otherwise manufactured in developing countries with child labour. However, others have raised concerns that boycotting products manufactured through child labour may force these children to turn to more dangerous or strenuous professions, such as prostitution or agriculture. For example, a UNICEF study found that after the Child Labour Deterrence Act was introduced in the US, an estimated 50,000 children were dismissed from their garment industry jobs in Bangladesh, leaving many to resort to jobs such as "stone-crushing, street hustling, and prostitution", jobs that are "more hazardous and exploitative than garment production". The study suggests that boycotts are "blunt instruments with long-term consequences, that can actually harm rather than help the children involved." [3]

-Additionally, when Bangladeshi factories stopped employing children as a result of pressure from the US, the British charity Oxfam found that the children ended up in worse conditions. Many were starved, forced into prostitution, etc. [4]

Citations:

[1] http://gregmankiw.blogspot.com/2009/02/news-flash-economists-agree.html

[2]http://www.slate.com/articles/business/the_dismal_science/1997/03/in_praise_of_cheap_labor.html

[3] http://en.wikipedia.org/wiki/Child_labour#Eliminating_child_labour

[4] http://www.nytimes.com/2001/04/22/opinion/reckonings-hearts-and-heads.html

US vs. Europe (Living Standards and economic growth)

Many people think that if the US followed Europe’s lead in pursuing socialist policies, we would be much richer and everyone would be far happier. However, this is not the case. Here are some facts taken from an article by Economist Dan Mitchell:

-Since the US has historically had more economic freedom than Europe, we are much richer than they are.

--“Living standards in the EU are equivalent to living standards in the poorest American states-roughly equal to Arkansas and Montana and only slightly ahead of West Virginia and Mississippi, the two poorest states” [1]

--“Per capita economic output in the U.S. in 2003 was $37,600-more than 40 percent higher than the $26,600 average for EU-15 nations.” [1]

--“Real economic growth in the U.S. over the past 10 years (3.2 percent average annual growth) has been more than 50 percent faster than EU-15 growth during the same period (2.1 percent).” [1]

--“The U.S. unemployment rate is significantly lower than the EU-15 unemployment rate, and there is a stunning gap in the percentage of unemployed who have been without a job for more than 12 months-11.8 percent in the U.S. versus 41.9 percent in EU-15 nations” [1]

Not that living in a European country is bad, but to say that Europeans have better lives than Americans isn't exactly true.

Citation:

[1] http://www.heritage.org/research/reports/2005/03/the-impact-of-government-spending-on-economic-growth