The Minimum Wage Fallacy

Do you remember your first job?

Some rode newspaper routes. Others worked as short order cooks, bagged groceries or manned cash registers. If you were lucky you served as a lifeguard over the summer; the less fortunate among us might have done hard labor down on the farm or over at a construction site.

No matter what you did, there was a certain satisfaction to be gained when the paycheck rolled in from a hard week’s work. Of course, the money was secondary to what it represented: You earned something for your efforts.

Sure, having a few bucks for a movie or milkshake was great. But you could not put a price on the skills and responsibilities you developed. Showing up at a job on time, taking orders, volunteering to help your coworkers, putting the customer first, and always hustling would prove useful no matter what industry you ended up in.

And beyond these basic skills, that first job gave you a sense of purpose, dignity and pride.

When we hear politicians and pundits talk about minimum wage jobs today, it seems many of these folks forgot about these experiences. Or perhaps they never had them.

The chattering class narrative goes something like this: “People working minimum wage jobs cannot put food on the table for their families. Therefore, we must raise the minimum wage.”

Let’s put aside the economics and politics of the matter for a second.

Framing the issue as the chattering class does illustrates a fundamental misunderstanding about the nature of minimum wage jobs.

Some basic questions about the minimum wage shed light on this.

How old are most people working minimum wage jobs?

According to the Bureau of Labor Services’ (BLS) most recent report on the minimum wage, based on data from 2015: “Minimum wage workers tend to be young. 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.”

What kind of jobs do minimum wage earners hold?

The BLS report states: “Almost two-thirds of workers earning the minimum wage or less in 2015 were employed in service occupations, mostly in food preparation and serving related jobs.”

In other words, these are basic jobs like the ones we held when we were kids.

Do most minimum wage earners support families?

In 2015, 931,000 of the 2.6 million Americans ages 16 or older earning minimum wage or less – or approximately 36% of all such workers – were either married with a spouse present, or had a marital status of “other.”[i] Thus, the vast majority did not consist of families.

How many workers earn minimum wage or less relative to the total size of the American workforce?

The 2.6 million Americans ages 16 or older earning the federal minimum wage or less in 2015 represented 3.3% of the 78.2 million such workers paid at hourly rates. Since 58.5% of all workers are paid at hourly rates, that means that just under 2.0% earned the federal minimum wage or less.

So the minimum wage mainly impacts young, low-skilled workers, who have not started families, representing a fraction of the U.S. workforce.

Does that square with the critiques that start from the premise that the minimum wage must be high enough to support a family?

Clearly the answer is “no.” Most of the Americans impacted by the minimum wage are too young to have started a family, or otherwise not ready to do so.

Of those who do have a family to support, which represents a fraction of a fraction of the American labor force, some are likely to be early in their careers, seeking out lower-paying opportunities as a springboard to better ones.

That is of course the real purpose of minimum wage work: To build one’s resume, break into an industry and learn valuable skills. The small amount paid out in wages does not account for the total value of the job – the education, the experience and the contacts. These are all essential elements towards building a career – and fast transitioning out of a minimum wage job towards more challenging and rewarding opportunities.

There is another thing that is missed in this minimum wage conversation.

Calls to raise the minimum wage significantly deprive America’s youth of an opportunity that we once had – to work as kids – that served us well in life.

As basic economics tells us, the higher the minimum wage above what the market will bear, the lower the quantity of minimum wage jobs there will be. If you are in the restaurant business and you can only afford to hire a limited amount of workers because of the increased cost, chances are you are going to hire the more experienced worker rather than the high school kid. You will not want to waste time and money on training.

The minimum wage narratives we so often hear are not only inaccurate, but they can lead to policies detrimental to our children and grandchildren.

We must put them in their proper context as one piece – a critical steppingstone — in the great puzzle that is the American labor force.

Museum of American Finance Annual Gala

What a wonderful evening we had in New York last Wednesday at the Museum of American Finance’s annual gala. This is always a great event, held to support an important and deserving institution, but this year I found it especially meaningful, as the museum used the occasion to honor me with its Charles Schwab Financial Innovation Award. Introduced just last year and named after my business competitor and friend Charlie Schwab (who quite appropriately was the award’s first recipient), the award is meant to recognize individuals who have introduced new markets or new financial instruments to our financial system. While I’ve never been one to seek out awards and testimonials, I’m enormously proud of the role TD Ameritrade has played in helping to make financial markets more accessible to everyone, and the fact that our peers in the financial-services industry have seen fit to recognize our contributions is a wonderful thing.

The museum, of course, exists not simply to educate us about the history of American finance, but also to remind us of the absolutely essential role that finance plays in making possible the thing that makes America strong and prosperous – our system of free enterprise. That’s not to say there aren’t important lessons to be learned from our history. As I told the group in my acceptance speech, it’s worth remembering what gave us our start in the financial-services business: the 1975 deregulation of the commission structure, which ultimately made the stock market accessible to millions of small investors. Deregulation was a good thing then and I strongly believe it can be a good thing now.

What made the evening at the museum particularly special was to be surrounded by so many dear friends and loved ones, including my wife Marlene, my children and their spouses, and colleagues from TD Ameritrade with whom I worked shoulder-to-shoulder through so many adventures. All in all, an evening to remember. It just doesn’t get better than this.

 

Pride and Reassurance

I’ve written before on this blog about  how Marlene and I raised our children not only to be self-reliant and hard-working, but also to believe in the importance of public service. So it shouldn’t come as a surprise to anyone how proud I am that President-elect Trump has asked my son Todd Ricketts to serve in his administration as Deputy Secretary of Commerce.

As far as I am concerned, there is no challenge facing our great nation more pressing than the need to get our economy back on track. The Obama legacy of higher taxes and government interference has been leading us down an unsustainable path that if unchecked would have led to disaster, stifling the engines of economic opportunity and further crippling the middle class. The fact that Mr. Trump has called on Todd to help him reverse this unacceptable drift is not only a source of great pride to me but also a reassurance that the country may once again be headed in the right direction.

Bleeding Cubbie Blue

Watching the World Series, I kept thinking how baseball is a game of moments.  The moment when the pitcher releases the ball.  The moment the batter swings at, or takes the pitch.  The moment the infielder dives for a catch.

How the players respond to these moments produces opportunities and challenges.  And watching all this, I realized it’s a lot like life.

It’s no secret that while my four children and wife are avid baseball fans who bleed Cubbie blue, I’ve never been a sports buff.  But over the past six months, as I watched the Cubs seize opportunities and battle through challenges, as I watched the fans cheer for their young heroes, I felt so proud to be associated with this amazing team and their incredible fans.  And seeing the enthusiasm of the fans and exciting play on the field, I’m proud to say that I’m now a fan of the game, and a huge fan of these amazing Cubbies.

The players, who left it all on the field, and the fans, who have faithfully hung with the Cubs through thick and thin, they are heroes to me.  And now that we’ve finally claimed the prize that has eluded us for so long, I find myself eagerly looking forward to next year because I know Tom, Peter, Laura, and Todd will be back at it, doing everything they can to keep the magic happening at Wrigley.

Why I’m Supporting Future45

You might have read that my wife and I are supporting Future45 in its opposition to Secretary Clinton’s presidential campaign.  I didn’t make this decision quickly or lightly.  In fact, it’s no secret that I’ve had my concerns about Mr. Trump.

But there’s a stark reality that I can’t ignore: our country is headed down an unsustainable path that is eroding future opportunity.  The people walking us down this path have lost sight of the fact that it is the free enterprise system that has produced the opportunity, jobs, and innovation that have made the United States the greatest country in the world.  Higher taxes and government orchestrated wealth distribution is a shortsighted and unsustainable strategy. New businesses started by entrepreneurs drive economic expansion, and economic expansion raises the standard of living for everyone in a lasting and meaningful way.

I truly believe that four more years of the Obama-Clinton economic policies will further cripple our economy and the middle class. So while I had my differences with Mr. Trump in the primary, I believe that he and Mike Pence represent a better way forward, especially when teamed with Speaker Ryan and Senator McConnell.

For me, this election comes down to a binary choice between extending the failed Obama-Clinton economic policies and believing that Messrs. Trump and Pence bring fresh thinking to how we can reignite the engines of economic opportunity.  Given that choice, I’m supporting the Trump-Pence ticket as well as other leaders who will advance pragmatic, positive financial policies to promote our future prosperity.

The Cuthroat are Biting at The Jackson Fork Ranch

It’s fun to spend time with friends at the Jackson Fork Ranch, particularly friends who appreciate great fishing.  Just look at that cuthroat that Don Currie (right) caught with his guide, Erik Oran (left), on a section of the Upper Hoback River that runs through the ranch!

By being thoughtful about how we fish the Hoback River and nearby streams, there are some truly remarkable experiences at Jackson Fork for the skilled and less skilled anglers alike.  (I fall into one of those two categories, but I’m not going to volunteer which one.)

Immigrants: The Restless, Determined Agents of Change

Why would someone choose to travel far from home in search of a new life?  External factors like war and poverty can provide strong incentives for change.  But many people live in war-torn countries, or amid intense poverty and, yet only a small fraction uproot themselves.

In some cases, people lack the resources or freedom to leave where they are.  In other cases, they simply choose the familiar over the unknown.  But there is another group of people.  These are the people who embark on the incredibly difficult challenge of pursuing new lives in faraway lands.  They are people willing to forsake the known for the unfamiliar.  They are people who desire better lives and marshal the courage to face change.  These people, these immigrants, are cut from a different cloth.

Nearly all of us in the United States are immigrants, or descend from immigrants.  And it’s no coincidence that this nation of immigrants has been the engine for global entrepreneurial innovation.  Indeed, when you put all those restless and determined people in one place, some pretty amazing things happen.  And those amazing things happen because these are people unwilling to sit still; people unwilling to tolerate the status quo.  These are people who are agents of change in their own lives, and in the world around them.

What’s Happening at DNAinfo

I go to bed every night, and I wake up every morning, thinking about how to build relevant, enduring businesses that address some unmet need. It’s one of the things that makes life fun for me.

And for some time now, I’ve been thinking a lot about DNAinfo.

DNAinfo connects people through the communities where they live and work. We do this by reporting on fun and fascinating neighborhood news stories on DNAinfo, and by creating vibrant, virtual communities on Neighborhood Square. And we do it without spin.

Unpuzzling this important space – a space that exists at the intersection between people who live in neighborhoods and the businesses that serve them – is an irresistible challenge to me.
This week, DNAinfo introduced a new logo that speaks to the company’s partnership with neighborhood communities. Neighborhoods are alive and vibrant, and our new logo reflects our continued belief in the power and promise of neighborhoods.

If you live in Chicago or New York, check out DNAinfo. If you don’t live in one of those cities, stay tuned.

Do individual investors get a square deal when they trade stocks?

There has been a lot of discussion about the question, in particular about where and how brokers route their customers’ orders. As someone who spent his professional life trying to empower people to make informed investment decisions, I understand the concern. But it’s misplaced.

Consider the vast improvements in stock markets. Individual, or retail, orders get filled 10 times faster than a decade ago. Commission rates have fallen by nearly 70% since 1997. The prices at which orders are filled beat quoted prices 91% of the time, versus 14% a decade ago. And 99% of all market orders are filled in their entirety.

The supposed problem is what happens after an individual investor enters an order to buy or sell a stock. At this point the broker is legally obligated to try to make the trade at the most favorable terms reasonably available—including such factors as price, speed, the likelihood of partial or full execution, transaction costs, and customer needs and expectations. This obligation, called “best execution,” is a big deal; it is why regulators like the Securities and Exchange Commission and the Financial Industry Regulatory Authority require brokers to conduct regular, rigorous reviews of their execution quality.

A significant factor in determining the best execution involves where orders get routed. The broker who took the order may try to match buyers and sellers among his business’s clients in-house—called internalization—or he may send the order out to a third-party market center. Market centers include electronic exchanges like NYSE and Nasdaq, as well as market makers, which are firms that trade for their own accounts to make markets in particular securities.

Market centers compete fiercely for order flow. In part, that’s because they need strong order volume to produce robust trading and liquidity. When the market for a stock is liquid, it means investors are actively buying and selling it, and that means trades can be executed quickly and at good prices. The fact that the current equity-market structure has generally produced robust liquidity is one of the main reasons orders are getting filled faster, cheaper and at better prices.

Some market centers compete for order flow by paying brokers to get their orders, usually small fractions of a cent per share. And this is what all the recent brouhaha is about—irresponsible assertions that competition among market centers for order flow has led brokerages to ignore their best execution obligation and simply channel orders to the market center that paid them the most.

Yet there is nothing shadowy about market centers competing for order flow. Paying for order flow began in the late 1990s and has been well-established in the U.S. since the mid-2000s. Since 1994 the SEC has required broker-dealers to disclose publicly to new customers, on trade confirmations and in public quarterly reports that they are receiving order-flow payments.

The effect of this transparent competition has been extremely positive for retail brokerage clients. According to data analysis firm RegOne Solutions, competition among market centers for order flow has resulted in retail investors receiving more than $600 million in direct price improvement to buyers and sellers from market centers in 2014 alone, up from roughly $100 million in 2004. And that doesn’t take into account the extent to which revenue from payments for order flow permit brokerages to offer lower commissions and, in many cases, free extra services such as powerful technology platforms, access to third-party research reports and online education.

There is no doubt the industry can do even better. Providing investors with more and easier access to information about payments for orders will permit them to decide if they are comfortable with their broker’s routing practices. If not, they can take their business elsewhere.

But improvements need to be thoughtful, measured and informed by the fact that the current market structure has produced incredibly favorable conditions for individual investors. It is a mistake to obsess over one practice without considering how it, and all the other pieces, work together to produce the current, favorable environment for retail traders. As with doctors, the first rule should be: Do no harm.

Mr. Ricketts, the founder of TD Ameritrade, now pursues entrepreneurial and philanthropic projects. Alfred Levitt, president and general counsel of Hugo Enterprises LLC, helped with research for this op-ed.

(Read the full Op-ed by Joe Ricketts in THE WALL STREET JOURNAL)

Conspiracies of the Ruling Class: A Must Read

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