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Posts Tagged ‘minimum wage’

I am on the board of a Homeowners Association (HOA). Recently we received the letter below from our landscaping contractor. I have redacted any identifying information for privacy. You can click on the letter to enlarge it.

This shows the effect of government-mandated minimum wage increases. The result is almost never what is intended. The additional costs are passed on to the consumer, and the whole process simply drives up inflation. We, the homeowners, are going to pay more for the landscaping, so the workers can get their higher minimum wage. This happens when there is nothing the company can do about it.

Other affected companies, like fast food restaurants, have choices, usually related to automation. We have seen more self-service kiosks spring up in fast food places, replacing the high school students behind the counter. Restaurants figure out how to make do with less human labor, not more. In that case, minimum wage incentivizes automation.

Recently I have seen Bernie Sanders attack Amazon and Jeff Bezos, who recently passed Bill Gates as the richest man in the world. Here is one of Bernie Sanders’ tweets:

Here is another one, where you can hear Bernie speak about the subject:

This is a complicated subject. Bernie wants to force Amazon, and other companies, to pay their workers a “living wage” that takes them out of the income range that qualifies for welfare.

Yes, you and I, with our tax dollars, pay for food stamps and other programs to help Amazon workers who can’t feed their families on the money they earn.

Sanders rages against Bezos, who has built the company into what it is today.

As cruel as it sounds, however, Bernie’s answer isn’t going to work. It’s not the government’s job to tell companies what they need to pay their workers. Companies pay their workers what they need to pay them to do the jobs they need done. It’s as simple as that.

If there are enough high school students who are willing to stand behind a counter at McDonald’s for $7.25 an hour, then that’s what McDonald’s will pay.

If Amazon workers don’t like their wage, why don’t they go to another company that pays more for the skills they have? Why don’t they all leave Amazon? If Amazon could not find workers to work for what they pay, they would raise that pay.

The problem is that the low-paying jobs are those that do not need a lot of skills, education, dedication or creativity. Go check out what Amazon pays its engineers! You’ll probably find $120,000 and above as the average. Why don’t the workers that don’t like the low wage become engineers so they can get paid high wages?

We also keep pointing out that the average CEO makes 312 times as much as the average worker. I just found this in Time Magazine today:

Here is what I say: If you like the pay of the CEO, why don’t you become the CEO of one of the top 350 publicly held companies in America?

The problem is that it’s hard to do that. It takes years of education, working at entry-level jobs, climbing through the ranks, working in stressful careers, doing 80 plus work weeks for years on fixed salaries, getting promoted to management, working 12 hour days 7 days a week in management. If you do all that, and you happen to choose an industry and career field with a future, and your company doesn’t go under as you work you butt off, and if you’re lucky and don’t get sick, and if the economic cycles align to your benefit, you might one day find yourself a CEO. And you make the big bucks.

After you have gone through that, you will know that the government had nothing to do with your overnight success and your phenomenal income.

You will also understand that minimum wage laws don’t work. All they do is force the working people to pay for those that don’t work, or don’t want to work, or can’t work, or don’t have the education needed to work.

This is what feeds Trumpism in the first place. This is why our country is divided. Trumpism does not work. But Bernie Sanders’ socialism also does not work.

Neither is the solution we need for a well-functioning society.

The real solution is education, and that is for another rant.

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Minimum Wage 1

I do not believe that raising the minimum wage solves the problem. I have outlined my thoughts on this subject in many blog entries, including this one. For more, just search “Minimum Wage” in the search box above. There are three main thoughts that this Facebook Meme triggered:

Raising the minimum wage artificially by government action does not work in the end. It tries to solve a problem with a short-term solution. At the end, unforeseen consequences just move the problem around to another area. Let me give you an example in California. We have had a system where low-income families have been receiving assistance for their childcare from the government for decades. A single mom working at Walmart for minimum wage does not make enough money to pay to have her children in childcare while she works. The government has been assisting that mom with subsidized childcare programs. Philosophically you may ask how that is the public’s problem? If mom has children and not enough education to get a job that pays a decent wage, that’s her problem. Why should taxpayers assist her? The answer is a moral one: The government is there to protect the children. Why do we make a child pay for the mistakes of a parent? What fault of the child is it that their parents do not know how to arrange their lives? So we provide quality education by putting them into quality childcare, while the parent finds a way out of this situation. This has been proven overall successful. You may differ with me, but that’s the argument. However, here is how this relates to this minimum wage discussion:

When the minimum wage was raised, and these parents made more money all of a sudden, they no longer qualified for subsidized childcare. So now they have to pay for their own childcare. But their raises were not enough to cover them. So now parents on that fringe had to quit their jobs, stay home with their children, draw on other welfare (food stamps, etc.) while they are not working productively, and the children lost the quality care and education. The children pay. And the public pays – just through a different channel.

States like Idaho, Oklahoma and Alabama, as quoted in the meme, that banned their cities from raising the minimum wage, are acting out of protectionist fear. The governments of these states obviously buy into my argument above that raising the minimum wage does not work in the end. So they don’t do it. However, then they muck with the system in their own way by preventing their cities to act on their own. This is protectionist behavior, and it also will have its own unintended consequences.

The real solution to this is to let the people, the market decide. If the wage that Walmart pays is too little, just DON’T WORK THERE. Find another job that pays more. If Walmart can’t find people willing to work for what they pay, they will raise their pay all on their own. That’s how the market works. This argument is easily made but difficult to put into practice. The problem is that many people who take these jobs simply do not have the education needed for higher-paying-jobs. That may be because their parents could not afford better care and education for them when they were children.

And that brings us right back to education, which starts at birth. The better we educate our people, the better off our society. China has about 60 more school days a year than the U.S. does. More is not always better, but you can see the intent. Early education for our children is paramount to the success of our society in the long run. It’s not about jobs today, it’s about jobs 20 years from now.

And that’s what I have to say about raising the minimum wage today.

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I have been vocal about my opposition to raising of the minimum wage in these pages. Type “Minimum Wage” in the search box above for more links.

Here is an example from the real world. I happen to work in the subsidized childcare business. In California, as cited in this example, and all around the country, low-income families receive assistance for their childcare costs if their income is below a given threshold as it relates to family size. These programs have been in place since welfare reform under the Clinton administration in the mid 1990s. Overall, the programs have been very successful, as they benefit the children, who are not at fault that their parents are poor, or irresponsible, or didn’t plan well. Money put into education is many times more effective than money put into the correctional system later – if education failed. But that is a subject for another article.

We have a system in place where low-income people get assistance with their childcare. If such a low-income worker gets an “artificial raise” due to an increased minimum wage, that raise can easily move the person out of the current income threshold for free childcare and now the parent has to contribute to the childcare cost.

This could mean that in the end, the parent may actually end up with less money in her pocket than before. The only difference is: The state does not pay anymore, it’s the employer that does. The state saves the expense, and in pretty much all cases the money will be used to sponsor another needy family and child, one that was on the waiting list for funds and care slots.

Artificial tinkering with a balanced system does not work in nature, and usually it does not work in economics, and the side-effects of artificially inflating somebody’s pay go much further and have more ripple-effect than meets the eye. This was just one example.

P.S:

The article has some inaccuracies, one of which I thought I should point out:

Alerna Capiro is now paying the child care fee. She hires her mother, Etelvina Capiro, to babysit her 2-year-old. The state pays Etelvina a nominal amount for that care. Why does grandma do it? She said because it is her granddaughter.

The grandmother that takes care of the child is considered by the state a “license-exempt provider.” In some states those providers are also called “informal providers.” There is a regional market rate at which the state reimburses such providers, and it is not at all “nominal.” It can be significant. There is an entire sizable childcare provider community based on informal providers around the country, and in some states more funds go to informals than formal providers.

 

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In 2013, the average Pizza Hut restaurant had revenue of $861,000. I just went to a Pizza Hut restaurant in New York State a few weeks ago, and my bill was about $24, tip not included. So if that restaurant served 100 people like me a day, it would add up to about $861,000 for the year. It all sounds reasonable.

A Pizza Hut restaurant is not much different from a McDonalds, or a Subway, or any other fast food restaurant. If they do more than a million dollars a year, it’s phenomenal. Most are struggling along. Many barely make it.

Having government raise the minimum wage from say $8 to $15, almost doubling the payroll, will surely put many restaurants out of business. Many are starting to add kiosks now so customers can order on a screen, without a human assisting. I have seen kiosks on tables at Olive Garden, I have ordered at a kiosk at Panera, and I recently saw that McDonalds is adding kiosks for customers.

Raising the minimum wage on restaurants for low-skilled or unskilled laborers is not solving the problem. We like to talk about everyone “deserving a living wage.” Those rich employers just have to make it work. Tell that to the owner of the Pizza Hut, who barely makes ends meet, and sometimes has loss years because he can’t get enough customers every day (remember, he needs a 100 every day of the year).

There are people with college degrees working as paramedics, firemen, teachers and yes, soldiers, who start out making $16 an hour. That’s what these jobs pay at the entry level. Compare that to the skill you need to flip a burger – something you can learn in a few days, and tell me again that everyone “deserves” $15 an hour.

It just does not work that way.

Forcing employers to pay higher wages to low-skilled employees inflates their costs and ends up with one of two results:

  1. They go out of business since they can’t make ends meet.
  2. They lay off staff or shorten their hours and bring in kiosks or other automation.

Both result in job loss. Fewer service jobs. More unemployment for low-skilled workers. More dependency on government handouts. Fewer jobs in the country. Higher prices for basic goods and services.

Raising the minimum wage for low-skilled workers sounds like a noble thing. After all, everyone “deserves a living wage.”

Nonsense.

Those that obtain an education and plan a career where workers are needed and therefore the pay is high will get that higher pay.

We have a terrible shortage of doctors, nurses, engineers, computer programmers, and many other professional careers that pay six figures each. Nobody deserves a living wage. The economy, the collective “all of us” are willing to pay doctors, nurses, engineers and computer programmers a lot of money because those jobs are hard, they are stressful, they have long hours, and they require many years of education.

The solution to our economic problems are not government subsidies, or regulatory interference. That never works. The solution to our problems is education.

But education is hard work.

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Ruminations on the Minimum Wage

Rich man underpaying worker concept“Why don’t we just raise the minimum wage, so the poor have more money and can afford to buy food? We won’t need welfare, everyone can make a living wage, and everyone is better off?

This is what everyone seems to think lately. The news is full of articles that talk about how raising the minimum wage is all good and most Americans are in favor of raising the minimum wage. According to a Gallup poll in early November 2013, a full 76% of Americans support raising the minimum wage from $7.25 to $9.00. The Obama administration indicates support for the Harkin-Miller bill, which would raise the minimum wage to $10.10.

That Americans in menial jobs make so little money ($7.25) is not just getting headlines in the U.S. The foreign press is full of references to this. Recently I saw an article in Der Spiegel, one of Germany’s foremost intellectual magazines, ridiculing the food drive within Wal-Mart employees for their colleagues for Thanksgiving.

Within our own country, there has been outrage about McDonald’s telling its own employees to sign up for food stamps. The argument is that McDonald’s, a highly profitable international corporation does not want to pay its employees enough money to get out of poverty, and rather sends them to the government welfare dole. McDonald’s doesn’t want to pay its employees; it wants us all to pay them.

McDonald’s has proven it’s capable of making a profit abroad while paying workers $15 an hour or more. That may be true. But have you ever eaten at a McDonald’s in Germany? All its staple foods are much more expensive. If you want ketchup with those fries, you have to ask for them. The girl behind the counter does not give you a fistful when you ask for ketchup. She passes them out one packet at a time, at an additional cost of 20 cents each.

There is only one reason why Wendy’s, Burger King, Jack in the Box, McDonald’s, Taco Bell and all the other fast food places pay such low wages: There is a large supply of people willing to work for those wages. That’s why.

Working behind the counter at McDonald’s is probably not an easy job, but it also does not require much of an education. An acceptably clean, groomed and literate teenager can do it with minimal training. The toughest intellectual challenge is making change, and that problem is eliminated by fully automated cash registers, that do all the math.

Working in fast foods is just not a life career. It’s a great job for kids in high school and college, part-time. That’s what it’s designed to be.

If we raise the minimum wage, and all the fast food restaurants have to pay out more money, inevitably the competition will be the same, since all are affected evenly, and prices will go up. All of us will pay more for our burgers, fries and sodas, in other words, food is getting more expensive, and the poor will again not have enough money to buy food, so we need to raise the minimum wage. This is called inflation.

Raising the minimum wage is not solving the problem. This country needs to get back into manufacturing goods, exporting goods, and actually creating value that other countries want to pay us for. If we simply focus on service industries (restaurants, fast food) and consumer industries (buying Chinese products from Wal-Mart) we will never dig ourselves out and get back to the days when America was the manufacturing powerhouse of the world.

Rather than being a creator of value, we have become a consumer of value. And we’re spending ourselves into a hole. We need to focus on education, innovation and efficiency. We need to contribute more and we will get paid more.

Asking for more money for menial jobs does not work. There are other people right behind us more than willing to take our menial job at the current wages.

Everyone is talking about raising the minimum wage.

I don’t think it will solve our problem.

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