Egregious Minimum Wage Doubling
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Don Boudreaux on one of my bête noires, the minimum wage.
Finally, when Ms. Kim writes that “The minimum wage isn’t a pathway to the middle class; it is a safety net to prevent destitution,” she reveals that she doesn’t understand the key problem with the minimum wage – namely, that it causes some workers’ earnings to fall to $0. However economically precarious one’s life might be when paid a positive market wage of less than $15 per hour, that life is far more precarious when paid $0 per hour.
Minimum-wage legislation isn’t a safety net; it’s a knife that shreds the safety net of employment opportunities in the market.
I think there are already people who want work and can't find it, at the current minimum wage. A policy that makes them more expensive to employ, a policy that increases the minimum wage, makes it harder for them to get a job. That seems counterproductive to me.
This op-ed is a good example of why I dislike the New York Times editorial page.
That is why the minimum wage debate resonates so profoundly with so many: We know what it feels like to not have enough money after you’ve busted your body with too-hard work. We know the worry in parents’ eyes as they sit around a dinner table littered with more bills than dollar bills, trying to figure out whom to pay and how to save.
These scenes play themselves out in more American households than the well-dressed men and women in the marbled halls of Congress will ever care to imagine.
Raising the minimum wage won’t erase all of the problems of the poor, but it is one component, one rooted in basic dignity and fairness, of a much fairer picture of income inequality and poverty.
… But, as one would expect, Republicans in Congress are chafing.
… This week, the Republican governor of Oklahoma, Mary Fallin, signed a bill banning the state’s cities from “establishing mandatory minimum wages or vacation and sick-day requirements,” according to The Associated Press.
How callous is that?
… Now, if both sides are playing politics with the minimum wage to some degree, which side would you rather be on: that of the working people, who are struggling to make a living, or that of the politicians determined to block them?
Charles M. Blow presents a very stark view of an issue: you're either on the side of the working poor or you're a callous well-dressed Republican who's determined to stand in the way of the working poor. He assiduously ignores any evidence that opponents of the minimum wage might also care for the poor and might be concerned about their welfare. In Blow's world the facts are simple: when Congress votes to raise the minimum wage, everyone earning the minimum wage is immediately made better off and no one suffers. Only the callous and evil could stand against that.
But the issue isn't that simple. Raising the minimum wage will cause some workers to lose their jobs—their employer will not be able to employ as many people at a higher price as she did at a lower price. Raising the minimum wage will cause other would-be workers to never get a job offer—at a higher price, employers will be less willing to take a chance on iffy job candidates.
Raising the minimum wage will make some jobs less pleasant—at a higher price, employers will be less willing to provide amenities or break times. There are, in fact, a lot of ways that a minimum wage job could get worse. For instance, the employer could be come less tolerant of employees clocking in a few minutes late. She could stop providing free uniforms and begin forcing to employees to purchase their uniforms. She could reduce the amount of on-the-job training she offers and begin hiring only fully qualified employees, cutting off a source of jobs for lower skilled employees.
No. Raising the minimum wage is not a clear cut, indisputable way to improve the lives of the working poor. It will, undoubtedly, improve the lives of some of the working poor. It will also force some into unemployment, prevent others from getting a job in the first place, and make the workplace more miserable for still others.
I oppose a minimum wage increase. Not because I'm callous, well-dressed, and uncaring. I oppose it because I have a bleeding heart, I'm sloppily dressed, and I care. And I'm angered that Charles M. Blow would choose to promote his policy position by completely ignoring my arguments and ascribing only evil motives to me and those who think as I do.
Rep. Maxine Waters (D., Calif.) is a case study in the Washington approach. Rep. Waters, who like so many of her peers offers unpaid internships, celebrated the passage of the Fair Minimum Wage Act of 2007—raising the rate of the minimum wage to $7.25 from $5.15—with a House floor statement. "The economic gap between the rich and poor is growing. Too many people are living at or below the poverty line," Rep. Waters said. "When we pass this bill, we will all feel better about ourselves."
By offering unpaid internships, Rep. Waters says that some jobs are valuable in and of themselves and that the experience is more valuable than a minimum wage would be. I agree with that. I also agree that some jobs are beneficial with a combination of a low salary and job experience.
And yet. Rep Waters is supporting legislation that would make these jobs illegal. Why is she offering these jobs to her staffers but trying to make it illegal for anyone else to offer these jobs to their employees?
The minimum wage isn't bad because it hurts employers. It's bad because it hurts non-traditional employees.
To run our campgrounds, we mainly employ retired people. Of my 500 workers, well over half are over 60 years old, more than 150 are over 70, some 25 or so are over 80 and a few are even over 90! Most are on social security and medicare, and many have pensions and retirement health plans. A good number are disabled and have some sort of disability support. While they work slower, they make up for their low productivity in part by their friendliness with customers and their life experience.
Most of my employees travel the country in their RV. They take most of the year off, but many like to work over the summer to make a little money and to pay for their camping site. I give many of them a free or subsidized campsite, worth about $500+ a month, plus all their utilities and then pay them minimum wage for the hours they work. Many are thrilled with these terms - so many that I have a waiting list now of over 300 names of people who are looking for this type work. This list is currently growing by about 10 names a day.
There may be employers somewhere who have a power imbalance over their employees. Some days, I envy them. My employees most all have independent means of support. Further, they all have wheels on their houses, so they can and do pick up and leave if they aren't enjoying their job. And, if they don't like our company, there are thousands of other campground operators who are looking for help.
So why are so many people lining up for minimum wage jobs when lefties and progressives are telling them that they should not want those jobs? Here are some reasons:
- They value the amenities that come with the job, including living for free in a beautiful outdoor setting, something it is impossible to value under minimum wage laws
- They have other means of support, so the money is incidental. In fact, I get more inquiries from employees asking me to reduce their hours so as not to mess up their social security or disability payments as I do people asking for more pay
- They get to work with their spouse as a team. There are not many employers out there that let a husband and wife split up work between them any way they want or even work together - can you imagine such a situation on a GM assembly plant?
- They would have a hard time getting hired by anyone else. Very few employers will hire new workers in their sixties, and certainly not older than that. Older workers can be slower and less productive. For $12 an hour, I would have to hire younger workers too, but at minimum wage, I can afford the lower productivity of older workers and gain the benefit of their experience and trustworthiness.
This last point help set the stage for our cases. I love hiring older workers at $5.15 an hour, and they love the job and line up for it. But what happens when I have to pay these less productive workers $6.00 an hour? What about $7.50? What about at $12.00 an hour? Here are some examples of what happens
Case 1: The jobs just go away ...
Case 2: The jobs get outsourced to contractors ...
Case 3: The jobs get automated away ...
Case 4: Prices go up to customers ...
We are changing our operating strategy from hiring retired couples who live on-site to hiring younger workers. This is a change I really hate. The business model of hiring retired folks who live on-site at a campground is an old and successful one. Folks in their seventies (and I even have workers in their eighties and nineties) don't work very fast, and they have more workers comp claims, but they had the ability to live on-site and life experience that helped them with customer service. But trade-offs that worked at $5.15 an hour don't work as well at $7.25 and higher. So far only selectively, but we are hiring younger folks from the local community to come in and do some of the janitorial and maintenance work. Even if I pay them $8 or $10 an hour, they make sense if they can be twice as productive.
Businesses, sadly, don't have an unlimited ability to raise their prices. Every time the cost of labor goes up, the profit margin goes down. When the profit margin goes below 0% (or whatever margin the owner is willing to accept), prices must go up. If prices can't go up -- as frequently happens in a competitive marketplace -- costs must go down. If the government mandates that labor must cost at least some number, per unit, then the number of units has to go down.
In this case, Warren Meyer is faced with the unpalatable choice of reducing the number of elderly employees at his company or losing the ability to run his business. This isn't something that his specific employees want. They're thrilled with the amount he was giving them. I strongly suspect that they'd work for even less, if given the choice. But they can't. They're not allowed to. They're forced into unemployment because the government refuses to consider that they may not fit the mold.
The minimum wage isn't bad because it hurts employers. It's bad because it hurts non-traditional employees. We're not all alike and it shouldn't be our government's policy to criminalize those who have different preferences about how they'd like to be paid.
The minimum wage isn't bad because it hurts employers. It's bad because it hurts those who want to be their employees. Imagine you're either a recent college graduate or soon to be a college graduate. You're armed with a degree in English, History, Business, Electrical Engineering, or, well, it almost doesn't matter. You're armed with a degree. But so are hundreds of thousands of other recent graduates from across the country.
You can submit a resume to every employer who's looking for help. In fact, you have. But, then again, so have hundreds of other people. Some companies receive hundreds or even thousands of resumes for just one open position. How in the world are you ever supposed to rise to the top of the pile?
You think, despairingly: "If only they knew what a great worker I was. Once they see the work I can do, I know they'll hire me." Then you get a bright idea. You'll volunteer to work for free for a week or a month. You'll let them see the work you can do. Hopefully they will decide to hire you afterwards. And, if they don't, at least you'll have done something better than just sit around waiting.
Not so fast. Your bright idea is illegal. After all, we have a minimum wage in this country. You aren't allowed to work for anything less than $7.25 an hour. And free is most definitely less than $7.25 an hour.
"If you're a for-profit employer or you want to pursue an internship with a for-profit employer, there aren't going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law," the Labor Department's Nancy J. Leppink tells the New York Times.
The Times also quotes Trudy Steinfeld, director of New York University's Office of Career Services, regarding opportunities for unpaid internships. "A few famous banks have called and said, 'We'd like to do this,' said Ms. Steinfeld. "I said, 'No way. You will not list on this campus.'"
John Stossel relates his experience with hiring unpaid interns.
When I asked WCBS to hire me a researcher, my bosses looked at me as if I'd asked for the moon. Since they wouldn't pay, I started calling colleges to ask if they had students who wanted internships. Many did. From then on, I got much of my best help from unpaid college students.
Many later moved on to paying jobs at the networks, and many became network TV producers…
At first I felt guilty asking students to work for no pay. But I stopped feeling bad about it after most told me they'd learned more in our newsroom than they'd learned on their campuses. Their schools charge them money, while I taught them for free.
And, he discovered, if you did want to work for free, you couldn't do anything that actually helped your possible future employer. So, a practical demonstration of the value you can add to a business is right out.
[T]he six federal legal criteria that must be satisfied for internships to be unpaid. Among those criteria are that the internship should be similar to the training given in a vocational school or academic institution, that the intern does not displace regular paid workers and that the employer "derives no immediate advantage" from the intern's activities -- in other words, it's largely a benevolent contribution to the intern.
Perhaps, in the eyes of the Labor Department, it should be a benevolent contribution to the intern, from the business. But what if the intern genuinely wants to help, in exchange for the possibility of a job? What if the intern wants to create a great resume that can be used to stand out from the pack when applying for the next job? Doesn't the intern have any choice about how and when he can sell his labor? And for what price?
As I see it, the minimum wage is hurting those who want to work hard, who want to stand out. The minimum wage isn't bad because it hurts employers. It's bad because it hurts those who want to be their employees.
The minimum wage isn't bad because it hurts employers. It's bad because it hurts employees.
To All Team Members:
The schedule for next week has been posted. You may notice that hours have been cut back on your schedule. This is across the board, not just you. I don't want anyone to think they've done something wrong to deserve a cut in hours, so I wanted to explain why it's happening.
There are a couple of reasons for this:
1) May and September are very slow months for our business. Anyone who has worked Sundays recently has seen the drop off in traffic. Now that we're entering May, that drop off will continue on to other days as well, and it will get worse.
2) The recent increase in the minimum wage to $7.25/hour. Since we've opened, I've had a lot of people ask why they can't get more hours, and it's a great question.
I would LOVE to give everyone all the hours they want, and then some. Our customers would be happier across the board, we could accomplish much more every day, our business would grow, I could hire even more people, and on and on. However, we operate on a tight budget just like any other business, and in order to survive, we have to make money. That means our labor cost (the total amount you are all paid) must stay below a certain percentage of our total sales. If it doesn't, we go broke and everyone loses their jobs.
Our brilliant Congressmen in Washington, D.C. decided a couple years ago that it would be a good idea to raise the minimum wage by about 40% to $7.25/hour. It just took effect last year. That probably sounds like great news for everyone - more money in everyone's pockets can only be good, right?
Unfortunately, it doesn't work that way in the real world. If I'm forced to pay everyone 40% more, I can't afford to schedule as many employees for as many hours, since our sales aren't going up by 40%. Remember, I can only afford to pay you guys a certain percentage of all the money coming in the door. That means hours get cut, and everyone ends up poorer.
In a perfect world, it should work the opposite way: you should be free to choose how much you think your skills and time are worth (since you know best), and I should be free to pay you whatever that amount is if I want to hire you. Everyone wins in that case. I get as many good employees as I want that I can afford to pay, and you get valuable job training, references, and relationships to carry into the future.
To prove how bad of a deal minimum wage is for you guys as hard-working job-seekers, just look at this way:
I'm not being forced to pay $7.25/hour; YOU are being forced to accept $7.25/hour no matter what, even if you'd be willing to take less in order to get (or keep) a job.
You can thank our elected officials in Raleigh and Washington for sticking you with such a raw deal.
If you have any questions about any of this or want to talk more about it, please feel free to come see me, the door is always open.
The minimum wage isn't bad because it hurts employers. It's bad because it hurts employees.
What these guys have in common is that they're only marginally employable. What borderline mental illness has done to one, mediocre skills and the unintended consequences of anti-discrimination laws have done to the other. As long as I've known both (and that would actually be most of my years, for both of them), they've worked dead-end jobs and put their passion into science fiction and wargaming. They're decent, honest, unambitious men who have never wanted anything but steady work, a normal life, and a hobby or two. They're not stupid and they have respectable work habits; in fact they're probably more conscientious and safe than average. Now they don't quite fit; too old, too geeky, too male, too quiet. The job market has discarded one and the other is hanging by a thread.
When I look at these guys, though, I can't buy the explanation most people would jump for, which is that they simply fell behind in an increasingly skill-intensive job market. Thing is, they're not uneducated; they're not the stranded fruit-picker or construction worker that narrative would fit. Nor does offshoring explain what's happened to these guys, because their jobs were the relatively hard-to-export kind.
No. What I think is: These are the people who go to the wall when the cost of employing someone gets too high. We've spent the last seventy years increasing the hidden overhead and downside risks associated with hiring a worker -- which meant the minimum revenue-per-employee threshold below which hiring doesn't make sense has crept up and up and up, gradually. This effect was partly masked by credit and asset bubbles, but those have now popped. Increasingly it's not just the classic hard-core unemployables (alcoholics, criminal deviants, crazies) that can't pull enough weight to justify a paycheck; it's the marginal ones, the mediocre, and the mildly dysfunctional.
Again, the minimum wage isn't bad because it hurts employers. It's bad because it hurts employees. It makes employees more expensive to hire, more expensive to take a risk on, and easier to fire. As soon as someone costs more in salary, benefits, and regulatory costs than they generate in revenue, they become a liability. And few businesses can afford to keep such employees just for the thrill of being charitable.