Minimum wage

[shockerfan]

For all his supposed anti-business policies, it certainly doesn’t show up in the economic data, since corporate profits are at record levels and they grew much faster under Obama than they did under Bush. So it does raise the question, which is better: is it better to have a supposed pro-business president with mediocre results or a supposed anti-business president with good results?

I am a bit perplexed by that as well. I know passing a law that says your costs go up when you hire your 50th employee is not good for business. I know higher tax rates are not good for business. I know regulations that make energy cost more is not good for business. I think the key metric that exposes it is the workforce participation rate, which is at a 36 year low. Certainly seems like companies are doing fine with fewer workers…and…for the first time in history business closures outnumber new business start ups.

I also think the QE policy of the Fed is propping up the stock market.

Seems to me the corporations are doing good in spite of Obama, not because of Obama.

 

[Zoltan_Cobalt]

None of us live in an unfettered capitalist economy such as the first part of your scenario above might suggest. We don’t allow wages to be “bid down arbitrarily” because in such a pure capitalist economy power and wealth are by nature severely unbalanced and the consequences for the weak would be grave. The idea of “unionism” is an intrinsically good one simply because it acts to address the power imbalance. *

All governments interfere with the “free market”, and that is necessary, because the actors have vastly unequal power, and the sense of fairness that the society wants to achieve demands some independent rule-setting. By all means we can debate what types of interference, particular polices etc. make for a better society, but anyone arguing absolute laissez-faire in labour relations or in most other areas of the economy has read no history.*

I read a lot of history…real history. Not revised.

The flood of misinformation, misrepresentation, distortion, and outright falsehood about the Free Market is such that the young people of today have no idea (and virtually no way of discovering any idea) of its actual nature.

If a detailed, factual study were made of all those instances in the history of American industry which have been used by liberal statists as an indictment of free enterprise and as an argument in favor of a government-controlled economy, it would be found that the actions blamed on the Free Market were caused, necessitated, and made possible only by government intervention in business. The evils, popularly ascribed to big industrialists, were not the result of an unregulated industry, but of government power over industry. The villain in the picture was not the businessman, but the legislator, not free enterprise, but government controls.

 

[Mickey_Finn]

I read a lot of history…real history. Not revised.

The flood of misinformation, misrepresentation, distortion, and outright falsehood about the Free Market is such that the young people of today have no idea (and virtually no way of discovering any idea) of its actual nature.

If a detailed, factual study were made of all those instances in the history of American industry which have been used by liberal statists as an indictment of free enterprise and as an argument in favor of a government-controlled economy, it would be found that the actions blamed on the Free Market were caused, necessitated, and made possible only by government intervention in business. The evils, popularly ascribed to big industrialists, were not the result of an unregulated industry, but of government power over industry. The villain in the picture was not the businessman, but the legislator, not free enterprise, but government controls.

Real history. That’s funny.

 

[Rau]

Actually income for people at the top as done quite well and corporate profits are very strong…

Yes, that’s what I said.

 

[Rau]

I read a lot of history…real history. Not revised.

The flood of misinformation, misrepresentation, distortion, and outright falsehood about the Free Market is such that the young people of today have no idea (and virtually no way of discovering any idea) of its actual nature.

If a detailed, factual study were made of all those instances in the history of American industry which have been used by liberal statists as an indictment of free enterprise and as an argument in favor of a government-controlled economy, it would be found that the actions blamed on the Free Market were caused, necessitated, and made possible only by government intervention in business. The evils, popularly ascribed to big industrialists, were not the result of an unregulated industry, but of government power over industry. The villain in the picture was not the businessman, but the legislator, not free enterprise, but government controls.

Is that what they call a “straw man” argument? If only there were a study, it would show…

The available options are broader than choosing one extreme or the other.

 

[Erich]

is it better to have a supposed pro-business president with mediocre results or a supposed anti-business president with good results?

anti-business president? Check
good results? Not so much

According to the Bureau of Labor Statistics’ own reports, in January 2009 there were 153,716,000 folks in the civilian labor force, and 81,023,000 folks not in the labor force.

In August 2014 there were 155,959,000 folks in the civilian labor force (that’s only 2,243,000 more than in January 2009), and 92,269,000 folks not in the labor force (that’s 11,246,000 more than in January 2009).

In other words, for every person who found a job since January 2009, five did not (or, they lost the one they had).

 

[Erich]

No one is suggesting the receptionist gets paid what the dr’s and nurses do, but try running even the smallest medical practice without a receptionist. The idea that those workers are non essential and not valuable is ridiculous.

No one is suggesting the receptionist is non essential and not valuable.

One argument in favor of the minimum wage is that it is a stimulus, introducing new income and spending into the market. But was there more income to spend in 2009 when nearly 600,000 teen jobs were lost? Common sense says that every dollar a minimum wage worker receives must have come out of somebody else’s pocket, either small business owners or their customers. The money for a higher minimum wage does not come from thin air.

Consider a community based pizza parlor selling 100 pies a day for 360 days at $10 each. Total revenue is $360,000. It employs 10 minimum wage workers earning $7 per hour, working 2000 hours a year, making labor costs $140,000. Assume rent, utilities, equipment, depreciation, insurance, supplies, licenses, and food costs come to $170,000 per year, leaving a profit of $50,000 for the owner and his/her family. Raising the minimum wage $1 would raise labor costs by $20,000 (paying more for the same amount of labor) and reduce profit to $30,000. The owner must either move into a smaller house or raise prices, which reduces the demand for pizza, resulting in the loss of a worker. So, the full increase in the wage cost of an increase in the minimum wage comes out of the pockets of customers or the owner’s family, and the one person who loses a job. There was no net gain in income to increase spending in the community served as every dollar the minimum wage workers received came out of someone else’s pocket in the community.

 

[Rau]

No one is suggesting the receptionist is non essential and not valuable.

One argument in favor of the minimum wage is that it is a stimulus, introducing new income and spending into the market. But was there more income to spend in 2009 when nearly 600,000 teen jobs were lost? Common sense says that every dollar a minimum wage worker receives must have come out of somebody else’s pocket, either small business owners or their customers. The money for a higher minimum wage does not come from thin air.

Consider a community based pizza parlor selling 100 pies a day for 360 days at $10 each. Total revenue is $360,000. It employs 10 minimum wage workers earning $7 per hour, working 2000 hours a year, making labor costs $140,000. Assume rent, utilities, equipment, depreciation, insurance, supplies, licenses, and food costs come to $170,000 per year, leaving a profit of $50,000 for the owner and his/her family. Raising the minimum wage $1 would raise labor costs by $20,000 (paying more for the same amount of labor) and reduce profit to $30,000. The owner must either move into a smaller house or raise prices, which reduces the demand for pizza, resulting in the loss of a worker. So, the full increase in the wage cost of an increase in the minimum wage comes out of the pockets of customers or the owner’s family, and the one person who loses a job. There was no net gain in income to increase spending in the community served as every dollar the minimum wage workers received came out of someone else’s pocket in the community.

If such a business has no pricing power for its products, it is doomed, not by the minimum wage, but by fundamental unviability.

 

[stinkcat_14]

anti-business president? Check
good results? Not so much

In my business there is only one measure of good results, that is how much money am I making. So let’s look at corporate profits. Q1 of 2014 $2.3 trillion.
Q1 of 2009 $1.26 trillion. So in about 6 years corporate profits have almost doubled. That is certainly better than any other president in recent history.

According to the Bureau of Labor Statistics’ own reports, in January 2009 there were 153,716,000 folks in the civilian labor force, and 81,023,000 folks not in the labor force.

In August 2014 there were 155,959,000 folks in the civilian labor force (that’s only 2,243,000 more than in January 2009), and 92,269,000 folks not in the labor force (that’s 11,246,000 more than in January 2009).

Actually the correct statistic you are looking for here is the unemployment rate. The number of people in or out of the labor force does not tell us much.

In other words, for every person who found a job since January 2009, five did not (or, they lost the one they had).

Actually, people have left the labor force, but that can be a good thing. If my wealth increases enough I won’t have to work, so if I drop out of the labor force that is certainly not a negative sign for the economy. Or is a woman quits work to take care of her children that will be reflected in people leaving the labor force, but that is not bad either. Now there can be some people who lose their jobs but are too lazy to look for another one. But if they are too lazy to look for a job, why should we care whether they are out of the labor force, they probably weren’t good workers anyway.

 

[shockerfan]

If such a business has no pricing power for its products, it is doomed, not by the minimum wage, but by fundamental unviability.

there are a lot of businesses that do not have pricing power for their products. Do we move forward with laws that hasten their demise? My comment is not just about the minimum wage, but the minimum wage with the plethora of other cost raising actions our government is more than happy to implement (or has implemented).

 

[Rau]

there are a lot of businesses that do not have pricing power for their products. Do we move forward with laws that hasten their demise? My comment is not just about the minimum wage, but the minimum wage with the plethora of other cost raising actions our government is more than happy to implement (or has implemented).

We judge the initiative on its merits. The pizza shop described is non-viable - far too many staff hours for the turnover - not even 2 pies sold per staff hour! That leads you to draw unsafe conclusions when staff cost move.

 

[JamesATyler]

Thanks everyone for the many replies. Very thoughtful and passionate as usual. I have read them all and talked with a few people in person about the issue. One thing which I have failed to realize in my initial posting is globalization. In my initial attempt to describe my understanding of the situation I used a “ladder” as an analogy to the spectrum of earners from top to bottom, with the bottom being minimum wage earners. However, I failed to account for globalization. In actuality, the bottom of ladder extends well below minimum wage when the labor forces of other countries are included in the analysis.

My approach to the plight of minimum wage earners (or close to minimum wage) hinged upon the idea that even unskilled workers have bargaining power (using the federal government as an advocate) to push for higher wages. This is still true but the natural consequence of forcing employers to pay higher wages for manual labor is that large businesses move operations to other nations and still sell products in the United States. This gives large corporations a competitive edge against smaller localized businesses who are forced to hire workers at a higher wage.

Looking at things in this new light, moving the minimum wage up naturally will increase the competitive edge of foreign companies that are still paying lower wages for manual labor.

I was looking at the American labor force as existing in a vacuum. The reality is that American worker is competing against foreign low wage workers for jobs. I have not looked at specific numbers but I assume that many of the jobs that would be available for Americans, in the pre-globalization era, actually still exist but are now in foreign countries. Not only do American companies use foreign labor but also foreign companies use lower cost labor as well to produce products and sell them in the United States. So there is a double whammy going on.

Apparently none of this new and has been happening for a long time. Those people who are asserting that automation is a real danger have a valid concern. In order to stay competitive with foreign companies, American companies may have to resort to automating more jobs to stay in business so that at least some people can have jobs.

It is a very large problem our country is facing. I think it is true that people at the bottom of the national ladder need more money in their pockets. Unemployed people need those foreign jobs to come back to the States. The entire “Buy American” campaign a few years ago tried to spearhead the problem by appealing to national patriotism but it fizzled out. Low prices have the greater draw on consumers over the long run.

What can be done? American companies cannot raise prices much higher to account for the increased labor costs because they will become too uncompetitive with foreign, lower priced products. More American based companies will fail to realize the necessary profits and fail.

 

[CatholicSheila]

There are may be fewer McDonald’s in countries with relatively higher min wages. The McDonald’s may be smaller in size. It might lack a drive-through. It might have fewer offerings. These are real variations.

The mechanics of raising the min wage is straight forward. It has a disemployment effect. That effect may be blunted by other factors. Proponents necessarily have to believe that something prevents disemployment. I have not come across a convincing “something” though I’m open to convincing.

Australia has a minumum wage of $US17.39. Very high. According to wiki, it’s the one of, if not the, highest in the world ( en.wikipedia.org/wiki/List_of_minimum_wages_by_country ). Certainly much higher than the US.

Our unemployment is lower than the US presently. 6.1% versus 6.2%.

If it is so straight forward, pray tell me, how is it there are any jobs in Australia?

By your logic, if a higher minimum wage means less McDonalds, we should have none. Yet according to a quick google search in 2012 we had 1 per 25 000 people. The US was 1 per 22 000 people. Clearly McDonalds still thinks we’re a profitable nation. And, we even have drive thrus! Who would have thought?

This is what I don’t understand about those opposed to a minimum wage. There is plenty of evidence that the economy is not as simple as higher wages = fewer jobs. Or higher wages = no profit. Right wing lies.

(Before someone replies that we give up our standard of living, according to Human Development Index which measures life expectancy, standard of living, quality of life and education, we rank higher. Second compared to fifth for the US. So )

 

[Joie_de_Vivre]

We judge the initiative on its merits. The pizza shop described is non-viable - far too many staff hours for the turnover - not even 2 pies sold per staff hour! That leads you to draw unsafe conclusions when staff cost move.

Indeed, that employer should have already slashed labor.

Thanks everyone for the many replies. Very thoughtful and passionate as usual. I have read them all and talked with a few people in person about the issue. One thing which I have failed to realize in my initial posting is globalization. In my initial attempt to describe my understanding of the situation I used a “ladder” as an analogy to the spectrum of earners from top to bottom, with the bottom being minimum wage earners. However, I failed to account for globalization. In actuality, the bottom of ladder extends well below minimum wage when the labor forces of other countries are included in the analysis.

My approach to the plight of minimum wage earners (or close to minimum wage) hinged upon the idea that even unskilled workers have bargaining power (using the federal government as an advocate) to push for higher wages. This is still true but the natural consequence of forcing employers to pay higher wages for manual labor is that large businesses move operations to other nations and still sell products in the United States. This gives large corporations a competitive edge against smaller localized businesses who are forced to hire workers at a higher wage.

Looking at things in this new light, moving the minimum wage up naturally will increase the competitive edge of foreign companies that are still paying lower wages for manual labor.

I was looking at the American labor force as existing in a vacuum. The reality is that American worker is competing against foreign low wage workers for jobs. I have not looked at specific numbers but I assume that many of the jobs that would be available for Americans, in the pre-globalization era, actually still exist but are now in foreign countries. Not only do American companies use foreign labor but also foreign companies use lower cost labor as well to produce products and sell them in the United States. So there is a double whammy going on.

Apparently none of this new and has been happening for a long time. Those people who are asserting that automation is a real danger have a valid concern. In order to stay competitive with foreign companies, American companies may have to resort to automating more jobs to stay in business so that at least some people can have jobs.

It is a very large problem our country is facing. I think it is true that people at the bottom of the national ladder need more money in their pockets. Unemployed people need those foreign jobs to come back to the States. The entire “Buy American” campaign a few years ago tried to spearhead the problem by appealing to national patriotism but it fizzled out. Low prices have the greater draw on consumers over the long run.

What can be done? American companies cannot raise prices much higher to account for the increased labor costs because they will become too uncompetitive with foreign, lower priced products. More American based companies will fail to realize the necessary profits and fail.

Please explain how you can outsource the labor of McDonald’s to another country. Mostly it is food that is around minimum wage, manufacturing tends to pay a bit more.

Other things to consider
Chinese wages are rising 15% annually
Cost of fuel (falling in the US)
American made goods are perceived as higher quality

 

[Erich]

If such a business has no pricing power for its products, it is doomed, not by the minimum wage, but by fundamental unviability.

Fundamental unviability? And yet, a google search on [cash flow of typical pizza parlor] turns up this link to someone’s business plan:

…
1.6 FINANCIAL PLAN
Olympic Pizzeria has a strong financial plan with first year earnings exceeding $30,000 and cash flow positive by month 5. It is expected that the company will have losses during the five months that tourism is slow, however during the busy months monthly profits will exceed $10,000. Yearend cash balances will exceed $30,000, and the bank loan will be paid off within two years.

1.7 FUNDS REQUIRED & USE
Olympic Pizzeria requires $85,000 in capital to begin operations. The three owners have personally invested $60,000 into the company. The remaining $25,000 will come from a bank loan that has already been secured. Funds will be used for building renovations, marketing and advertising, and daily operations for the first five months until the company becomes cash flow positive.
…
5.7 OPERATIONS
Operations will be managed by the three managing partners. This will include all marketing activities, financial and accounting activities, and operational activities. The restaurant will employ a small staff of waiters, cooks, and delivery drivers. Staff will be trained by the management team to ensure quality and consistency of food preparation.

5.8 GOALS

• Be the premier pizza delivery restaurant with quality menu items
• First year revenues of $250,000
• Expansion to second location and beach mobile vending carts within 12 months
• Have a strong community involvement
• Open additional locations in other neighboring coastal towns

…
6.3 PERSONNEL NEEDS
It is estimated that a staff of 10 will be needed to maintain operations. As this industry does not require special training and turnover is typically high, staff wages can be relatively low. Most of the staff will maintain part time hours, as many will be high school students and retirees. This will eliminate the need for expensive benefits and other requirements.
…

Not only are the staffing needs the same as for my hypothetical pizza parlor, but the first year revenues and earnings are lower … and the plan anticipates “that within 10 years, there will be 10 Olympic Pizzeria locations in operation. At this time, company valuation is expected to be around $5 million, which will allow an adequate-sized venture to become interested in acquiring the company.”

Not living anywhere near Seaside, OR I have no idea whether this place ever opened (under this name or another one), or if so whether it was in fact acquired by someone else, but $5M in 10 years doesn’t exactly sound “fundamentally unviable”

 

[JimG]

Indeed, that employer should have already slashed labor.

Please explain how you can outsource the labor of McDonald’s to another country. Mostly it is food that is around minimum wage, manufacturing tends to pay a bit more.

Other things to consider
Chinese wages are rising 15% annually
Cost of fuel (falling in the US)
American made goods are perceived as higher quality

One thing that can be done, and I believe is already being done, has to do with the drive thru business. You speak into a speaker and place your order, thinking you are talking to someone inside the building. But you may, now or in the future, be talking to some employee in a centralized call center, which might be located overseas. That person can punch the order into the computer just as easily as the in house person.

EDIT: I might add that the same thing applies to more technical jobs. My relative who works for a telephone company doing outside install and repair work, sometimes has to call a tech person who has before him circuit diagrams of the area being worked. That person used to be always located in the same city, and was quite familiar with the area. Now, when he calls, he might be talking to someone 3,000 miles away.

 

[styrgwillidar]

Fundamental unviability? And yet, a google search on [cash flow of typical pizza parlor] turns up this link to someone’s business plan:

Not only are the staffing needs the same as for my hypothetical pizza parlor, but the first year revenues and earnings are lower … and the plan anticipates “that within 10 years, there will be 10 Olympic Pizzeria locations in operation. At this time, company valuation is expected to be around $5 million, which will allow an adequate-sized venture to become interested in acquiring the company.”

Not living anywhere near Seaside, OR I have no idea whether this place ever opened (under this name or another one), or if so whether it was in fact acquired by someone else, but $5M in 10 years doesn’t exactly sound “fundamentally unviable”

From knowing folks running pizza businesses, I’d say optimistic forecast from a company starting. Note, this is all a plan and forecasts not actual revenue. They anticipate a profit for only 7 months out of the year-- a loss for 5 months with no estimate as to the amount. Based on whatever the curret wage structure is.

And they’re personally putting 85,000 at risk, with positive cash flow at 5 months in a line of businesses where most start ups fail.

Raise the minimum wage-- the break even point shifts, the Return on Investment shifts and since at this return these are investors not dependent on the business for their total income— these folks have to decide whether their 85,000 will provide a higher return at the same or lower risk invested in something else.

A lot of folks thinking about starting a business face this decision-- realizing often this involves their life savings/mortgaging the house. Starting a business is a very risky proposition, the return on the investement is initially very low and if its the source of total income, the business owner has to commit to a very low standard of living as the business grows. In order to take this risk-- the individual has to believe that there will be enough of a return (compared to alternatives) down the road to take this risk. Any significant cost- be it labor, equipment, facilities can make this risk far less attractive and these folks will put their money in something else face starting a business and creating the jobs that go with that.

 

[Zoltan_Cobalt]

Australia has a minumum wage of $US17.39. Very high. According to wiki, it’s the one of, if not the, highest in the world ( en.wikipedia.org/wiki/List_of_minimum_wages_by_country ). Certainly much higher than the US.

Our unemployment is lower than the US presently. 6.1% versus 6.2%.

If it is so straight forward, pray tell me, how is it there are any jobs in Australia?

By your logic, if a higher minimum wage means less McDonalds, we should have none. Yet according to a quick google search in 2012 we had 1 per 25 000 people. The US was 1 per 22 000 people. Clearly McDonalds still thinks we’re a profitable nation. And, we even have drive thrus! Who would have thought?

Actually your Aussie McDonald’s workers are NOT earning $17.39 per hour…are they? More like $6.21 to $9.75 if they are under 18. Possibly less if they are classified as a trainee.

The McDonald’s are very profitable in Australia because 90% of their employees are paid at a lower wage than the minimum of $17.32 per hour.

Australia does it right. They have five levels of Special National Minimum Wages ranging from $6.21 to $16.00 Aus. All depending on age, training (Skill level) and years of schooling.

In other words, Australians are paid what they are worth.

 

[Zoltan_Cobalt]

In my business there is only one measure of good results, that is how much money am I making. So let’s look at corporate profits. Q1 of 2014 $2.3 trillion.
Q1 of 2009 $1.26 trillion. So in about 6 years corporate profits have almost doubled. That is certainly better than any other president in recent history.

Quote:
According to the Bureau of Labor Statistics’ own reports, in January 2009 there were 153,716,000 folks in the civilian labor force, and 81,023,000 folks not in the labor force.

Looking at your Corp Profit figures and the fact that there are 11,246,000 less employees…I would say that industry is doing rather well with fewer employees.

The question then is…has American industry become more efficient or did we have 11 million useless workers on the payroll?

Actually, people have left the labor force, but that can be a good thing. If my wealth increases enough I won’t have to work, so if I drop out of the labor force that is certainly not a negative sign for the economy. Or is a woman quits work to take care of her children that will be reflected in people leaving the labor force, but that is not bad either. Now there can be some people who lose their jobs but are too lazy to look for another one. But if they are too lazy to look for a job, why should we care whether they are out of the labor force, they probably weren’t good workers anyway.

If you win the lottery and are able to quit your job…good for you.

But I actually care very much about those who leave or lose a job and do not seek employment…because, now the government is taking MY earnings and paying them NOT to work.

 

[sallybutler]

Looking at your Corp Profit figures and the fact that there are 11,246,000 less employees…I would say that industry is doing rather well with fewer employees.

The question then is…has American industry become more efficient or did we have 11 million useless workers on the payroll?

If you win the lottery and are able to quit your job…good for you.

But I actually care very much about those who leave or lose a job and do not seek employment…because, now the government is taking MY earnings and paying them NOT to work.

Perhaps, after many years of saving, they retired.

Maybe they decided to stay home and raise their children while their spouse supported the family.

Maybe they died.

Maybe they received an inheritance and decided to live off of that.

Perhaps they took a loan out and returned to school full-time.

Maybe they started their own business and are doing it out of their home and haven’t yet filed on their income taxes.

Perhaps they decided not to go on unemployment while they searched for a job (teachers usually do not go on unemployment during the summer, but are not considered employed).

There are lots of reasons why a person might not be “working” and still not taking your earnings.