connecting a couple minimum wage points.

[JohnRoberts]

I have seen a few recent reports about how many minimum wage workers are also collecting government assistance. This has generally been offered as an argument for raising the minimum wage.  IMO this ignores a few significant factors. 

In a free market and strong economy for labor,  workers get paid for the value they create, and supply/demand for workers. If they are not happy with their pay they are free to change employers to one who values their effort higher. Traditionally minimum wage jobs were held by teen agers just entering the work force as a way to get their feet in the door and gain some work experience. I worked for minimum wage in my earliest jobs 50 odd years ago. As I recall $1.25 an Hr and I was happy to get it. But I became worth more and was paid more than minimum wage in my future jobs.

What we have now, is a brutal economy for unskilled workers. Automation has made even low value jobs worth replacing with machines so the remaining jobs are low pay for low value creation with lots of competition. Unfortunately many adults find themselves settling for minimum wage jobs like in the fast food industry, and I applaud these workers for their work ethic and effort. They could probably get the same money, sitting at home from the government assistance teat. IMO the way to help them is NOT to raise the minimum wage.

Allow me to predict what would likely happen to the fast food industry if the minimum wage gets raised significantly. Instead of counter workers manning the cash register and handing us our big Macs, we'll see self service fast food outlets that accept payment electronically, and you get your food from automat like window compartments, or even automated delivery by pneumatic tube. Instead of a half dozen minimum wage workers there will be 2 or 3 in the back and many less of these low paying jobs. You can't get blood from a stone, and you can't pay workers more than their work effort creates. The math just doesn't work for large corporations or small.

Raising the minimum wage is exactly like a tax on such entry level employment, and will leave us with less entry level positions. This will help the lucky few who keep their crappy jobs, but hurt everybody else. We need to look at entry level jobs as exactly what it is, a way for teens to get experience and enter the system, not destination jobs for adults. This is made even worse by an unintended consequence of ACA where less than 30 hour per week workers are exempt from fines. 

The real solution is to remove the sea anchors from the private economy to allow for healthy job growth. We have some positive trends with low cost energy especially relative to europe (and CA) with their heavily subsidized renewable electricity. I see more manufacturing jobs returning to America thanks to this relatively cheap electricity but the regulators still have their hands gripping the golden goose by the neck and squeezing for all they are worth. (Hon Hai the big Chinese contract manufacturer is looking at building a TV assembly plant in AZ).

Just leaving the private sector alone could cause a huge increase in employment. Tax reform especially if it liberated offshore earnings could cause a huge wave of domestic investment. This stuff is relatively easy to do, if we can overcome entrenched partisan ideology.

JR

PS; The arm waving in DC over the ACA is getting more amusing.. The website is mostly a straw man and only iconic of the larger fail. The website will get fixed at some point but it is not the actual problem. The elephant in the room has always been how to pay for this unrealistic vision for health care. A speech today is trying to deflect this onto the states and insurance companies, but this will IMO continue it's slide toward the ditch as the rubber meets the road next year. Maybe we will finally have an adult discussion about how to actually reform the healthcare system. The 2014 midterm elections are already looming large to legislators due for re-election "and" linked to ACA. 

Interesting times.  I am not gloating, I have always been for constructive reform. Still waiting. 

 

[sahib]

I agree with you in general but if fast food industry decides that there is more profit to be made by using automation then they'll implement it even if the workers work for a Dollar (or Pound) an hour.

I have always been for constructive reform. Still waiting.

Don't hold your breathe.

If it does I bet it will come with a serious destruction.

 

[kato]

Don't take the bait folks.

 

[Spiritworks]

It's a cycle. Raising minimum wage will only result in higher prices, adding to inflation. This will make the raised wages lose any increased buying power that they may have gained.

 

[JohnRoberts]

It's a cycle. Raising minimum wage will only result in higher prices, adding to inflation. This will make the raised wages lose any increased buying power that they may have gained.

But that is only true if there is inelastic demand. In a real market if higher minimum wages pass through as higher prices for big macs, the fast food customers will buy less big macs. Again resulting in less jobs. The majority of fast food customers are probably not earning minimum wage, so raising it only helps a narrow segment, but the cost increase is seen by all.

The premise behind the arguments to raise minimum wages is that large corporations make excessive profits so can easily afford to pay workers more.Large corporations make large profits because they are large, not because of wide profit margins. 

We have some real world experiments, to see what happens. NJ just raised their minimum wage $1 to $8.25, but the real one to watch IMO is SEATAC Wash. They raised the minimum wage for hospitality and transportation workers from $9.19 to $15. This is an unusual case since the consumers affected by any cost increases for using that airport are not local residents. I don't know if there are any other nearby airports, if not the demand may not be very elastic.

Scuffles over unpaid and underpaid interns is causing organizations to completely drop their intern programs as not worth the headaches. This is not a good thing for young workers trying to get job experience.

Everything, even seemingly good deeds by government helping us can have unintended consequences.

JR

 

[walter]

Interesting times in this part of the world. Minimum wage is now $15.00/Hr. at the airport, (but this may not apply to wait staff who also earn tips). On the other end of the spectrum, The areas largest employer, Boeing, Just dealt the ultimatum to end pensions or move a production line. The union is strong and prefers to keep the pension plan.

 

[JohnRoberts]

Interesting times in this part of the world. Minimum wage is now $15.00/Hr. at the airport, (but this may not apply to wait staff who also earn tips). On the other end of the spectrum, The areas largest employer, Boeing, Just dealt the ultimatum to end pensions or move a production line. The union is strong and prefers to keep the pension plan.

The Boeing union has a difficult choice. Boeing has a viable non-union factory in South Carolina capable of building the planes. The union could price themselves out of a job.  Boeing has competitors so can't just charge whatever it cost to build an aircraft in Wash state. 

JR

PS: I think there was some mention of tip protection (whatever that means) in the SEATAC wage regulations.

 

[walter]

I am just amazed that minimum wage does not apply to all. Bar staff and food servers are typically paid less than minimum wage, but can make more with tips. I don't know why this loophole exists. I understand that tips are an insult in England, like saying "I'm higher class than you". btw. The $15.00/Hr. wage in SeaTac is not a done deal, but if it goes through, Seattle may follow. And, the Boeing union is a 60/40 split, they want to run their out of state union leader out on a rail.

 

[ruairioflaherty]

What about the option of paying $1.10 for a burger instead of $0.99?

 

[sahib]

....I understand that tips are an insult in England, like saying "I'm higher class than you".....

No. It has never been an insult but we generally did not have that culture here in the UK until recently. Tips are actually well appreciated, it is just that leaving the 20p change after a group meal as a tip is quite insulting. I always try to leave at least 5% of the bill as a tip.

On the other hand in comparison to US, the level of service you get in the UK  is very poor.

 

[adeptusmajor]

Here in the States 15% is the baseline for a tip. I think this is fair in that it allows the server to make their own earnings based on the quality of the job they do. They can and do make a higher percent earning if they do an outstanding job, and in the occasional case where they do poorly you could leave less, which in theory would prompt them to tighten up and do better on the next one. Of course you have to account for human nature (which any imposed regulation seems to ignore), and this system does allow for the large "something for nothing/ society owes me" culture here to take advantage and leave nothing, regardless of the quality of service they receive. But I would like to think that the high level of human interaction in this environment would dissuade that behavior, through nothing more than a guilty conscience. But I don't see that offsetting what they could potentially earn, which ends up being significantly more than minimum wage.

I agree that federally imposed minimum wage is a bad idea, only forcing businesses to increase wages while the workers' productivity remains static. But it seems that many here don't care or understand that because they are bred to view all business as corrupt and have no idea of the basic economics behind "staying in business". Yet somehow they are blind to see the fact that the government is the prime example of shady business practices, where there is no chance of going out of business even if they operate at a loss, and where they get to act as the referee as well as a player in the game, making whatever calls in their friends' or their own favor that they want to, ultimately forcing real businesses into shady practices and pursuit of loopholes to simply stay alive.

In the fast food industry, these businesses are expected to provide an entry level employment to unskilled workers, and I also applaud these people for taking the initiative to try to earn an honest living. The problem is that with all of the automation, these workers are really learning no useful skills, and by working there they are typecasting themselves as permanently unskilled and disposable workers. You end up getting a lot of this entitlement crowd filtering in, and the job just becomes something that they have to do as a supplement to their lifelong welfare check, not an avenue to grow their skills and earning potential. Of course many eventually realize that they could make more on welfare by not having the job. What you get most of the time is a disgusting inferior product served by people with an attitude because your patronage means that they actually have to do something while on the clock. Around here, the fact that I am a white guy breeds extra contempt and an even poorer level of product and service; not talking out of my a$$, I see this on a daily basis. And now with all of the forced wage increases, you could take the same money that it costs for an "extra-value meal" and go to a real restaurant.

I think that these fast food places in general are just as guilty in promoting this cultural decay as the government is. And while I am just scratching the surface of the problems within that industry and all of the negative effects that it creates within our society, I can't help but often think what kind of difference there would be if they changed their practices. Specifically- stop investing in all of the automated equipment and start investing in a real workforce. All of these annoying chimes and buzzers that scream "fries are done" or "flip the burger, idiot" or "you're too stupid to have any standards of quality control", they could be replaced by valuing the workers more, paying them a little more, teaching them real skills and holding them accountable for the level of product and service they put out. You could reward the ones who do a good job and get rid of the ones who don't. That creates more skilled workers to move up in the workforce, and make these businesses a more desirable place to work or patronize. But they seem satisfied with employing the lowest level workers they could find and marketing only to that same group of people.

 

[JohnRoberts]

Some interesting viewpoints. I think these minimum wage workers do learn some valuable lessons from performing even menial tasks for pay. There is a popular saying that a major part of success is just showing up. Successful employment is both showing up, and then doing something that creates value, so your employer can afford to pay you. I am worried that schools mostly teach the showing up part, but not the doing something valuable. I just saw an article about MacDonalds having a customer service crisis, where they are getting rising numbers of complaints, mostly about delays in food delivery. Sounds like maybe they need more workers? Faster machines? More drive through windows?

@ruario I don't know if it is as simple as raising the meal price 10%. I expect pricing in that industry is pretty competitive and hard to advertise dollar meals that cost more than a dollar. Not to mention food costs have generally been rising. STOP PRESS... in an uncharacteristic show of common sense the EPA is reducing the ethanol mandate.  Corn futures prices are already falling in response to this news, so this could reduce all food costs. The entire ethanol industry is driven by these mandates so another green industry that will take a hit. IMO a good thing for those of us who aren't corn farmers, but eat food.  ;D

========
A related discussion to minimum wage is maximum wage. The Swiss are voting on a proposal to limit the maximum CEO pay to no more than 12x the lowest paid worker. This seems rather arbitrary and more likely to reduce pay at the top rather than raise pay at the bottom. I can imagine several unintended consequences of this. First is corporations based in Switzerland, leaving for a friendlier venue. Corporations inclined to stay, will be more likely to contract out low value jobs to some other corporation so corporations could end up stratified based on the type or value of specific work they do.

This is all the nature of legislators and central planners desirous of mandating outcomes, rather than leaving business unfettered, within reason, to maximize wealth creation. I do not ignore that there is some need for regulation as capitalism is inclined to test the margins, but it should be possible to prevent the excessive outliers without killing the golden goose. Business is not inherently evil, while some businessmen are.

JR

 

[dirtyhanfri]

JohnRoberts your audio engineering posts are awesome but your economy/business vision is even better. It's always interesting to read viewpoints from the other side of the Atlantic Ocean, the vision here is quite different

 

[hodad]

You can't get blood from a stone, and you can't pay workers more than their work effort creates.

What garbage.  Somebody's work is paying for stock dividends.  Somebody's work is paying for a CEO's lavish salary.  Somebody's work is paying for plush corporate headquarters.  Last time I checked, the CEO wasn't directly providing any product at all with his work effort.  He's riding on the backs of the underpaid workers. 

But you know that.  You also know that executive pay has increasingly out of hand, and you probably also know that the worker's share of the income pie has gotten increasingly smaller relative to the share going to executives and shareholders. 

 

[JohnRoberts]

You can't get blood from a stone, and you can't pay workers more than their work effort creates.

What garbage.

Is that your way of saying you disagree... ?

Somebody's work is paying for stock dividends. 

Yes the entire company works to pay dividends. That is how investors get compensated for providing risk capital that companies use to grow, and/or pay for R&D.

Somebody's work is paying for a CEO's lavish salary.

Some CEOs are over paid and some are underpaid. Warren Buffet pays himself exactly one share of his stock a year. While his stock is currently trading at $174,300 per share.  I believe Warren Buffet is underpaid, I believe a number of CEOs are overpaid, but they create value in other ways than building widgets. Chief executives create a corporate culture and provide leadership, increasing the value of a company's stock creates a huge amount of value. 

Somebody's work is paying for plush corporate headquarters.

Again not a sin. Some companies like Google or Yahoo invest a lot of money into a nice campus where people want to work. This helps them attract and keep workers. One could argue this is a good investment.

  Last time I checked, the CEO wasn't directly providing any product at all with his work effort.  He's riding on the backs of the underpaid workers. 

You have a rather negative and perverse view about how value is created. Some entire companies do not even make a hardware or physical product. Facebook and Twitter are glorified websites. but they apparently have created a lot of value.

But you know that.

apparently not,,, we disagree.

You also know that executive pay has increasingly out of hand, and you probably also know that the worker's share of the income pie has gotten increasingly smaller relative to the share going to executives and shareholders.

This is not a zero sum game where there is a fixed pie that gets divided between labor and management. Business has always been about value added every where along the supply chain. I have been working and paying attention for around a half century. During that time I have seen machines and automation replace massive amounts of menial labor. Now companies need skilled labor to keep the machines humming along. These jobs are higher paying than flipping burgers. It isn't business management hurting the paychecks of common laborers, if you want to be angry at somebody be angry at an education system that turns out college graduates that can't get hired, while skilled jobs go unfilled.

This wealth trend has recently been distorted even more by the central bankers easing and accommodation that has increased the value of hard assets (like land, homes, and stocks). Since wealthy people tend to start with more assets, they disproportionately gain from the monetary easing. Conversely (or perversely) the politicians who tried to help poor people buy homes they couldn't afford and couldn't pay for. left them poorer that before. The new ACA may help a few disadvantaged at the very bottom, but everybody else will pay more for healthcare.

Sorry I do not have a simple answer for income inequality besides better education and job specific skills training.

JR

PS: Ironically perhaps, the central bankers keeping interest rates artificially low has made dividend paying stocks a lot more attractive. While retirees trying to live off fixed income are getting screwed by the central bankers helping the economy recover with low interest rates.  Help from the government is often a double edged sword, danger they are trying to help us again. 

 

[adeptusmajor]

I am worried that schools mostly teach the showing up part, but not the doing something valuable

I believe this is very true of our education system. They are also teaching:

the worker's share of the income pie has gotten increasingly smaller relative to the share going to executives and shareholders.

I lovingly refer to this as the "Jeffersons mindset", where we are all just "tryin' to get a piece of the pie", and we look the other way as the government cuts itself a bigger and bigger piece. You would figure that any self respecting country that truly has an interest in growing its economy would teach its citizens to, I don't know, make pies, instead of dividing up some supposedly finite resource. But what does the gov't know about that, anyway?

Unfortunately I believe that our public education system is nothing more than a soviet style workforce sorting facility, and the real education is distributed through the government media machine.

 

[sahib]

[

Sorry I do not have a simple answer for income inequality besides better education....

I don't know the simple answer either but I know the " better" education is really a garbage.

How much better can you get?

But you are right on

...and job specific skills training.

There used to be apprenticeship mechanism in the industry. If you were in the techie level you started with bringing tea to your master, learned from him and made your way up. If you were a graduate you still started with bringing tea to your master, learned from him and made your way up. And the company had a solid permanent pool of workforce. But that also came with its own responsibilities to the company.

Then came the cost cutting exercise. Now we can discuss the factors of this until the cows come home. But  I can touch upon one area that you wandered in above. Get rid of this industry training scheme, off load that responsibility to education and then blame them for not producing skilled graduates.

I remember PRR once saying he did not do a degree because he thought he could not hack it. I attempted and could not hack it either as it takes a lot. When it comes to textbook theory and mathematics an average graduate will leave you miles behind. But the experience comes from the industry and the opportunity for that is not there anymore. Or there is very little.

Now it is a standard practice to get rid of the "dinosaurs" who are a liability and replace them with young people who will work for less but are expected to demonstrate the same productivity as engineers of many years of experience, in other words the "dinosaurs". Then the standards are lowered, lowered and lowered down to the stage that going back up becomes impossible.

As I said, this is just one factor but I hope it brings a little clarification that "better education" argument is a quick get out clause.

 

[JohnRoberts]

I have blathered on a lot about education and I truly believe that we are on a threshold of cheap and widely available education via the internet. Just like we now enjoy access to almost unlimited knowledge from any computer with a browser and internet connection (anybody remember encyclopedias?), we can't be far away from widely available and credible educational course materials.

There is always the last mile, where students need some 1 on 1 help to get past some impasse in their learning progress. We already have wireless tutors that students can interact with using texting on cellphones to get problem solving help with homework. The next step is artificial intelligence, a Siri like personal teacher programmed to help students overcome common stumbling blocks.

I won't cast (more) aspersion on the current education system but surely they are smart enough to see the writing on the Internet wall.  I would be worried about my future if I were overly attached to the old ways. 

JR

 

[hodad]

I am worried that schools mostly teach the showing up part, but not the doing something valuable

I believe this is very true of our education system. They are also teaching:

the worker's share of the income pie has gotten increasingly smaller relative to the share going to executives and shareholders.

Believe all you want--it's not true.  Today's education standards are written by politicians and corporate types who know little or nothing about an actual classroom.  They see the world a certain way, and they try to shape it to fit their beliefs.  Don't blame the teachers--blame folks who claim that if we just had the right script, any monkey could teach a class of unruly third graders.  Or the people who institute standards that pay little regard to a child's learning development (ie, things that are age-inappropriate or out of sequence) or just plain stupid or (as happens in my GOP state) apparently motivated by a desire to counter the influence of those awful commie teachers by throwing in some Republican-style indoctrination.  Blame the short-sighted people who inform JR for believing that internet education is some panacea.  (I assure you it would not work at all for my son.)  You can blame politicians and superintendents who demand so much data on children that teachers are losing a good 10-15% of instruction time to assessments and standardized testing.  You can also blame parents (of all classes) who sometimes think that sending kids to school relieves them of all responsibility to assist in the education of their own children.  You can blame an undifferentiated education system (where most high schools are strictly college prep--vocational has gone by the wayside) for failing to reach kids who have no interest in what that system has to offer. 

But don't claim it's because they're teaching what you quoted from me above.  They aren't teaching that.  Believe me.  Not in the schools where my wife has taught, not in the school that my son has attended.

 

[JohnRoberts]

I am worried that schools mostly teach the showing up part, but not the doing something valuable

I believe this is very true of our education system. They are also teaching:

the worker's share of the income pie has gotten increasingly smaller relative to the share going to executives and shareholders.

Believe all you want--it's not true.

I don't really want to go down this road but there is always a struggle for hearts and minds of the next generation. Not to mention a little too much re-wriiting of actual history. I do not blame teachers, they are often regurgitating things they were taught, or the textbook du jour.

Today's education standards are written by politicians and corporate types who know little or nothing about an actual classroom. 

many corporations are taking matters into their own hands because they know what they need future workers to know. that they don't know now..

They see the world a certain way, and they try to shape it to fit their beliefs.  Don't blame the teachers--blame folks who claim that if we just had the right script, any monkey could teach a class of unruly third graders.  Or the people who institute standards that pay little regard to a child's learning development (ie, things that are age-inappropriate or out of sequence) or just plain stupid or (as happens in my GOP state) apparently motivated by a desire to counter the influence of those awful commie teachers by throwing in some Republican-style indoctrination.

Those evil republicans? 

Blame the short-sighted people who inform JR for believing that internet education is some panacea. 

I am informed by paying attention to the world around me. Disregard this opportunity at your own risk. Children are naturally inquisitive. I wish I had the WWW when I was a kid, while I learned a lot from emulating my older brothers. Like other double edged swords, we need to expose kids to the information sharing aspect of networks, and not the black hole time and energy suck of computer games.

(I assure you it would not work at all for my son.)  You can blame politicians and superintendents who demand so much data on children that teachers are losing a good 10-15% of instruction time to assessments and standardized testing.  You can also blame parents (of all classes) who sometimes think that sending kids to school relieves them of all responsibility to assist in the education of their own children.  You can blame an undifferentiated education system (where most high schools are strictly college prep--vocational has gone by the wayside) for failing to reach kids who have no interest in what that system has to offer. 

We have been around this tree before. Standardized testing is the only way to measure results and is not a new concept. The new angle is making educators accountable for results but that has be blunted by the current administration.

I appreciate that this is not simple, but it is not impossible, and too important to not manage objectively (using hard data).

But don't claim it's because they're teaching what you quoted from me above.  They aren't teaching that.  Believe me.  Not in the schools where my wife has taught, not in the school that my son has attended.

I have heard of a few outrageous anecdotes, but expect with any profession there are good and bad apples.  I am not complaining about this aspect of education, I don't care if they do a maypole dance around a statue of Karl Marx, as long as they teach the students merchantable skills and a honest version of history. 

JR