Honestly: the minimum wage does need to go up

[enders-shadow.livejournal.com]

This post got me thinking.

I am firmly in favor of:

A) A higher minimum wage in the whole US, and my home state of NY
B) Honesty in politics

While the OP I linked to is not exactly dishonest, it's not exactly honest either.
And this is not to put flak upon the poster there, but it's an example of political rhetoric that is used to leverage one side of a conversation, ignoring nuance.

the graphic in the linked to OP:

1) Doesn't seem to take into account state laws that raise min wage over fed laws
2) Doesn't take into account the vast difference in housing throughout a state

My objection is more with 2 than 1. 1 is easy to take care of, but 2 is not easy.

New York City is WAYYYY more expensive than Rochester or Buffalo, NY; or a large number of other places within the state I could name. Yet, this graphic gives us a number, presumably an average. But that average is way skewed. But how else should they do it? Give us on graphic for NYC and another for the rest of NY State? That wouldn't work either, because then you'd need to break it down for other cities and so on. So what do we do?

We must talk about things in the big picture without getting bogged down in details, otherwise we will have to talk for eons before we can understand what needs to be done. So while I agree that the min wage needs to go up, across the US, I have a problem with the info-graphics created to support that argument. They lack nuance, and as such, are deceiving. Even if they don't mean to be, and are honestly doing the best they can to compile and sort the data, the inevitability of misleading data is going to doom us all.

That said.
Happy saint patty's day.
Was I drunk when I wrote this? You decide.

Comments

[kayjayuu.livejournal.com]

Let's try real numbers and see if it works.

Say a food service business makes $50K a month. Average labor is about 20%, or $10K. For argument's sake, say 60% of employees have been there long enough to make more than minimum wage, and 40% are new and making minimum. Turnover is fairly high in food service.

Let's assume a minimum wage hike of 33%, from $7.50 (example only) to $10/hr. Forty percent of total labor just increased 33% (plus the employer's portion of employment taxes, which are based on wages, but for simplicity we'll discard that). If hours worked remain the same, the monthly labor is now $11320, or 23%.

Now some of the employees who were there long enough to get raises, but not long enough to make more than $10, also get raised to the minimum wage. We'll assume half of those remaining were making $9/hr. Eleven percent increase for 30% of the labor costs is another $330. But now they aren't happy that the new kid in the door is making the same as they are, so we'll bump them up to $11 to keep them. Labor is now $11980, or 24%.

Uh oh. The star players of your team are just as unhappy that their hard work that garnered them $10+ an hour now means bumpkis. I guess they can just suck it up, or leave. But if you want to keep them, better take it up a notch and raise the remaining 30% to $12/hr. A twenty percent increase for them brings labor to $12580 a month, or a whopping 25 percent. That's unsustainable in the food service industry.

Too bad the inexperienced 16 year old just got a 33% raise, and your lead worker who has stuck with you for 3 years and could almost run the store got stuck with 20%. If life were fair, everyone across the board would get the same percentage raise. And if they did, somewhere in the P&L you'd have to come up with an additional $3300 to get labor costs back under control.

So just raise the prices 7%. A family meal out that usually ran $20 is now $21.40. But gas prices are rising, and the hours at the factory still aren't up to par even though they're way past paying minimum wage, so they forgo the drinks and get water -- a very high margin item, so not only are not making your additional 7%, it's not a cost effective loss. So that's not working. Plus, they complain about it and only come in three times a week instead of four now. Or they go to your competition, who has a dollar menu.

You try coupons, which works a bit better. Or maybe it doesn't, because more people come in but they spend less or just as much, and it takes an extra person to keep up with the additional business, so labor goes up accordingly.

The only sure fire way to make up that additional labor cost is to reduce the number of man hours to get to that 20%. That means asking more of your employees, maybe opening or closing with one less person, or letting people go entirely. Three thousand dollars in man hours could be two full timers, or four or more part-timers. Your higher earners are more efficient so even if they make more per hour, they produce more. Sure, they may burn out from overworking, but the electric bill isn't going to come down, and there wasn't enough rain to keep the tomatoes cheap, and your food vendor just added a delivery surcharge to cover his increasing fuel cost, and the state is upping the cost of worker's comp, and then there's the corporate income tax changes, so... something has to give.

The bank doesn't care how you get the money to make your loan payment every month. You just pay it, or you close down.

And we all know that never happens, does it.

*Caveat: all calculations done at 4am. Not responsible for errors while sleeping at the keyboard.

[badlydrawnjeff.livejournal.com]

You're good at this.

[kayjayuu.livejournal.com]

I love the restaurant industry, I've worked in management from the bottom up, and I will eventually open my own place.

I strive to avoid being one of those statistics. Alas, that's tough. And rick_day is probably going to hand me my ass since he's on the ground in actual business.

We'll see if my figures hold up in the light of day, however, lol.

*drinks coffee*

WWBD?

[rick-day.livejournal.com]

I love numbers people. Except when you get too focused on percentages of change, especially from one number to the next.

Yesterday I had $10. Today I have $20. That is a whopping increase in revenue of what, 200%. Impressive, just do that every day and I should be rich!

Except, all I have is $10 more. Not so impressive when you look at the real numbers.

In your example, our increase comes to an actual increased amount of $39.33 a day. New minus old divided by 30 days (most of these type businesses with such hypothetical staffing levels should run 24/7, right)

Here is what business people do: they tweak the prices in a few places where the cost is low and the return and volume is high (fountain drinks) by, say, a dime (or, amortized over a days worth of cup sales, bringing it down lower, make less than a penny a unit). I only have to sell 390 drinks a day (which I should be selling well over 500 or I am not in business with so many laborers; trying to go with your hypo parameters here). Am I going to lose business over a .10 increase on a side item?

Even smarter business people already plan for such things, and have excess profit built into profits already, so blows can be absorbed without major hits to the bottom line.

Your example is a tempest in a teapot, but thanks for taking the time to go through the math for me. That is what I let my accountant do heh heh..

[kayjayuu.livejournal.com]

:D

It's nice when you have a successful business in a large town. There are options.

In a crossroads small town, with four eating options and 2500 people.... not so much. Raise the prices and people complain for months. Even talk about you behind your back, because it's that or the weather. Heck, take out the soft serve ice cream machine to save money at the pizza buffet, and people keep asking five years later when you're bringing it back, because their cousin in the city 150 miles away says their store still has theirs.

True, captive audience. But it also means that any price increase due to whatever cost fluxuation impacts that whole wage increase all the more.

Example above, buffet has gone up three dollars since 2009 -- what used to be $5.75 at lunch is now $8.75. Two kids could eat for free on Kid's Night, now it's one. A very successful loyalty card (buy 10 get one free) have disappeared and been replaced with a point system that give you a few dollars off. Coupons are pretty much shit compared to what they used to be. Labor is scarce here, but it's still really hard to meet the 18 percent target that corporate sets (down from 22% pre-2009). It means the manager has to work harder, not necessarily smarter (one of the reasons I'm no longer there). It means the place isn't quite as clean as it should be. It means hiring the first warm body that walks in the door drug- and conviction-free because you're already short four people and there really isn't anyone else left in town to fill out an application because they're basically unemployable. It means the pizza on the buffet no longer rotates after 20 minutes... it sits there until it's gone or the buffet is over. Food quality decines because food waste has to come down to cover expenses. (I don't agree with that last bit, but there you have it in The Real World.)

But you're still the most successful family-priced business in town. Even though the senior citizens on a fixed income have cut down to once a month, because they can't afford it. It's a treat now, instead of a weekly after-church event. And the wage earners who got the raise? Well, they can pay their higher utilities a bit better, but now the burger place in town costs almost 8 bucks for lunch instead of 5. And don't even talk about the sit-down place -- can't get out of there for under fifty.

Yeah. Not everything happens in The Big City. Pity that.

[enders-shadow.livejournal.com]

Labor costs are one of the many costs that businesses have to deal with.
It is unfair to assume that labor costs cannot go up--or if they do, it's somehow BAD for everyone.
Meanwhile:

A) Most min wages increases aren't that dramatic, or, they are phased in over a number of years. e.g. the 5.15 to 7.25 federal min wage increase took place over three years. So it's not a sudden hit like that.
B) You forget that your new workers now might spend more money at your food-shop. They gotta eat too; but now, instead of cooking rice and beans at home, they might just buy a meal from you. This applies to both the workers in your shop who you pay more, and the countless others in other stores who make min wage.
I bet that the McDonalds employee who wants some food is sick of the same old McDonalds, but with their min wage salary, cant quite afford your food.
BUT! If their wage goes up 33% and your food cost goes up 10%, well, they are still more likely to be able to afford it and thus purchase it.
C) If any other good that was required for business went up in cost, then what? OMG they're charging me more for my X or Y! I cant allow that to happen!
Except, if it's a supplier of something other than labor, you cant always do something about that.
but for some reason, labor is expected to remain very cheap while other goods get more expensive. that doesnt make sense.

[kayjayuu.livejournal.com]

It is unfair to assume that labor costs cannot go up--or if they do, it's somehow BAD for everyone.

You speak as if it's an option. If labor costs go up, you either bring in more money or cut expenses. Cutting expenses is immediate. Bringing in more money is a crap shoot -- if it wasn't, it would be easy to make money hand-over-fist for no reason whatsoever.

And if you are a corporate store, or a franchise, it's in the contract that you will meet their expectations for labor and COGS, or eventually they'll find someone more ruthless than you to run their store, or your franchise fee will go up accordingly. Counter-productive in my eyes, but hey, that's those evil corporations for you. Bottom line, nothing more.

A) That's a forty percent increase over three years. As I cited in my example to rick, labor expectations from corporate were lowered from a doable 22% to a much tougher 18%. That dishwasher makes more money, but now he works alone during lunch rush instead of having a little help now and then that makes it bearable. In case you haven't done it, that's a really shit job and I wouldn't do it five days a week.

B) Employees get one free meal on shift as in incentive. Would I actually pay for this food if I'm working there, company-store style? Maybe once a month. And the burger place down the road also raised their prices. An increase in minimum wage won't increase business at minimum wage places -- it make it possible to pay living expenses (I'm not discounting that). Eating out is a luxury item on those wages.

C) Labor isn't really "expected" to be cheap while other costs go up. It's one of the few areas that an owner/manager actually has some control over. If costs go up, you either increase income or decrease expenses. Fixed expenses are fixed, and some go up over time (rent, insurance, taxes). Never down. COGS (Cost of Goods and Services) fluxuate (ha! I wondered why that wasn't in my spell check, lol fluctuate and the only control you have there is either finding new vendors, changing what you offer (not an option with a franchise), or controlling waste/portions. A very difficult task if you're already pretty efficient. So that leaves labor. However you end up cutting those man-hours, the effect is immediate. Run a shift on four people instead of five and you've cut your labor for that shift by 20%. Period. More money in the coffers that day.

It sucks. I'd LOVE to pay people a living wage if and when I have my own store. Love love love to. But if I have to pay my bills in order to actually open my doors and remain open... there are only so many areas I can juggle. So we'll see how it works.

[enders-shadow.livejournal.com]

You speak as if it's an option. If labor costs go up, you either bring in more money or cut expenses. Cutting expenses is immediate. Bringing in more money is a crap shoot -- if it wasn't, it would be easy to make money hand-over-fist for no reason whatsoever.

You speak as if every penny that a company has is already spoken for.

Wal-Mart could pay it's employees more, keep it's prices the same, if only they cut how much their CEO's make.


Also, if your provider of item X ups their price, what do you do? The increase in the cost of labor should be viewed the same way. Labor is just as valuable a commodity as the other items you need to run a business.

And yes, I have been a dishwasher. It was my first job outta college, actually. I get my BA and the next day I travel to Fire Island (resort island off Long Island) and worked as a dishwasher for a summer. The pay was 8/hour. It sucked.

[kayjayuu.livejournal.com]

In a small business, every penny is spoken for. Not all the world is WalMart, or running efficiently, or in a large labor pool, or near supply houses that don't charge an arm and a leg for delivery.

In small business (retail/food especially), the "CEO" is often times not even taking home a paycheck for years so that he can meet payroll and stay open.

Eight bucks an hour for washing dishes? Nice. Not happening in much of America, because most small business haven't reached their tipping point in sales (where making more money is really that, making more instead of costing more), and some never will. But if everyone closed shop that isn't at that paradigm yet, we'd probably have 75% less businesses open.

[enders-shadow.livejournal.com]

Yeah. It was a pizza/resturant place. The pizza was $3.50 for a plain slice. Paying me 8/hour aint fabulous.


The majority of minimum wage employers ARE big-box stores.

[geezer-also.livejournal.com]

"The majority of minimum wage employers ARE big-box stores. "

I would have thought it would be manufacturing?

[enders-shadow.livejournal.com]

not to my knowledge.

[geezer-also.livejournal.com]

You may be right, I haven't finished all of the link I gave you, it may tell.

[gunslnger.livejournal.com]

Citation needed. The cite you gave earlier has big retail paying an average of $14/hour.

[the-s3ntinel.livejournal.com]

>...40% are new and making minimum...

>Forty percent of total labor just increased 33% (plus the employer's portion of employment taxes, which are based on wages, but for simplicity we'll discard that).

That's 40% of employees, not 40% of labour costs. So you can either amend the scenario so that 40% of labour costs came from people making minimum wage, or else you have to make an assumption about how much more the non-minimum-wage people are making than minimum wage, and scale down the increase proportionately.


The next thing to say is that you seem to be acting under the assumption that there's no 'slack' that can be taken up anywhere in the system. If you walk around almost any workplace you'll be able to find inefficiencies great and small, which go unfixed due to laziness, risk-aversion and lack of imagination.

I think (admittedly based on not that much experience - but some) success and failure in business is more determined more by the ability to see and deal with elephants in the room than by eking out lots of tiny savings - e.g. paying 16 year olds slightly less than the guy down the road.

The other thing about 16 year olds is that they learn fast, so if you can somehow rethink the role so that it's more demanding and worth the extra money, then as long as you're prepared to take the small risk that they won't be able to pick it up as they go along, you don't lose anything. There's even a positive externality in the fact that this teenager is more skilled after they leave than before.

[peristaltor.livejournal.com]

The bank doesn't care how you get the money to make your loan payment every month. You just pay it, or you close down.

And here you may have stumbled upon the only factor that differentiates this era (the last forty or so years) with the past. Debt overhang has increased from a fraction of our economy to about 40%.

This leaves less wiggle room in every business (everyone financed through interest-bearing debt,that is). Less wiggle room means they have to squeeze the lesser employees just to give them enough of a cushion to incur future debt, if necessary.

Steve Keen has developed a new theory of how our economy works, one that instead of ignoring banking and debt models it. His findings are striking. (Sadly, Firefox is not playing nicey nice with LJ today. Posting and browsing is like wading through molasses.)

But since most econ profs ignore or discount lending and debt money, no prominent speakers address this issue, and teach their undergrads instead to cut costs to people too weak politically to protest.

[kylinrouge.livejournal.com]

If your business is so inefficient that a minimum wage increase breaks it, then you deserve to go out of business. Plenty of other places who actually run good business models will pick up the slack. And yes this applies to rural places too.

Hell, assuming all other things equal, you're raising prices with inflation anyway, and if you raise minimum wage to account for inflation, WHAT IS THE DIFFERENCE? And shit like 'gas prices rising' is COMPLETELY unrelated.

Labor costs are a vanishingly small amount of total costs for any business, even high-labor businesses. The idea that 40% of your employees get a 33% increase and that results in a 7% increase in 'a family meal' (rick_day already addressed why this is silly) is absurd. If the increase is consistent with the last 5 years of inflation if the minimum wage hasn't moved beforehand, you're not losing anything.

In fact, if minimum wage DOESN'T move with inflation, you're paying your employees less in real wages every year. If you're not making more money from this, your business sucks.