Seattle votes for $15 minimum wage
bbc.com
bbc.com
“Are you happy with the $15 wage?” I asked the full-time cleaning
lady.
“It sounds good, but it’s not good,” the woman said.
“Why?” I asked.
“I lost my 401k, health insurance, paid holiday, and vacation,”
she responded. “No more free food,” she added.
The hotel used to feed her. Now, she has to bring her own food.
Also, no overtime, she said. She used to work extra hours and
received overtime pay.
What else? I asked.
“I have to pay for parking,” she said.
I then asked the part-time waitress, who was part of
the catering staff.
“Yes, I’ve got $15 an hour, but all my tips are now much less,”
she said. Before the new wage law was implemented, her hourly
wage was $7. But her tips added to more than $15 an hour. Yes,
she used to receive free food and parking. Now, she has to
bring her own food and pay for parking.
http://www.nwasianweekly.com/2014/05/blog-seatac-tells-us-15...
also, kinda illogical. the tips got reduced when the waiter got a minimum wage, really? that doesn't make any sense.. and the perks for the hotel worker, it sounds like the hotel took away from her a greater value in perks then she got in the increased pay. are they exacting revenge on her due to their dissatisfaction with minimum wage laws, or what? why would they take away more? they used the introduction of minimum wage as an opportunity to squeeze her even more, under the pretense of being forced by the new wage rules?
Even the logic of promoting good service seems useless. The manager could easily take care of that (it's kind of his job) and if for some rare reason I had a bad experience, I can voice my opinion and not come back.
Also, I'm not sure a cleaning lady, and a waitress are even qualified to figure out their financial situation. Especially since functional illiteracy, and innumeracy in that region is around 40%.
How do we know that the companies didn't use this situation to take away the benefits and blame it on the minimum wage laws? It sounds like a typical negotiation tactic pulled on the powerless. Sure, the managers need to come up with more money to balance the budget. Taking less profit, or increasing efficiency, or charging more are harder than simply taking away benefits from easily replaced low skilled workers.
It's almost as if workers and employers are both consenting adults, capable of entering into or rejecting a transaction if it isn't mutually agreeable.
anyway, your question is already answered in the post above. you do know what a strike is?
furthermore, many workers are theoretically capable of exiting such an agreement at will, but in reality they have little choice. work in one lousy job or another, or starve. which would you choose?
work in one lousy job or another, or starve.
If we are discussing the US, the choices are enjoy consumption of $20k/year funded by the government or enjoy consumption of $20k/year funded by earned income.
ftp://ftp.bls.gov/pub/special.requests/ce/standard/2009/income.txt
Also, did the company drop its 401k program entirely? I don't think you can exclude certain workers without getting in trouble.
[apologies if these are answered in the article, it's blocked here]
If they could raise prices to completely offset an increase in costs, they would have done that already, and have higher profits as a result. They may raise prices, but it will not be revenue-neutral of profit-neutral for them.
also, for me it is far more improtant to note that, if i may guess, >90% of companies paying most of their workers a minimum wage do not operate on zero profit.
• Researchers find small one-time price increases in the restaurant industry (of about 0.7 percent following a 10 percent minimum wage increase), but not in other industries.
from "University of California, Berkeley study: Who Would be Affected by an Increase in Seattle’s Minimum Wage?" which is one of the two pieces of research commissioned in the development of the Seattle ordinance.[1] The research explored empirical evidence provided by similar minimum-wage increase ordinances in other cities. (9 total, I believe, including San Francisco.)
[1] http://murray.seattle.gov/wp-content/uploads/2014/03/UC-Berk...
In any case, you should realize that this is a major increase in costs to restaurants, not just 1 or 2 percent.
The numbers I've seen for profit margins in restaurants range from 2 to about 3 percent. Since 1/3 of costs in restaurants come from labor, a 30% increase in labor costs will mean that restaurants will have a negative profit margin of around 7 or 8 percent after the new minimum wage goes into effect.
This means that eventually there will likely be less workers, higher prices for food, and less restaurants.
"Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households."
http://marginalrevolution.com/marginalrevolution/2014/01/how...
This is simply false.
Sure, we'd all like it if all people could live comfortably, and it is a noble goal. But the minimum wage is not the way to do it.
"A larger body of economic research investigates the effects of state and federal minimum wage increases. These studies compare employment trends for states or counties that have different minimum wages. The best studies make comparisons to nearby states or counties to control for regional economic trends. These studies also find no statistically significant negative effects on employment or hours at an aggregate level or for low-wage industries such as restaurants and retail stores, or for specific groups of workers such as teens. These studies also do not find substitution effects (such as shifts in hiring away from black and Latino teens)."
...
"In a prospective study of the San Francisco minimum wage, Reich and Laitinen (2003) carried out a representative survey of establishments. They estimated that a 25.9 percent increase in the minimum wage from $6.75 to $8.50 would result in a 1.1 percent increase in the overall wage bill. When viewed from the perspective of operating costs, a 26 percent increase would result in 82.0 percent of establishments experiencing an increase in operating costs of less than 1 percent or more, and 95.2 percent experiencing an increase in operating costs of less than 5 percent. Breaking down results by industry, they estimated that 17.9 percent of restaurants would experience an increase in operating costs of 5 percent or more, as would 8.6 percent of retail establishments. For manufacturing, entertainment, hotel, and personal service firms, the estimated increase in operating costs was close to zero.
Pollin (2004) similarly estimated that the average increase in firms’ costs relative to sales under Santa Fe’s 2003 minimum wage ordinance would be 1 percent; the average cost increase for hotels relative to sales would be 3 percent.
Benner and Jayaraman (2012) analyzed the impact of a proposed increase in the federal minimum wage from $7.25 to $10.10 (a 39 percent increase, not accounting for inflation during the phase-in) on the food industry. They estimated a maximum increase in operating costs for the food service and drinking establishment industry of 2.25 percent over three years, and 1 percent in the retail food industry. "
from "University of California, Berkeley study: Who Would be Affected by an Increase in Seattle’s Minimum Wage?"[1], one of the pieces of research commissioned during the development of the Seattle ordinance. "This research was based on nine localities in the United States currently have enacted minimum wage laws: Albuquerque, NM; Bernalillo County, NM; Montgomery County, MD; Prince George's County, MD; San Francisco, CA; San Jose, CA; Santa Fe, NM; Santa Fe County, NM; and Washington DC."
But to analyze it as an experiment, you really need to determine some objective criteria for success and failure. Each individual may have different criteria, but it's important to come up with the criteria first and then compare them to the results later.
Even then, it's unlikely to change many minds. With the economy, it's too easy to find some exceptional event that you can blame for the results not matching your prediction.
I think we just have to accept that science can't answer everything, and the economy is probably one of those things that can't be answered.
In the case of Seattle, they commissioned two pieces of research for this ordinance:
UW Evans School of Public Affairs study: Local Minimum Wage Laws: Impacts on Workers, Families and Businesses [1] University of California, Berkeley study: Who Would be Affected by an Increase in Seattle’s Minimum Wage? [2]
The second paper addresses a lot of the questions I suspect you're interested, and it addresses them with empirical evidence based on previous such experiments in other cities.
[1] http://murray.seattle.gov/wp-content/uploads/2014/03/Evans-r... [2] http://murray.seattle.gov/wp-content/uploads/2014/03/UC-Berk...
There are nine other localities where this has been done where there's empirical evidence available. See a link somewhere in the child tree of your comment.
the determining factor for the amount someone is payed is not how much their company earns, and/or how much they contribute to that. for most workers it is simply - how easily can s/he be replaced? i.e. market price, mostly independent of how well an individual company is doing! no manager is going to pay workers more than s/he needs to, at least not without risking reduction in competitiveness, and for workers with low education, you can find replacements easy, particularly during economic downturns.
and yes, it still can be a company, unless you wish to narrow the definition of the word company. the way a company will distribute it's profits is mostly it's own business. are you perhaps automatically assuming that all companies are traded on the stock market?
in any case, you're the one who started with redefining "charity" in such a wild manner you seem to now hypocritically be accusing me of.
But hey, just for the sake of argument let's pretend you COULD take it out of profits. Here's where you run into a related assumption which is one of the basic rules of economics: change happens on the margin. Suppose that the entirety of the McDonalds chain as a whole is profitable. For simplicity we'll ignore the fact that the individual stores are mostly franchises and pretend they're all company-owned. The chain is not uniformly profitable! Some outlets are very profitable and others are just barely scraping by. When you increase the cost of labor the outlets that were very profitable are still worth running even with the new cost of labor, but the outlets that were only slightly profitable before are now losing money.
Those are the outlets that close.
Restaurants that will lose money every year with the higher wage aren't worth keeping open. shifts that lose money at the higher wage also aren't worth keeping open, so hours of work tend to get cut back too. You don't lose jobs at every store or uniformly, but you do lose marginal jobs that did exist or that would exist were it not for the new wage.
Overall, the chain will survive, but it has to shrink back in order to do so. In order to argue that it doesn't, you'd need to believe not just that the company overall is making (a lot of) profit, but that EVERY individual outlet is making the same share of that profit, so they're all worth keeping around post-change.
For instance, suppose you are a McD franchise owner whose restaurant has 50 "crew members" (source on that number: https://answers.yahoo.com/question/index?qid=20070917131148A... ) and your restaurant recently became profitable to the point that it currently makes an annual profit of $250k. A quarter million dollars in annual profit isn't a lot but it's respectable - that is a sustainable business! That's something you can afford to keep operating indefinitely (and try to grow over time). You have some room to invest, some room to make mistakes.
Now suppose the state passes a law requiring you to give all 50 of your crew members an extra $5/hour. How much does that cost? 50 people * 2000 hours/year * $5 = $500,000. So your restaurant just went from gaining a quarter million to losing a quarter million a year.
Now it is not a sustainable business. Your pockets are not deep enough to keep losing that year after year; you should probably close the business or scale it way back.
Are you going to claim that every restaurant in the chain has enough buffer to take a half-million-per-year hit to the bottom line and stay standing? Of course not. There are always some marginal businesses; those are the ones that are likely to shrink, cut benefits, or close.
surely you don't suggest we should allow majority of workers to be exploited because some weakly profitable restaurants might fail? (and 50 employees with 250k annual profits sounds pretty weak.) all these workers are paid the same miniscule wage, regardless of whether their restaurant makes more or less profit, so most of them are exploited, simply because they can easily be replaced.
Who is exploiting whom here? Most restaurants fail. Nearly all restaurants lose money in the first three years of operation. During that time, when the firm is losing money but still paying salaries, isn't the firm owner the one being exploited? And aren't you exploiting the owner even more by forcing him or her to lose even more money on the way to a slim chance of profitability?
People who consider that "the gains outweigh the losses" probably don't realize that even those who get a raise due to a minimum wage law might be on net worse off than before that law was passed. Certainly those who lose their job or fail to get a new one are worse off, but even some who keep their job are also worse off, because they lose other benefits in lieu of salary that they presumably valued more.
There is no plausible theory that says low-skill workers are made better off by making it illegal to hire them for less than a specified price. Legally fixing one term in a contract in general makes both parties to that sort of contract worse off. There are many reasons why it should be hard to measure the damage the minimum wage does so it's not surprising that a few empirical studies return the "man-bites-dog" result, but we shouldn't fool ourselves into thinking it doesn't do any harm at all just because that harm is occasionally hard to measure.
The minimum wage is callous and cruel; it harms those least able to afford being harmed. It is at heart indefensible.
Fortunately, we live in a rich enough society that being legislatively forced into a suboptimal job situation or involuntary unemployment is usually recoverable. It's not a death sentence. Yes, Seattle is effectively kicking poor people in the face with this law, but in the grand scheme of things it's probably not the worst legislative indignity we inflict on them.
"they lose other benefits in lieu of salary that they presumably valued more." - key word being "presumably", which is, given the election results in Seattle, apparently not true. and, there is of course no reason for all of them, or even a majority, to loose more in benefits than they gain in higher pay. makes no sense.
"we shouldn't fool ourselves into thinking it doesn't do any harm at all just because that harm is occasionally hard to measure." - ah, but we should :) measurement is king. if any losses will occur, they should be measurable. otherwise, i guess we should throw the entire history of science out the window.
"There is no plausible theory that says low-skill workers are made better off by making it illegal to hire them for less than a specified price." -- see my very simple explanation here: https://news.ycombinator.com/item?id=7840655 - generally, libertarians, a behavior typical of followers of any ideology, simply ignore all unfavorable aspects and just assume that the market automagically solves everything, without considering parameters under which a certain market operates.
"The minimum wage is callous and cruel; it harms those least able to afford being harmed." -- your concern for the poor is very moving. i personally, OTOH, would use the same words to describe the libertarian approach to economy and to the poor. but, in the end, those are just emotional soundbites.
I'm not sure you understand the argument here: A job is a bundle of benefits. There's a money component but there's also all sorts of tangible and intangible other factors that are of value to the worker and cost money to the employer. Other factors might include things like: Free food. Free training. Company-provided uniforms. A well-lit work environment. Flexible hours. Sick leave. Vacation time (paid or unpaid). A well-lit and clean and safe work environment. Job security. A 401k plan. Health coverage. Convenient employee parking. Educational assistance. Prescription drug discounts.
Suppose the value of your work to the company is $16/hour, of which you get paid $10 in salary, $5 in benefits, and the company keeps $1 as profit. If the minimum wage is increased to $15/hour, the only way the company can afford to keep you on is to get rid of ALL the benefits; they would then pay you $15 in salary and $0 in benefits.
The problem is that if you had WANTED that deal you could have BARGAINED for it. You CHOSE a 10/5 salary/benefit split because that's what you preferred, so when the government forces you to take a 15/0 split instead you are being forced to accept a deal you like LESS than your prior option. You're worse off.
Yes, you're making $15/hour, but now you have to work HARDER and the work conditions are worse and the timing is less flexible and the schedule is less relaxed and the job security is nonexistent and you have to pay for your own food and uniform and training and so on where before those were all provided. It is now a miserable job even at the higher wage, where before it was an okay job with a merely not-great wage.
But wait, I hear you cry: "minimum wage workers have no negotiating power so they can't just demand exactly what they want!"
Ah, but they kind of can. They do so not by arguing with employers directly but merely by CHOOSING employers. When considering whether to work at McDonald's or Burger King, workers look at the whole package and pick the one they like MORE. (The company cares about the SUM, not how much is salary versus benefits - it just wants to get the best workers they can at a low OVERALL cost) Over time, the company that offers a better overall blend of benefits+salary will find it easier to hire the people they need so the packages offered will tend to evolve to best meet the needs of the average workers.
Then the government steps in and says screw that, you can't HAVE those benefits anymore, because the company can't afford to give them to you along with your new higher salary.
If the minimum wage went from $10 to $15, people whose value to the company was between those two simply lose their jobs; people whose value to the company was $16 or more keep their job but the job is now a really crappy one they (according to revealed preference) probably like less than what they had before. So they aren't actually made better off by the change, even though they got a raise.
Which means there's no net benefit to the higher wage, only costs.
> key word being "presumably", which is, given the election results in Seattle, apparently not true
Election results are mostly about signaling and group affiliation. They don't tell us anything about what minimum wage workers want, because minimum wage workers are such a small portion of the electorate.
> measurement is king. if any losses will occur, they should be measurable.
Bad study design could easily render them unmeasurable in any particular study. And most minimum wage increases are essentially designed to be nearly unmeasurable by the sort of study you're thinking of. Yes, the theory says that, all else being equal, businesses will tend to respond to higher labor costs by such measures as: cutting benefits, cutting shifts (so there are fewer hours but not necessarily fewer jobs), investing in automation, shrinking or failing to expand, not opening (as many) new businesses. But theory doesn't say exactly WHEN this will happen or even in which business sectors. An exceptionally stupid study design might compare just the number of jobs right before the law takes effect to one year later, and find no effect. But wait: the law was argued about in the legislature for two years and then passed but didn't take effect until the next calendar year, and took effect in multiple small stages. A smart, pro-active businessman who knew he needed to make changes might see the writing on the wall and start making those business changes before the law even passes much less takes effect, confounding that study design. On the other hand, a lazy, re-active businessman might just suck it up and change nothing, losing some money for a year or two after the change, either hoping to make it work or hoping the law gets repealed. Eventually he is driven to make those changes but does so after the study window, again confounding the results. In short, what sort of delayed or premature response we should expect for a particular sector and a particular sort of legal change is an empirical question - you might have to run one study to find the shape of the expected response and then run another to estimate its magnitude. Doing the sort of thing Card/Krueger did is almost guaranteed to miss most of the signal, even if it's really there.
as for the whole reasoning, it goes under the assumption that all the gain will be taken out of benefits, which is unfounded. also, why would the worker not cover benefits him/herself? with cash in hand, s/he has a much wider choice then picking McD's or BurgerKing's bundle package or nothing... ultimately your argumentation also goes to show how important workplace safety regulations are, since many business owners think like you, and history has already taught us how that can end.
as for the reasoning about studies, this is so full of fallacies and arbitrary pseudo-reasoning it's hard to even start answering. these things are hard to measure, yes. maybe you will be surprised, but people did already realize that long before you wrote that comment. but, when a couple of unemployment figures suit your point, then, OTOH, i am supposed to immediately blindly agree with you? :)
this is getting boring.
P.S. I cannot resist - do you even realize that after so much market-efficiency-based reasoning, you completely took a shit on it in order to discredit the study? the effects you expect are products of a theory based on ideal markets and market agents, yet when we fail to measure the expected effects, that's because they are anything but ideal. genius :D
I'm not sure if you realize that across multiple industries the rate at which worker fatality stats improved either stayed the same or even declined when OSHA was introduced. In short, it's not clear at all that federal worker safety regs actually improve worker safety. You can perhaps see that best in the graph (Figure 34.1) on the third page of this PDF:
http://object.cato.org/sites/cato.org/files/serials/files/ca...
Regarding the study, I'm not saying you can't learn anything from studies. I am saying that when we have hundreds of studies showing that the minimum wage generally causes unemployment - and we do - one or two that say "but it's hard to see the effect of this one small change in this one small area with this one specific way of looking at the data" aren't enough to rebut that general presumption. If you want to "even start answering", you should read at least ONE study on the other side, not just look at data sources that agree with you. For instance, you could read this:
http://www.econ.ucsb.edu/~pjkuhn/Ec250A/Readings/Neumark_eta...
The unemployment stats I pointed to were comparing having a minimum wage AT ALL to not having one - bigger changes are more likely to be highly visible in the output data. BTW, to answer your question (somewhere else in this thread) about Germany, the last time it had very high unemployment was around 2005 when it had a high minimum wage and lots of "worker protection" laws. After the German labor market was freed up a bit (including getting rid of that minimum) the unemployment rate there dropped quite dramatically. Here's a chart of what that looked like:
http://mediaserver.fxstreet.com/Reports/95e05c46-b989-46ee-a...
(UPDATE: Wait, that's showing values in millions of workers, not as percentages, which is a little misleading. So here's a chart that shows the rate while comparing Germany to France over the same period:
http://thinkingoftheworld.files.wordpress.com/2013/06/chart-... )
as for the study, for the third time now i will repeat - i agree that minimum wage may raise unemployment. as far as i have noticed here, so does this study that Seattle commissioned before introducing the minimum wage. the question is, what is the relationship between the gains and losses?
as for the argumentation - it is again the same thing! instead of "whole company", you moved to topic into "individual branches", but it is still the same - apparently, a huge number of workers is employed in places with zero profit, be it whole companies or just branches. this is an incredible claim. why would we accept that workers in highly successful branches should get underpaid, just so that a couple of barely profitable branches could remain open?
everyone needs work. and low-skilled workers come in large numbers. any manager not aware of this, and how it enables him or her to pay the workers as little as possible, is a fool! management will pay the least amount possible, since replacement workers are readily available. this is why an increase in minimum wage will not produce nowhere near a proportionate response in lost jobs.
Let's do some maths then :
McDonalds 2012 profit : $5.5 billion Revenue : $27.56 billion Employees : 1.8 million
Revenue per employee : $15311 Profit per employee : $3055
So costs per employee : $12256
Let's say McDonalds locations vary in revenue by 25% (95%) and that the main cause is employee_cost/customer. That seems to me a very reasonable claim.
That means employees make McDonalds between $11483 and $19138 in revenue, -772 to 6682 in profit. Let's assume uniform distribution. The amount of net-negative employees would be about 10%.
Since most companies are much less profitable than McDonalds, the idea that a lot of people are effectively employed with zero or negative gain seems quite plausible to me. In the US and Europe both you could defend the idea that most people have a net-negative utility to the US and European nations (taken as a whole), a gap that gets filled by the sale of treasury notes to foreignors.
But there are whole classes of employees that will have net-negative utility :
1) government employees (government does not produce goods or services. And where it does it's financed by taxes, negating the benefit)
2) management (they don't contribute directly to work getting done)
Ideally, neither function would exist (and police and roads would simply be organised directly by the people who want to use them). I'm not saying that's realistic, but it would be better from an economic perspective.
In my opinion people often overestimate how inefficient capitalism is. There was a huge fuss about oil profits a few years back, when oil first went to $100/barrel. When you calculate how much per gallon oil company profits were (and thus how much they could be theoretically maximally lowered by nationalizing the oil companies) you'd get something like 2-3% depending on the company. This was the populist solution to bring oil back from $105 or so to $60 ...
Of course if you're living in San Francisco and see Goldman Sachs organise a bankers' convention in the most expensive hotel in the city it seems excessive, but all their costs only amount to at most the low double digits of their revenues. For the vast majority of firms, it is the low single digits.
That doesn't mean improving the "common man"'s life is not worth it, of course.
put most simply, if your hypothetical McDonalds (at the numbers before you introduced the arbitrary variation, for which BTW an application of the Zipf law would probably be more appropriate) fired one employee, they would not suddenly have $12256 more in revenue. they would be wise to determine the exact costs of keeping an employee when making these decisions.
---
another important argument which is often overlooked - the extra money that people at lower incomes will receive through this will almost entirely and certainly be spent back in the economy where they live! i have a strong hunch that under certain circumstances, although they might, when thoroughly estimated, turn out to be extreme, hiking up minimum wage might produce increased employment in the mid-term.
Fine. Suppose we want to increase the minimum wage by at least $5/hour. Let's see if that's possible without "cutting back":
McDonald's has 1,800,000 employees and makes 5.46 billion in profit. Divide the latter by the former and you'll see that their profit is $3,033/employee. If they gave ALL the profit to the workers in the form of higher wages and divided it equally among the workers, that's how much of a raise they could afford to give without doing any "cutting back": ~$3k/year.
A 40 hour workweek is about 2000 hours per year, so that means if they didn't save ANY profit to give back to investors or invest in the growth of the business or set aside against losses in bad years, out of profits they could afford to give their full-time workers a raise of: $1.50/hour.
Any more than that, and they have to cut back.
But wait, you say! What about bloated CEO salaries?
Huffington post says the incoming CEO of McDonalds recently got paid ~$14 million and the outgoing one got ~$28 million. (source: http://www.huffingtonpost.com/2013/04/12/mcdonalds-ceo-pay_n... ). Let's add those together and round the total WAY up to $50 million dollars. Let's assume they can save $50 million dollars by not paying CEOs or ex-CEOs (and a couple other high administrators) anything, and distribute the savings to the workers as higher salary.
$50 million / 1.8 million = $27.8. So by eliminating those top salaries we could give every worker an extra 27.8 dollars per YEAR. Divide that by 2000 and you'll see we can afford to give each full-time worker an additional raise of roughly: 1.4 CENTS per hour.
Conclusion: doubling the minimum wage (or bumping it by $5, or anything in that ballpark) can't be done out of profits or out of cutting top salaries. Raising the minimum by more than a dollar or two would render the overall firm unprofitable.
also, i am not that crazy to think that this would not cause ANY cutbacks. the money does indeed have to come from somewhere. it's just that there would be nowhere near a proportionate response in firings compared to the increase in the life quality of the people affected, and also in the consumption driven by their new incomes.
ultimately, this is like a collective bargain on a wider scale, supported by the democratic process in Seattle. it is correcting for the unfavorable effect of market forces on the pay of uneducated workers. due to their abundance, the downward pressure on the pay of this category of workers can only be stopped by minimum wage or social security.
EDIT - i've been googling around, and found a much lower number of employees, 440k employees (source: http://www.macroaxis.com/invest/market/MCD--McDonalds-Corp - don't know how reliable..) which, following your calculation through, gives ~ $6 net income per employee hour. also, another point is flat out ignored - prices can be increased, shifting part of this burden to the end consumer, which in the end only seems just. any business that is already giving a fair wage to it's workers is being driven out of business by competition exploiting lack of minimum wage rules and abundance of low skilled labor.
EDIT 2 - Also, the crucial problem with executive pay is not so much that people think that from their pay some huge increases in workers' pay could be given, it's in the purely subjective feeling of injustice, when on one side managers are showered with millions (and I presume McDonalds has more than just 1), while workers are given advice on how to get food stamps. this quite understandably pisses people off.
EDIT 3 - Sorry for all the edits :D Another thing worth noting is that it seems very unlikely that ALL McDonalds employees are working on a minimum wage. This would also reduce the effect of minimum wage hike on their profits.
The larger number I used includes as "employees" people who work for non-company-owned franchises and licensees; I believe your smaller number is only counting workers at the company-owned outlets (not franchises or licensees), so your number should be about 19% of mine, give or take (source for that 19% number is the last line on this page: http://www.aboutmcdonalds.com/mcd/investors/company_profile.... )
(Incidentally McDonald's suggests it has 761,000 "employees" here - I suspect that's a US-only number: http://www.mcdonalds.com/us/en/careers.html )
> another point is flat out ignored - prices can be increased
Actually they can't. I assume prices currently are set at levels that roughly maximize the firm's profits. If McDonalds could earn significantly more money by charging more they would have already raised the price to do that. They serve a price-sensitive customer base; raising prices would indeed earn more per meal served but would sell fewer meals for overall less profit.
(If you think McDonald's could make billions more by raising prices, you have to explain why they've been voluntarily charging less than they could all these years. Are they just being magnanimous, charging less out of the goodness of their hearts? :-) )
If you really want to nitpick, though: if McDonalds spent their entire worldwide profit margin raising salaries just in the US they could do a bit better than my calculation, but that would involve "exploiting" their foreign licensees and helping the relatively-rich US employees entirely at the expense of relatively-poor foreign ones. Whereas if anything, it would be more ethically just to only raise wages abroad and not do so here.)
"I assume prices currently are set at levels that roughly maximize the firm's profits." -- again, you simply assume. and you forget to consider an important factor in determining where the point of maximum profits is - the costs of production. which have now, with the hiking of minimum wage, changed. so, even if they were in this theoretically perfect point of maximum profit (which is an ideal, and thus incredible to be achieved to say the least), they would automatically be out of it after the min wage is introduced, and would be forced to change prices to return to it. but this is all idealized talk, for such a point to exist we must assume a perfectly linearly elastic market. i would like to see proof of that.
1) businesses making employees clock in when it's busy, and clock out but stay on the premises when it's not busy. Thus, the business has workers available but only has to pay them for some of the time those workers are there.
2) "zero hour contracts". http://acas.org.uk/index.aspx?articleid=4468
Other things the UK has done is increase the amount someone needs to earn before they start paying income tax; reduce the lower rates of income tax; provide "working tax credit" to some people, etc.
I have no idea how the US tax system works so I don't know if that could be done or would work with voters. ("Supporting business to employ people on fair wages" maybe?)
Those are separable concerns; I see no strong reason to immediately change the status quo in that regard.
> I mean, you would expect wages for a lot of people to drop drastically, right?
No, I would actually expect wages for a lot of people to increase and the overall need for assistance to decline. But there's an important trick here that renders things a bit counterintuitive, which is that average wages would indeed decline - even though nearly everybody in the economy is being paid as much or more than they were before. This happens because you're adding new workers into the pool of people with jobs, and you're adding them at the low end.
If you just look at people at the low end who are currently unemployed, underemployed or illegally employed: without a minimum wage law they would find it much easier to get a legal first job, some transitional employment which gives them experience and references and training that makes it easier for them to get higher-paying later jobs. So THEIR reported income goes UP, both in the short run and in the longer run. But since they weren't employed before, their wage of $0/hour wasn't part of the "average wage" computation BEFORE, and their new wage of, say, $5/hour is part of the "average wage" computation after the change, so their improved salary drags the computed "average" down.
Now consider the rest of the economy: The existence of more people in the labor force who were previously unemployed makes the economy more productive, which enables even people earning far above the minimum to also get higher wages. When someone who is highly productive can hire other people to mow the lawn, empty the trash, do the filing or paperwork, that person can focus more of their own time and effort on what they're best at - more workers means more gains can be had from specialization of labor. Also, the fact that fewer people are entirely unemployed and more are rapidly entering the workforce means we need less government assistance which means tax rates could decline, again making the economy more productive and increasing standard of living.
(The case for getting rid of the minimum wage is actually quite similar to the case for open borders. Fully opening the borders to let people work wherever they want would by some estimates DOUBLE world GDP. Getting rid of minimum wage laws everywhere wouldn't have nearly THAT large an effect, but it would be quite positive.)
For the rest of America, you typically work for an agreed upon sum (salary or hourly wage) with your employer. We call this a mutually agreeable contract since no one is forced to work for an employer in our modern society (we have valid laws to prevent this scenario). If an employee does not like a given wage, they can shop their skills around for another employer (or start their own company) in order to gain a higher wage. We call this the free market.
I am a libertarian all about math. But even putting math aside, with the logic above why is there a need for a minimum wage?
unlike a simple commodity market, like coffee for example, where a buyer can say "these prices are too high, i'm not going to buy any", a worker cannot simply say, "these wages are too low, i'm not going to work". (unless the government plans to give them all sufficient social security so that they can live comfortably without any work, which is unlikely and probably undesirable.)
likewise, when a coffee producer sells a lot due to good prices, he will increase his production, and thus the supply. in the labor market, a company that seeks workers and offers them a great wage will easily find workers, but i find it incredible that it's managers will then think "hey, we had such a great demand for work, let's hire more people just because of that!" it will not increase demand, limiting the effect a single positive agent can have.
not every market is exactly the same, and considering the dynamics of various markets will enable you to understand why so many countries have minimum wage, why they subsidize food production and are very interested in influencing the prices of basic commodities, and why they often meddle in real estate. these are things people simply cannot do without, and the stability of governments and regimes depends on somehow ensuring them for as many people as possible.
If you doubt that the minimum wage causes unemployment, how do you explain that the countries in Europe with a national minimum wage law have such consistently higher unemployment rates than the countries in Europe without one?
"then putting them out of a job by making it illegal to work for low wages is especially cruel." - assuming they will all lose work. which they will not. not even a large minority will. despite the libertarian scaremongering, companies always somehow find the money to keep the workers, and their business running. go figure.
as for the other claim, do you have proof of this? in any case, it is ingrateful to draw such conclusions, due to large cultural and economic differences between these countries, and (the part which annoys me personally the most) the ever varying methodology of determining the unemployment rate.
P.S. No reference to the market dynamics? I believe it nicely explains where the extra money to cover for the minimum wage hike is going to come from, and why the hike will not result in a proportionate loss in jobs. I will take your silence as a sign of agreement ;)
Yes, I put it there because a large fraction of minimum wage workers are teens who live with their parents or are otherwise in a living situation where they aren't the only breadwinner. Hence, they aren't so desperate that they can't not work. Since choice exists (yet again, on the margin), labor employment is a normal good that responds to supply and demand.
> do you have proof of this?
Quoting from http://www.themoneyillusion.com/?p=24759 :
Regarding the minimum wage, here is some data for Western Europe:
There are nine countries with a minimum wage (Belgium, Netherlands, Britain, Ireland, France, Spain, Portugal, Greece, Luxembourg). Their unemployment rates range from 5.9% in Luxembourg to 27.6% in Greece. The median country is France with 11.1% unemployment.
There are nine countries with no minimum wage (Iceland, Norway, Sweden, Finland, Denmark, Austria, Germany, Italy, Switzerland.) Five of the nine have a lower unemployment rate than Luxembourg, the best of the other group. The median country is Iceland, with a 5.5% unemployment rate. The biggest country in Europe is Germany. No minimum wage and 5.2% unemployment.
Still want to raise our minimum wage to $10? Germany used to have really high unemployment. Then they did labor reforms to allow more low wage jobs, combined with subsidies for low wage workers. Now they don’t have high unemployment.
Still want to raise our minimum wage to $10?"
> No reference to the market dynamics?
Your "market dynamics" claim doesn't make sense. I'm familiar the concept of elasticity, but it doesn't have any obvious relevance. I suspect you don't have the economic background to paraphrase the argument you're trying to make - could you perhaps point me to a link where somebody else makes it? One problem is that you're making an "argument from personal incredulity" - you just say "I find it incredible that..." rather than giving any actual, you know, evidence or even argument - but the other problem is that the claim you "find incredible" is so weirdly phrased that I can't really tell what it is.
AFAIK, the best story labor economists have come up with in defense of their own claims involves theorizing that the employers have excess "monopsony power", but it's not actually a plausible story.
Anyway, we're probably well past the point of diminishing returns here.
the data on minimum wage you quote is incorrect. i happen to know that Austria does have minimum wage, just not a single global one. i was offered work there, and then found out that they have minimum wages defined per occupation (country-wide collective bargain), and there exists a minimum wage for programmers in Austria. i actually found that unnecessary :D i believe in Sweden there is a similar situation, the unions are very politically strong there. as for Germany, when exactly did it have high unemployment, and how high? this is very sketchy. also, a factor for Germany is that a lot of people work part-time, which has reduced reported unemployment here.
but i must admit, even if unemployment is slightly greater, i don't care. because i believe that removing minimum wages in those countries that have it, even if it would hire some people, would cause a big drop in the pay and quality of life of many, many more people who would have been employed anyway. this is something that ultimately needs empiric check (Germany is also soon about to introduce minimum wage so there's another opportunity), but you already waved that off - what was it you said, we should not be fooled by lack of evidence to support your claim? :D
lastly, yes, i do not have economic background so i cannot phrase things in expert terms, but i would appreciate hearing some reason why it does not make sense. the point is, since demand is always equally present, and the supply is limited and independent of the demand (that is what i found incredible in the comment above - a company that offers great pay will easily find employees, but it will not choose to hire more simply because a lot of people applied, which is specific for labor markets), then the price of low-educated labor simply goes down until it hits some bottom, i.e. it becomes too low to earn a living, or it becomes comparable to social security payments. is it really so hard to grasp? or are you simply trying to discredit me and avoid the whole argument?
How is this feature specific to labor markets? Suppose a company is buying laptop computers to accomplish some task. If the company is willing to offer great pay - a high price - in exchange for laptop computers, they will easily find laptops, but they won't choose to buy more laptops simply because a lot of vendors submitted bids. Right?
Going back a bit, it's not true about either workers or laptops that "demand is always equally present". And it is true about both workers and laptops that "the supply is [somewhat, in the short term] limited and independent of the demand".
I honestly don't get the point you're trying to make. People respond to incentives. If companies can hire people for less than the value of their labor product, companies will expand and try to hire more people. If they can't, companies will contract and hire fewer. In the extreme cases supply fluctuates via emigration/immigration. People have a reserve price - they generally aren't willing to work unless offered enough to make it worth their while, just as they aren't willing to sell a bicycle unless offered enough on eBay to make it worthwhile. Sometimes that price is less than the minimum, and sometimes it's more, in which case the minimum becomes irrelevant because it's less than the market rate.
I think I'm done looking up specific numbers for you; it never makes any difference to your views. Yes, collective bargaining exists in some sectors in Europe - it exists in some sectors in the US too! But there's no national minimum in those countries, which is what matters most for general employment. (And yes, these things are always in flux. Switzerland just last month voted on whether to have a $25/hour minimum, but 75% of the electorate voted against it - common sense prevailed for once!)
the laptop example also illustrates the difference quite well. majority of the people need work, and they have to work, whether they like the price they will get or not. in the end they must eat. so, the demand for jobs (or, the supply of workers) cannot fall below a certain level, particularly the low skilled ones.
laptops are not such a necessity, so people may choose, if conditions become too unfavorable, to simply not buy them. this is why producers, who of course want to get the highest price possible, cannot raise prices as they wish. with low-skilled labor, however, companies can lower wages as much as they like. if they reach the point where people can no longer feed themselves, people don't simply decide not to work (really?!) - we then have a revolution.
your comparisons actually demonstrate this quite clearly, it really amazes me that you can compare a low skill workers quest for jobs with selling a bike on eBay without noticing any difference.
"I think I'm done looking up specific numbers for you; it never makes any difference to your views." -- that's a cheap shot. i gave some arguments, you ignored them, and you're now just weaseling out. the effects of a nation-wide collective bargain, which defines a mandatory minimum wage for all sorts of professions, are pretty much the same. in fact, since many professions have pretty healthy situations in the job market, i would say that that actually is harmful in the way you described.
but ultimately, i explained that i actually accept that a minimum wage may mildly increase unemployment. did you just skip that part?
>"a large fraction of minimum wage workers are teens" -- how large? source?
Half of all minimum wage workers are under age 25; 62% are still enrolled in school, and the average family income of people earning minimum wage is in excess of $60,000/year. I found this out just now by googling the string "what percent of minimum wage workers are teen", which led me to these links:
http://www.bls.gov/cps/minwage2011.htm
http://www.heritage.org/research/reports/2013/02/who-earns-t...
It is true that SOME minimum-wage workers desperately need a job. But it is also true that SOME people desperately need a laptop computer! The overall characteristics of a market - whether a market for labor or a market for laptops - aren't driven by just the few who have the most inelastic demand. Employers have to offer wages high enough that on the margin, those people who are indifferent between employers or willing to wait a little longer for "the right job offer" are inclined to accept the one being offered. This means the average job pays a lot MORE than the bare minimum that the most desperate people would be willing to accept. Even if there were no minimum wage, wages would not drop to starvation levels for that reason.
In short, Malthus and Keynes were wrong to predict a "race to the bottom". We don't need a minimum wage to have high average wages, high entry-level wages or a high standard of living. (In fact, the minimum wage does far more harm than good to the lowest-skilled workers - it reduces job quality and availability, cutting off some of the bottom rungs of the economic ladder.)
"It is true that SOME minimum-wage workers desperately need a job. But it is also true that SOME people desperately need a laptop computer!" -- again, these crazy comparisons... these situations are not equal. period. such reductionism is unproductive.
"Employers have to offer wages high enough that on the margin, those people who are indifferent between employers or willing to wait a little longer for "the right job offer" are inclined to accept the one being offered." -- this seems unrealistic. middle-class or up may afford that, but we're not talking about them here. and it's worth noting that the middle-class is growing smaller lately.
as for the race to the bottom, it is a demonstrated reality of history, one that we have experienced, but which is easy to forget now that the problem had been solved. it drove people to revolutions, simple fact. we have progressed far since then. this neo-libertarianism seems to be an initiative to take us back, and by many indicators, since the 80s, that plan is working out.
My assertion that in any capitalism driven society (no matter the quality of education) you will have a non-trival size of the population not capable of fulfilling job demand and achieving minimum viable salary for survival.
At the end of the day we have 3 options for these people:
1) Do nothing. This creates tax burden to combat crime as people get desperate to satisfy basic needs like food and shelter. It also is pretty crappy thing to do to our fellow man.
2) Subsidize them through programs like welfare. Helps but hurts middle class workers disproportionately and doesn't produce labor.
3) Create and enforce a livable minimum wage. Helps in the short-term (until goods/services prices are inflated adjust to this minimum) and produces labor that arguably has some value. Not perfect because it further decentivizes job creation and increases R&D for automation. Also, it is just a quick fix and needs to be constantly raised.
Minimum wage is clearly not a perfect solution but I'm not sure we have a better one yet within the framework of government regulated capitalism.
Some form of negative income tax might arguably propose a serious alternative to a livable minimum wage, but the existing form of the EITC isn't it. (If it was, then the actual minimum wage would be a "livable minimum wage", since it exists in the context of the existing EITC.)
Probably the most important aspect here. Don't get ripped off.
I happen to be a libertarian, and I note that there are often philosophical and economic arguments to be made for policy decisions. I'd like to see policies that are both just and economically efficient. So, for example, an argument (clearly specious) that women staying out of the workplace would produce overall economic gains doesn't matter to me. I don't care if it would or it wouldn't be more economically efficient for women (or minorities or red-heads) to be restricted from certain jobs. It's wrong to have laws restricting the freedom of women or minorities or red-heads and that trumps economic arguments.
In Seattle, they have decided that restrictions on their citizens fundamental freedoms, will on balance be worth instituting, but the freedom to work, entering into an agreement to sell one's labor, is an important freedom that is being abrogated. What if Seattle decided that it wanted to encourage more high tech workers to move to Seattle, because it would increase the tax base, and they instituted a minimum wage for programmers, say $160 per hour. What would happen? Would you like being told that you were not allowed to program in Seattle unless you could find a job that paid $320,000 per year? It would ruin things. Like $160 per hour programmers, many $16 per hour low-skilled teenage kids will be priced right out of the job market.
I got my start working in my first full-time job working for under $3 per hour. I lived at home with my parents, and my income made only a modest dent on the family's overall income, but it gave me a start. I learned to get up every morning, get to work, and do my job. Low wage jobs are a way to get into the job market, even if they don't immediately provide wealth and comfort.
Ignoring the restrictions on our freedom of contract, some argue that this development is a good thing nevertheless, that the $16 per hour will help those living in poverty. Well, if $16 per hour is a good thing why wouldn't $25 per hour be even better? Clearly there is a level that will have negative impacts. Those supporting $16 per hour seem to recognize that there will be negative impacts, but the argument goes that these negative impacts are not so bad because they affect a group that the minimum wage supporters don't like or don't care about (for example, business owners).
Perhaps supporters of the new minimum wage really do care about everyone and my last paragraph is too harsh. In that case what I see is a kind of first-order effect rationale being given that ignores the indirect, but possibly quite significant, consequences of the new minimum wage policy. Each side in this debate has studies that they can cite, but money doesn't grow on trees. It has to come from somewhere. Businesses will have to cover the costs by doing either (1) lowering the dividends to the owners/shareholders, (2) decreasing the salaries of higher paid employees or employing fewer people, or (3) increasing the costs imposed on the business's consumers. All of these actions have negative consequences. (1), lowering the benefits of owning the business means that over time, there will be less of them in Seattle; (2), lowers employment, often of the people this policy is purported to help; and (3), increases costs to everyone (or lowers the quality of the goods provided).
If my simple breakdown in the previous paragraph is correct, why are politicians in Seattle supporting this new minimum wage? Politicians want to stay in office and they can use the minimum wage to appeal to large groups. One group is those that want to help others but don't understand economics or freedom well enough to understand what this policy means. The other group is comprised of those whose jobs might be threatened by workers willing to do the same job for less than $16 per hour. (This is the reason that unions are big supporters of raising the minimum wage even though their workers have wages far above minimum wage. It protects their high wages from low cost competition.)
The federal minimum wage was raised to $3.10 in early 1980.
So your $3 at some point in the past was (apparently) higher than the minimum wage at that time (or not in the United States, or was illegal, which is still an option in Seattle).
I don't think it is obvious that a minimum wage has the intended effects or that the effects are necessarily a net positive for society, but the $3 comparison is not instructive.
freedom is important, but to most people on the lower end of the income graph, just making a living is a more pressing issue.
the money must come from somewhere, and it will come from profits, yes. sadly, individual employers have no reason to pay these workers more, on the contrary. so, look at this like a collective bargain, but achieved on a wider level.
this brings me to the last, but greatest problem with your post - the ease with which you completely dismiss the democratic will of the people who voted for this policy (though indirectly). they are either in an evil conspiracy, or merely stupid. this is quite an anti-democratic, condescending attitude.
I must disagree with you that simply because the people of Seattle have had a democratic vote for a particular policy that we must respect it and refrain from criticizing it. The majority isn't always right and there is a long tradition in my country (the USA) of speaking out against policies that are either morally wrong (in some way) or wasteful despite the positions taken by majorities. I'm old enough to have demonstrated for civil rights at a time when there were states still refusing civil rights to their racial minority populations. While I was in college, there was a minority in this country demonstrating against a war being waged by conscripts that didn't want to fight. Today, there are states that don't allow gays the rights that the rest of us have. Do you dismiss criticism of these (sometimes majority held) positions as condescending and anti-democratic? Our cherished Bill of Rights is fundamentally anti-democratic, protecting us from simple democratic majorities.
I'm curious, although not hopeful, about the outcome of Seattle's experiment. I share your wish that it will help (the difference is I believe it won't). You can say to me "I told you so" if it really does help the people of Seattle, that would be a good thing.
Now, if only I had ever said that... I did not call your attitude undemocratic simply because you disagree. I called it undemocratic, because you declared everyone who disagrees with you to be either retards or morally bankrupt. All this condescending preaching was not really necessary.
As others have noted, it simply results in people becoming dependent on social benefits (and this bill ends up being footed by the tax payer).
So: You are right if you think that the tax payer should subsidize business owners.
If you believe an individual can survive on $11,761, or that a family of four can survive on $23,851, in a major city, I would identify that as a flaw in your positions.
http://en.wikipedia.org/wiki/Minimum_wage#Research_subsequen...
...
"Several additional studies of Santa Fe and San Francisco have been produced by the restaurant industry-backed Employment Policies Institute. In a study of Santa Fe, Yelowitz (2005a, 2005b) found an increase in the probability of unemployment for low-skilled workers and evidence of replacement of low-skilled adults by teens. In his study of San Francisco, Yelowitz (2012) found the opposite result: a decrease in teen work hours and no discernible effect on overall employment.
Unfortunately, both studies suffer from serious methodological problems that make the results unreliable. Since higher wages are likely to increase the labor supply, unemployment rates can increase even as the number of people who are employed also increases. Pollin and Wicks-Lim (2005) replicate Yelowitz’s (2005a) study but look at employment, rather than unemployment. They find no negative impact on employment. Furthermore, even if the reported results for each of the studies held, total compensation for teens and low-skilled workers would still have increased. Any employment or hours reductions would be more than offset by the increase in hourly earnings (Pollin and Wicks-Lim 2005; National Employment Law Project 2012). "
...
"In his review of minimum wage research, Schmitt (2013) considers several channels through which employers might adjust to increases in the minimum wage. One possible scenario is that employers will simply switch to hiring more skilled workers, thereby hurting the employment prospects of less educated workers and, in particular, black and Latino teens. Schmitt reviews several studies that have explicitly researched this question, some of which yield conflicting findings. Again, research design matters a lot here, and studies that thoroughly control for regional or local differences do not find evidence of labor substitution. For example, Allegretto, Dube and Reich (2011) examine the impact of the minimum wage on the employment of white, black, and Hispanic teens, covering the period from 1990 to 2009. After improving on previous research by controlling for regional differences, they find no statistically significant negative effects on employment or hours for teens, regardless of race or gender. In their contiguous counties dataset, Dube, Lester and Reich (2013) similarly find no evidence of such substitution by either age or gender."
http://murray.seattle.gov/wp-content/uploads/2014/03/UC-Berk...