Black Friday Special! Festival of Minimum-Wage Ideas

When you feel like taking a break from shopping -- or if you're working in some retail establishment yourself -- here's something to consider on the income-inequality issue.

Just before Thanksgiving, following the observations of a Boston bartender, I published messages from several readers on the importance of raising the minimum wage. In real terms, the minimum wage has gone steadily down; these readers argued that keeping it even with inflation, or better yet moving it substantially ahead, would help lower-income Americans while not hurting the economy as a whole.

Now some responses.

1) Lessons from the Antipodes. A reader writes:

A friend of mine just returned from Australia and she said that it was the most expensive place to visit as a tourist that she has ever seen.  I'm thinking at least a part of that is related to the minimum wage.  Nevertheless, if the goal is to have more people pay income taxes and to stop having Mitt and his pals bellyache about the 47%, raising the minimum wage would go a long way towards that.

As I've written here a number of times, it really is true that Australia has very high retail prices, a very high minimum wage, and a very noticeable "mate"-like middle-class feel to its society. The pay scale is not the only reason for Australian egalitarianism, but it's a factor.

2) The words of Ron Unz. A very large number of readers pointed me to an essay in the American Conservative, by Ron Unz. It supports increasing the minimum wage, and here is a sample of its reasoning:

So how might we possibly raise the wages of American workers who fill [the] huge roster of underpaid and lesser-skilled positions, holding jobs which are almost entirely concentrated in the private service sector?

Perhaps the most effective means of raising their wages is simply to raise their wages.

Consider the impact of a large increase in the federal minimum wage, perhaps to $10 or more likely $12 per hour....

A minimum wage in this range is hardly absurd or extreme. In 2012 dollars, the American minimum wage was over $10 in 1968 during our peak of postwar prosperity and full employment. The average minimum wage in Canadian provinces is currently well over $10 per hour, the national figure for France is more than $12, and Australia has the remarkable combination of a minimum wage of nearly $16.50 together with 5 percent unemployment.

For those who don't know, Unz is no one's idea of a leftie or union activist. Worth reading.

3) The main contrary view. From a small-business owner in Massachusetts:

I own an ice cream business - 3 stores in the Boston area.

There are businesses like mine that have traditionally offered young people their first jobs. We take them while they are still in high school. We coach them about the importance of showing up on time. We teach them about working with other people. We show them how to work with the public. In my business, we raise their wages as they gain skills and take on responsibility.

I think the current minimum wage rate in Massachusetts is very reasonable (well, actually a bit high) for students taking on their first job.

In a business like mine (or MacDonald's) wages and associated taxes consume 25% to 35% of our income.  Businesses of this sort are very sensitive to changes in the minimum wage, and these businesses provide a worthwhile way for young people to enter the labor force.

Talk about the minimum wage generally seem to be oversimplified and never seem to address the issue of people entering the labor force.

4) On the other hand. From another small-business owner, this one in Maryland:

When I wear my small business / local economy advocacy hat, the increase in minimum wage issue is core to me.  I testified @ the MD House of Delegates and State Senate finance committees for a minimum wage increase bill they were considering in the 2011 legislative session (it failed).  The interesting points were that those testifying against increasing the minimum wage were making exactly the same points as me - to different conclusions.  What your correspondents in today's post missed is the hard-to-quantify benefits to a business for paying a higher minimum wage than the legal minimums:

•    Dramatic decrease in employee turnover, which results in:
•    Increased employee productivity / competency
•    Decreased training costs & other associated costs to replace employees
•    A beneficial company culture which is easier to maintain and reinforce
•    Increased 'buy-in' or sense of ownership by the employees - they will stay that extra half hour when it's really needed - without being asked' because they already understand the urgency of the situation

([One company] starts permanent employees at $10 / hour for 'minimum wage' types of jobs.  We also pay an annual bonus based on company financial performance which in recent years has run to 25-30% which bumps those employees to nearly $13 / hour.  And we pay 75% of health insurance costs for all employees after 3 months, have a 401k that we contribute 3% / year to as well. 

I can honestly say I'm not becoming wealthy under this model, but then I have been able to leave the business in the hands of my capable employees for a year so I can earn more in Italy, and my business partner is away for two months in China / Australia / NZ at the same time.  In the past five years we have not lost an employee because they've gone and found a better job.)

5) The minimum wage is not really the issue. Another reader:

I think you might be off target. What I'm seeing now is the shift to eliminate full time workers, go to part time workers, plus make the part time workers life miserable by not allowing them set hours to enable them to work 2 or more part time jobs. I've seen stories about some companies that use weather and other information to schedule workers at the last possible second, if they can't make it they get their hours cut. Add these factors to the pressure ObamaCare make on employers, and full time jobs are going to disappear.

I have two suggestions to replace your minimum wage increase:

- Provide rights to part time workers. Are employers using 2 part time workers to replace a full time worker, getting around health care and other benefit costs? We need to study this problem, make sure we don't make the problem worse. Also, I think we need to look at rules that allow part time workers to work more than one job.

- My crazy idea, since I am a free market conservative, is to totally eliminate all benefits for everyone of working age that is capable of working, replacing all with a government as the last resort employer. Drug test workers. If they don't work, they don't eat. Liberals won't like that, but they will like the fact that unemployment goes away, and the big benefit is that there will be competition for workers. I'd think that paying the federal minimum wage, with health care, is adequate. I know its crazy, but I would like to see it studied.

6) Right, it's not about the minimum wage. Another reader:

The hourly wage is too small, but a bigger problem is the non-existent 40-hour work-week.  It corrupts the concept of a "minimum wage."    
 
Wage workers more and more cannot count on 40 hours per week, or even 30 hours per week, because the wage-payers have figured out how to avoid the mandates, such as health care insurance, pregnancy benefits, overtime, vacation time, etc, - they only give 29 hours per week, thereby avoiding the necessity of providing benefits.  

For example, [one big retail company -- JF is cutting the name, because I haven't checked this out myself]  hires hourly workers to staff their stores, they use software that calculates an algorithm including sales patterns in relation to daily weather, time of the year, time of the day, as well as how many hours each worker has already worked, to then calculate exactly how many workers should be called in to work and for what hours and who still has less than 30 hours.  The workers have no control over their schedules, never know when they will be called, and will suffer penalties, if they do not comply.  A worker may get a call to work a few hours one day, then no call for a few days, then work a few more odd hours on another day. 

This is represented as a "feature" (instead of a fault) - part-time workers can fit in work around their busy schedules!  But the reality is that more and more jobs are not full-time, they cannot find 40 hours of work per week, nor can they qualify for any benefits.  Instead of giving 40-hour work-weeks, the companies hire more temps.  The same sort of shenanigans have been taking place in the white-collar world, where more and more people are hired as "consultants" on low-ball, fixed-price contracts, with no benefits.

7) More from overseas. A reader in Europe says:

I must correct your reader who thinks the minimum wage in canton of Geneva is $17 an hour. Switzerland has no lawful minimum wage. But for a full time employee in the most menial job (cashier, cleaner, etc) is 3500 Franks or $3700 a month.

Living costs are insane here!

Median (not average) wage in Geneva is about $8500.

8) And there is plenty of variation in America itself.

One problem with a nationwide minimum wage of any kind is that costs of living are very different in different parts of the country.  A minimum wage that makes a 40 hour a week job pay a living wage in Montgomery County, MD will probably price people at the bottom out of the labor market in Jefferson City, MO, where the costs of living are probably half as much.  I don't see any way to set a nationwide minimum wage that makes sense everywhere.  I suspect this is something handled better at a state level, though even there, rural Maryland has lower costs of living than the DC suburbs.

And:

Yes, indexing minimum wage is the right thing to do.  Already done in several states, including my state,  Oregon.  Minimum wage is going up $0.15 in Oregon on 1-Jan-2013 to adjust for the cost of living.

9) Finally, the non-obvious politics of this all.

Regarding your recommendation on raising the minimum wage, consider two "facts" (I do not have current data on this at hand, although I am fairly confident this is still true): (1) Most people working for the minimum wage are not "poor" (defined as something like living in a household with income less than twice the federal poverty guidelines); and (2) most "poor" people do not work for minimum wage.  

Fact (1) is because many minimum wage workers are dependent children in non-poor households (as I and almost all my upper middle class friends were in high school) or spouses in non-poor households (as my wife was recently - working for a non-profit).  Fact (2) is because the problem many poor people have is lack of work (no job or too few hours), not too low a wage.  Raising the minimum wage to $10/hour does not help someone who makes $10/hour, but only has 20 hours of work a week.  Thus (to the degree there facts are correct) raising the minimum wage is a blunt instrument to address working poverty. 

Policies like a more generous Earned Income Tax Credit (EITC) are more targeted.  Of course, EITC payments come from the government, and require taxes, while increased wages come from employers and do not require tax increases. Thus, raising the minimum wage may be a more politically feasible strategy than increases to the EITC.

Enough for now. Thanks to all.