Chicago’s Minimum-Wage Retreat

The City Council votes to repeal a law championed by Mayor Brandon Johnson

By Michael Saltsman. Excerpts:

"Servers and bartenders already earn more than minimum wage, especially in Chicago, where a typical restaurant worker reportedly earns nearly $30 an hour between the lower base wage and tips."

"The tipped minimum wage was created nearly a century after the abolition of slavery."

"Between 2015 and 2023, the tipped minimum wage rose by nearly 75%, from $5.45 to $9.48." 

"Once-robust restaurant employment growth in the Chicago metro area, which rose as high as 5.6% in 2015, turned negative in the last years of the decade."

"In the first year after the mayor’s minimum wage hike, new restaurant and tavern licenses—a key indicator of industry health—dropped by more than 8%."

"nearly 500 restaurants closed in the first half of 2025, and 70% of the restaurants that responded to the association’s poll reported cutting staff or reducing employee hours"

"Alderwoman Samantha Nugent, . . . said her constituents were suffering from the mayor’s good intentions" 

AI Titans Work Hard to Discourage Working

New studies demonstrate what should be obvious: Universal basic income programs kill initiative.

By Jason L. Riley. Excerpts:

"Weavers and bank tellers feared for their livelihoods at the time, but the Industrial Revolution led to significantly more hiring in the textile sector, and banks increased employment after ATMs were introduced."

"In recent years more than 150 basic-income pilot programs in 35 states have been initiated. One of the pilots, backed by Mr. Altman, began in 2020 and provided low-income participants in Texas and Illinois with $1,000 a month, while a control group received $50 a month. After three years of payments, researchers found that both groups worked slightly more—which may have resulted from the pilot’s starting during the pandemic and ending as the economy bounced back. But they also found that people who received $1,000 put in fewer hours on the job than people who received $50, suggesting that the higher payments provided a disincentive to work.

Last month, economist Kevin Corinth and Hannah Mayhew of the American Enterprise Institute released a survey of 122 basic-income pilots that took place between 2017 and 2025 in 33 states and the District of Columbia. They reported mixed results. Employment increased in some programs and decreased in others, and the role of the pandemic was difficult to assess.

The pilot programs varied “in their designs, data collection and study quality,” and only 30 of them provided employment outcomes. Hence, the authors counsel against sweeping policy conclusions based on the results. Most experiments were small, and the evaluations “rely exclusively on survey data and are thus subject to reporting bias and non-response bias.” Yet Mr. Corinth and Ms. Mayhew did find that the larger and more credible studies—such as the one Mr. Altman backed—showed that unearned income has a negative impact on a person’s willingness to work."

"President Lyndon Johnson’s War on Poverty in 1964 launched the modern social safety net"

"The welfare system attempted to replace family breadwinners, but it turned out that those breadwinners were providing more than money. The result of these government interventions was more broken homes, antisocial behavior and blighted neighborhoods." 

Andy Beshear’s Hillbilly Education Elegy

The Kentucky Governor with his eye on the White House dissembles about a veto and about us

WSJ editorial. Excerpt:

"Bluegrass State children could use the help. Kentucky fourth- and eighth-grade scores on the National Assessment of Educational Progress were lower in 2024 than in 2013—by 10 points in eighth-grade math and 12 points in eighth-grade reading. In Jefferson County (Louisville) public schools, only 30% of eighth-graders are proficient in reading and 28% in math on state tests.

Mr. Beshear says the Legislature is “quick to blame our public schools for test scores while refusing to give teachers a well-deserved raise,” citing a statistic that average teacher pay in Kentucky is 42nd in the nation. Average state teacher pay was around $58,500 in 2024, compared to median household income of $64,526.

But including benefits, total teacher compensation was an average $94,194, about 10.5% higher adjusted for inflation than in 2006, according to a Bluegrass Institute analysis last year. Meanwhile, total per-pupil funding increased by an inflation-adjusted 40.5% from 2006 to 2023, the institute found."

Hochul Wants a Climate Reprieve

As utility costs soar in New York, she seeks a delay in cap-and-tax

WSJ editorial. Excerpts:

"the Democratic Governor is seeking to walk back her state’s climate mandates"

She wants to "postpone implementation of the state’s cap-and-tax program and CO2 emissions cuts"

which "could increase upstate utility bills by about $4,000 a year and gasoline prices by $2.23 a gallon."

"Manufacturers would have to adopt costly, immature technologies like carbon capture. Gas power plants would be required to shut down prematurely in favor of higher-cost offshore wind and batteries."

"The average winter gas bill for New York City’s National Grid utility customers jumped 25% this year"

"Pipeline constraints have limited supply."

"gas and nuclear plants have been forced to close." 

Per-Task Minimum Pay for Gig Workers?

From Jeffrey Miron. 

"In 2024, Seattle tried to raise wages for app-based workers by requiring that they receive a per-task minimum pay.

By comparing earnings for Seattle workers before and after the law went into effect, a recent study finds that while the policy raised per-task wages,

the increases in base pay per task were partially offset by a substantial reduction in average tips, a major component of delivery pay.

Moreover,

drivers experienced more unpaid idle time and longer distances driven between tasks … [And,] the policy led to a reduction in the number of tasks completed by highly attached incumbent drivers, … completely offsetting increased pay per task and leading to zero effect on monthly earnings.

Yet again, over-zealous intervention backfires."

The Uncomfortable Truth About Immigrants

America’s economy depends on immigrants more than politics admits or acknowledges

By Alvaro Vargas Llosa of the Independent Institute.

"We tend to focus on why immigrants want to come to the U.S., but we talk much less about why the U.S. wants immigrants to come to this country—i.e., why, xenophobic rhetoric notwithstanding, so many Americans have quietly and consistently welcomed them.

The foremost reason for this is simply that Americans don’t want to have babies. For decades now, the fertility rate among native-born Americans has been below the replacement rate (2.1). The gap has widened significantly recently, with the total fertility rate dropping to 1.6 children per woman. Not surprisingly, the native-born work force has diminished by several million since peaking in 2005 and now amounts to less than 140 million. If no foreign workers are added to the economy, in a few years, the labor force will shrink much more dramatically, reflecting the impact of the currently dismal fertility rate.

If all of the growth of the U.S. economy were due to productivity gains, this might not matter. But U.S. productivity gains have been mediocre in recent decades, with a few exceptional periods, and economic growth in several industries still depends on the number of hours worked. This means that without foreign workers, the U.S. economy would be producing far less than the $28 trillion worth of goods and services it now produces.

Between 2000 and 2020, three–quarters of the growth of the U.S. civilian labor force was due to immigrants. These are not statistics made up by foreign or domestic conspirators, but data put out by the U.S. Census Bureau. According to the Bureau of Labor Statistics, 31 million workers are foreign-born, and 15 million are the children of people born outside of the U.S. They explain a good chunk of the size of today’s economic pie.

At the same time, the economy employs about 8 million undocumented immigrants in the kinds of industries you would expect—agriculture, food processing, restaurants, construction, etc. The reason they are undocumented is not that they have a penchant for the underground, but simply that the broken immigration system does not allow demand to meet supply. It is bad enough that so many workers have to labor off the books. The real economic suicide, however, lies not just in trying to expel undocumented workers, instead of making them legal, but in kicking out documented foreign-born workers and their children, as the administration constantly threatens to do. Imagine what would happen to the economy if the government, in a matter of weeks, were to kick out 47 million people of foreign origin. Think of the impact this would have on critical areas such as health care,  where 15 percent of registered nurses and 25 percent of doctors are foreigners.

The borders have effectively been closed for new immigrant workers, except for the tiny quotas still available. (Less than 10,000 low-skilled workers are admitted each year, a ridiculously unrealistic number given the needs of the economy—which likely explains why in 2025, the hospitality industry had one million open positions). If we add this trickle to the shrinking native-born workforce, the result is a looming catastrophe in the not-too-distant future. The net result will not be a shrinking native-born workforce partly offset by a growing immigrant workforce, but a shrinking workforce altogether.

Forget all the other benefits that immigrants bring to a nation. Just think of the economy. Unless productivity were to grow by leaps and bounds in the upcoming years (something it has not done in the last several decades) or native-born Americans were suddenly to experience a reversal of their aversion to having children, the trend is unmistakable—the workforce depends on immigrant labor. Without it, the economy’s ability to produce goods and services, and therefore to raise living standards, will take a nosedive.

This and other considerations should have been taken into account before the U.S. government recently sent several thousand federal agents to Minneapolis, where, incidentally, the immigrant population is small and crimes committed by foreigners are minimal, provoking the crisis that took the lives of innocent American citizens."

Fed’s Defense of IOR Undermined by Weak Treasury Auctions

By Jai Kedia of Cato.

"It is never a good sign when government debt auctions make the news, as was the case this week when the Treasury tried to sell $69 billion in two-year notes. Weak demand for these assets pushed their yield up to 3.9 percent. Ten-year and 30-year Treasury yields spiked, too, and all of this despite the Fed keeping its target rate unchanged at its latest meeting.

The proximate cause for the market’s suppressed bond appetite was rising inflation anxiety tied to Middle East tensions and oil prices. But this episode inadvertently illuminated something more fundamental: a hole in one of the Federal Reserve’s favorite defenses of its interest on reserves (IOR) program.

The Fed’s Substitution Argument

The Fed currently pays banks a risk-free administered rate on trillions of dollars in reserve balances through the IOR framework. When Congress or outside critics raise the cost of IOR, the Fed has a ready response. Its own FAQ webpage on the subject states that if a bank held Treasurys instead of reserves, “the bank would still earn interest paid by the government—both Treasury securities and reserves are government liabilities—and there would be no net effect on interest earned or paid by the government.”

In short, the Fed argues that IOR and Treasurys are fiscal equivalents. Remove IOR, and banks would simply shift into Treasurys. The government would pay interest either way, and taxpayers would be no better off. The substitution argument treats Treasury securities and reserve balances as interchangeable assets that banks would hold at identical yields. But that is not how markets work, nor is it how banks make investment decisions.

We have critiqued this argument and several others in the past, but Tuesday’s auction offers a real-time case study of why this substitution argument is wrong.

Markets Price Risk and Send Signals. IOR Does Not.

When the Treasury auctions securities, it does not set the yield. The market does. Investors, including banks, assess duration risk, inflation risk, liquidity needs, and opportunity costs, and then bid accordingly. If they think the offered yield is too low relative to those risks, they simply don’t bid, or they bid less aggressively. That is precisely what happened at this week’s auction. Inflation uncertainty made investors skeptical that the two-year note was fairly priced, and the auction showed it.

IOR operates entirely differently. The rate is set administratively by the Fed’s Board of Governors. Banks don’t bid; there is no market or auction for these funds. Correspondingly, there is no price discovery nor any mechanism by which banks can signal that the rate is suboptimal. Reserves are overnight liabilities of the Federal Reserve, not term obligations subject to duration or inflation uncertainty. They are, by design, the safest asset in the financial system guaranteed by the Fed’s ability to simply add numbers to banks’ accounts (as inadvisable as it may be to do so).

This is the flaw in the substitution argument. It assumes that if IOR were eliminated, banks would absorb trillions in Treasury securities at whatever yield prevailed, bidding rates down until Treasurys became equivalently attractive. But banks are optimizing investors. They demand compensation for risk. A two-year (or longer) note carries meaningful inflation and duration risk; an overnight reserve balance does not. These are not the same instrument, and rational investors do not price them identically. That price is a signal; while that signal may be costly to the Treasury, it is informative.

The Bottom Line

IOR imposes no market discipline. The rate is set by the same institution that controls monetary policy, paid to the same banks that are counterparties to Fed operations, and bears no relationship to market pricing. It is a transfer, administered by fiat, insulated from the price discovery that makes Treasury markets meaningful. Treating these two instruments as equivalents, as the Fed’s argument requires, ignores economic and institutional differences.

This week’s auction was just an example. It showed that investors care about the conflict in the Middle East. If they were to engage in further Treasury auctions with the money they currently park at the Fed to receive IOR, it might reveal a host of other important signals. For instance, we may discover (as markets demand higher yields) that people have a limited appetite for US debt if the federal government shows no signs of ending its fiscal profligacy. As it stands, the government can simply have the Fed monetize its unending debts under the cover of IOR.

This week’s auctions were, on the surface, a story about oil prices and Middle East risk premia. But it was also a reminder that investors don’t passively accept whatever yield the government puts in front of them. IOR is not a perfect substitute for Treasurys. Pretending they are the same is not a defense of sound monetary policy. It’s a rhetorical sleight of hand."