Should minimum wage be: Higher? Lower? None?

[fintstone]

Originally Posted by wdfifteen

It was still the minimum wage. The minimum wage is DEFINED.

But it was "defined" differently. When I was growing up, we called people happy people "gay" and folks who acted a bit different "queer".

When I was young, where I grew up, a person who had a job that received "minimum wage" was considered very well off indeed as they made much more than most people. It was not the minimum for a majority of Americans. It was only the "minimum" that their company could pay for that specific job in that particular location (based on business size and type). Most small businesses and labor related jobs were excluded (and most jobs were small business or labor related).

Min wage initially did not fully cover many employees. There were exemptions for most small business (and many others simply did not pay it).


Employees of retail trade enterprises with sales of less than $1 million annually were not covered. Individual establishments within those covered enterprises were still exempt if their annual sales fell below $250,000.

Even if they met the sales of over $1M, retail and service establishments were allowed to employ fulltime students at wages of 15 percent below the minimum.

Employees of the "air transport industry" were not covered.

Public schools, nursing homes, laundries, domestic workers and the construction industry and farm workers were not covered.

Supervisory employees of Federal, State, and local governments were not covered.

[Tidybuoy]

I used to work for Gottschalks Department Stores. I was there for 21 years and my last 10 were spent planning & forecasting. Part of my job was to set the budgets for store payroll.

When minimum wage went up one year, I calculated the annual cost to the company would be about $1.5 million dollars. My annual store payroll budget was about $80 million.

That year, we ended up cutting head count to make up for the $1.5 million that would be spent increasing wages. We had no choice as retail competition was fierce. We were up against companies like Macy's, Penny's, Wal-Mart, Target, Costco and those companies were so much larger than us that they were able to buy merchandise at a much lower cost than we could get.

If you look back in time, you might remember when you got service at stores. Now days, you can barely find a clerk. Checkouts are all becoming Wal-Mart style and there is virtually no one in a store to help you. This is a direct result of higher costs (payroll and other).

Minimum wage might not be keeping up with inflation but my question is: why is inflation increasing so much? We have an extreme % of population not working, collecting govt subsidies, etc. At the same time executive wages have skyrocketed. I would not be focusing on raising the minimum wage but instead working on the top wages. I would let a company pay their execs any amount they want but limit the tax deduction for any single employee to $100,000.

FYI: The $1.5 million minimum wage effect was about 1/2 our annual profit. The company never paid out a dividend and used all profits to reinvest in the business and open additional stores. We employed about 6500 employees and each new store opened employed 75-200 people.


Just my $0.02 worth

[Tidybuoy]

Originally Posted by Nordwest

In 1988 my income was about about 80% of what I paid for my house that year. I wish I still had that problem. Times have changed.

Low interest rates have a definite effect on housing prices. And, many people today with large mortgage payments do not get any interest deduction due to the fact that the low interest is less than the standard deduction.

Government medaling with housing definitely contributed to the housing bubble which, in my opinion, is still going on.

I made minimum wage in high school and it was enough to cover my expenses (i.e., gas, entertainment). Today I earn far more than I made in high school and that is because I learned a thing or two over the years.

[rusnak]

Originally Posted by Tidybuoy

I used to work for Gottschalks Department Stores. I was there for 21 years and my last 10 were spent planning & forecasting. Part of my job was to set the budgets for store payroll.

When minimum wage went up one year, I calculated the annual cost to the company would be about $1.5 million dollars. My annual store payroll budget was about $80 million.

That year, we ended up cutting head count to make up for the $1.5 million that would be spent increasing wages. We had no choice as retail competition was fierce. We were up against companies like Macy's, Penny's, Wal-Mart, Target, Costco and those companies were so much larger than us that they were able to buy merchandise at a much lower cost than we could get.

If you look back in time, you might remember when you got service at stores. Now days, you can barely find a clerk. Checkouts are all becoming Wal-Mart style and there is virtually no one in a store to help you. This is a direct result of higher costs (payroll and other).

Minimum wage might not be keeping up with inflation but my question is: why is inflation increasing so much? We have an extreme % of population not working, collecting govt subsidies, etc. At the same time executive wages have skyrocketed. I would not be focusing on raising the minimum wage but instead working on the top wages. I would let a company pay their execs any amount they want but limit the tax deduction for any single employee to $100,000.

FYI: The $1.5 million minimum wage effect was about 1/2 our annual profit. The company never paid out a dividend and used all profits to reinvest in the business and open additional stores. We employed about 6500 employees and each new store opened employed 75-200 people.


Just my $0.02 worth

Since the unfortunate demise of that proud institution (which btw my mom still mourns) minimum wage has gone up 17% in addition, and will go up another 17% again this year. That would force almost anyone out of business. And what most people still don't understand is that there are additional costs to employers to just the wage increase. Payroll taxes and workman's comp also go up, as does liability insurance, etc. etc.

I contend that the minimum wage increase that will occur this year will spell disaster for many, many people. Those companies that survive will be choked so lean, that there will be nothing left for raises and bonuses for good employees.

[jyl]

Originally Posted by rusnak

Since the unfortunate demise of that proud institution (which btw my mom still mourns) minimum wage has gone up 17% in addition, and will go up another 17% again this year. That would force almost anyone out of business. And what most people still don't understand is that there are additional costs to employers to just the wage increase. Payroll taxes and workman's comp also go up, as does liability insurance, etc. etc.

I contend that the minimum wage increase that will occur this year will spell disaster for many, many people. Those companies that survive will be choked so lean, that there will be nothing left for raises and bonuses for good employees.

So how are Nordstroms, Macys, Target, Kohls, Walmart, and all the other department and discount stores still in business and quite profitable? Maybe they just out-competed Gottschalks?

[jyl]

Originally Posted by Tidybuoy

Low interest rates have a definite effect on housing prices.

With interest rates about as low as they can be, you have to wonder (or at least I wonder) where housing prices will go from here.

On the one hand, there is a distinct shortage of housing in many cities. In Portland, we have <2 months' inventory.

On the other hand, when mortgage rates went up last year, you saw an immediate cooling of the housing market, both prices and sales volume, even though the same shortage existed then.

[rusnak]

Originally Posted by jyl

So how are Nordstroms, Macys, Target, Kohls, Walmart, and all the other department and discount stores still in business and quite profitable? Maybe they just out-competed Gottschalks?

You are assuming a lot, yet for some reason not really reading and understanding what people write about their firsthand experience. For example, how do you know that these stores are "quite profitable", and second did you not read that profit was cut 50%? From one law alone? And did you further choose to ignore that we have another two (2) as in dos, more minimum wage increases? Two in two years? And you still just refuse to believe that this is going to be a problem?

Once again, I just think that conversation is pointless with you. You start these threads in order to make a point, not to have conversation. You are passive/ aggressive.

[jyl]

The financial statements of those companies are publicly available. I've checked them. Maybe you should.

Quote de jyl

So how are Nordstroms, Macys, Target, Kohls, Walmart, and all the other department and discount stores still in business and quite profitable? Maybe they just out-competed Gottschalks?

You are assuming a lot, yet for some reason not really reading and understanding what people write about their firsthand experience. For example, how do you know that these stores are "quite profitable", and second did you not read that profit was cut 50%? From one law alone? And did you further choose to ignore that we have another two (2) as in dos, more minimum wage increases? Two in two years? And you still just refuse to believe that this is going to be a problem?



Once again, I just think that conversation is pointless with you. You start these threads in order to make a point, not to have conversation. You are passive/ aggressive.

[rusnak]

Originally Posted by jyl

The financial statements of those companies are publicly available. I've checked them. Maybe you should.

Oh good for you. BTW 2015 is what we are after, not 2014.

[rusnak]

Originally Posted by jyl

I got curious about why people are still opening restaurants in Seattle, since they know the minimum wage is going up. When they do the projections, how can it still pencil out?

So I built a very simple model. Assume a restaurant has 15% operating margin in 2014, with costs as shown. Suppose labor cost goes up with the minimum wage, and I'm using the $11/hr for 2015. Suppose food cost goes up 2%/yr (inflation), other costs go up 2%/yr. How much do sales have to go up, to maintain the same profit margin?

It looks like sales have to go up 5%/yr. If that increase is entirely from price increases, then a menu item that was $10.00 in 2014 would be $12.70 in 2019, when the minimum wage tops out.



Of course, this is a grossly simplified model. And different types of restaurants have different cost structures. For example, McDonalds' franchises usually have labor costs that are 20% of revenue, lower than the 30% in this model. That McDonald's Salary Study Gets It Wrong - Restaurant Industry Insight, News and Analysis - July 2013 A fancy French restaurant usually has labor costs that are a higher percent of revenue. And, in the McDonalds, most of the employees might be making minimum wage, while at the fancy place, few of them will be.

Since you "say" that you can read a financial statement, maybe you can learn how to write one? New math?

[Tidybuoy]

Originally Posted by jyl

So how are Nordstroms, Macys, Target, Kohls, Walmart, and all the other department and discount stores still in business and quite profitable? Maybe they just out-competed Gottschalks?

That's exactly what they did!

Gottschalks had annual sales volume of about $700 million. Wal-Mart is somewhere around $250+Billion, Target is around $82+Billion, Macy's/Federated is around $28 Billion.

In order to stay afloat, you need to be profitable. That can be done by increasing revenues or decreasing expenses or some of both. At Gottschalks, we were buying around $800 million of inventory per year where as Walmart is purchasing around $750 BILLION. They are able to get purchase discounts that simply don't exist for the little guys. Walmart is able to dictate prices buy purchasing entire supplies (in China). By the way, Walmart, Costco, and others are getting great discounts on inventory by paying very low prices from merchandise produced in low-wage countries.

So, where can we cut expenses - Payroll is the next most controllable expense and that's what we were forced to do at Gottschalks. It's quite possible that this affected customer service and then ultimately reduced sales. It's also quite possible that with inflation and rising cost of living, people went to the big stores and bought cheaper stuff. As minimum wage has increased over the years, many smaller companies did not survive and even medium size companies (like Gottschalks) didn't make it. We have far less choice than we had in the past and as we continue to squeeze businesses, we are left with big-box stores and that's it.

jyl - you have stated in some of your posts that "I'm firmly on the "wait and see data" fence here." I don't think you need to wait as there is plenty of history to review. We used to have 1 income families and that was sufficient. We used to have all kinds of services (i.e., full service gas stations, milk delivered at your door, etc...). Raising the lowest incomes to keep up is not the answer as it just keeps pushing prices up and service levels down. I believe that we need to reduce wages at the top and I would do that by limited the maximum tax deductions for payroll.

[rusnak]

Tidybouy,

I am wondering now about stores like Home Depot, who put a store in San Francisco. Do they look at cost/profit/volume at individual stores? Or are the stores used to push product, and hence allowed to run at lower than average profit for the company as a whole?

In Fresno, as you know, many national chains look at the area as a "remote market" and put less effort into promotions and marketing, training costs, etc. They just throttle back their costs and expectations and let Fresno stores sort of wobble along. When a store in a major market faces exorbitant costs increases due to mandatory minimum wage, crazy voter approved taxes, etc, what do you do? When do you pull the plug?

[Tidybuoy]

Originally Posted by rusnak

Tidybouy,

I am wondering now about stores like Home Depot, who put a store in San Francisco. Do they look at cost/profit/volume at individual stores? Or are the stores used to push product, and hence allowed to run at lower than average profit for the company as a whole?

In Fresno, as you know, many national chains look at the area as a "remote market" and put less effort into promotions and marketing, training costs, etc. They just throttle back their costs and expectations and let Fresno stores sort of wobble along. When a store in a major market faces exorbitant costs increases due to mandatory minimum wage, crazy voter approved taxes, etc, what do you do? When do you pull the plug?

I can't say for sure how Home Depot operates but I'm pretty sure they look at each store individually but also look at areas as a group. With Gottschalks, we had stores that made a lot of money and stores that did not do so well. However, just because a store is not doing well does not mean you can just close it, especially if you have a rent contract. Also, we had stores where a city wanted us so bad (i.e., palmdale) where the city paid for the building. In the Palmdale case, the city gave us $6mil to build the store and we were obligated to operate for 20 years because of the gift. In another case, Fresno & Madera were fighting over where we would open our distribution center and both cities gave us land to build on. We ended up going with Madera because it was an enterprise zone and was more favorable to us (we got payroll credits & other tax credits).

As with most companies, they probably won't disclose to the public specific store data as that could benefit the competition but I'm fairly certain that Home Depot is looking at each location.

[diverdan]

Minimum wage should be tied to the cost of a gallon of gasoline. Back in 1971 I was making $2.00 an hour working part time in a sporting goods store in Hollywood having a great time. A gallon of gasoline was about $.25 a gallon. So for an hour of work I could buy 8 gallons of gasoline. The higher priced gasoline in the Midwest was up to about $.40 a gallon so one could buy only 5 gallons for an hour of labor. I could afford to drive my 4 year old $1000.00 Alfa Romeo. Michigan to California @ 30 mpg needed about 74 gallons which was less than $40.00 at L.A. prices. That was 20 hours of labor. At the $4.00 a gallon with the same car that would be $296.00 Absurd! So gasoline has gone up by 16x. That would be about $32.00 an hour minimum wage at $4.00 a gallon. If gasoline goes down to $2.00 a gallon that would be $16.00 an hour. The cost of university today has made it impossible for students to work their way through school at $7.50 an hour. The rich get richer and the poor have a much worse life than they did 45 years ago.

[jyl]

Your post is thoughtful. Thanks for taking the time to write it.

Personally, I see the benefits of scale allowing huge companies to crush smaller ones. This has been good for shareholders and top executives; bad for small companies, and I think bad for workers too.

I would like to see a couple of things:
- Higher tax rates on the highest income (like >$500K, which is top 1%)
- Higher tax rates on the biggest companies, and prevent them from getting much lower tax rates from tax inversions (switching corporate domicile to low tax jurisdictions offshore)
- use that money to fund lower tax rates on small businesses and the lower income households

I'm not super old. But in my lifetime I've seen a big change in this economy. The median household income ($52K roughly) is no longer sufficient for a comfortable life, retirement savings, and educating two kids. That is a damning situation.

What really upsets me is that I see folks in the bottom 50% fighting each other, tooth and claw, for scraps. While the top 1% - actually, the top 0.1% - fund media campaigns that successfully convince the bottom 50% that their well being depends on the rich getting richer.

See the charts above on income inequality. We are at levels not seen since the roaring '20s, right before the Great Depression. That's not right. In my view.

Quote de jyl

So how are Nordstroms, Macys, Target, Kohls, Walmart, and all the other department and discount stores still in business and quite profitable? Maybe they just out-competed Gottschalks?

That's exactly what they did!



Gottschalks had annual sales volume of about $700 million. Wal-Mart is somewhere around $250+Billion, Target is around $82+Billion, Macy's/Federated is around $28 Billion.



In order to stay afloat, you need to be profitable. That can be done by increasing revenues or decreasing expenses or some of both. At Gottschalks, we were buying around $800 million of inventory per year where as Walmart is purchasing around $750 BILLION. They are able to get purchase discounts that simply don't exist for the little guys. Walmart is able to dictate prices buy purchasing entire supplies (in China). By the way, Walmart, Costco, and others are getting great discounts on inventory by paying very low prices from merchandise produced in low-wage countries.



So, where can we cut expenses - Payroll is the next most controllable expense and that's what we were forced to do at Gottschalks. It's quite possible that this affected customer service and then ultimately reduced sales. It's also quite possible that with inflation and rising cost of living, people went to the big stores and bought cheaper stuff. As minimum wage has increased over the years, many smaller companies did not survive and even medium size companies (like Gottschalks) didn't make it. We have far less choice than we had in the past and as we continue to squeeze businesses, we are left with big-box stores and that's it.



jyl - you have stated in some of your posts that "I'm firmly on the "wait and see data" fence here." I don't think you need to wait as there is plenty of history to review. We used to have 1 income families and that was sufficient. We used to have all kinds of services (i.e., full service gas stations, milk delivered at your door, etc...). Raising the lowest incomes to keep up is not the answer as it just keeps pushing prices up and service levels down. I believe that we need to reduce wages at the top and I would do that by limited the maximum tax deductions for payroll.

[fintstone]

Originally Posted by diverdan

Minimum wage should be tied to the cost of a gallon of gasoline. Back in 1971 I was making $2.00 an hour working part time in a sporting goods store in Hollywood having a great time. A gallon of gasoline was about $.25 a gallon. So for an hour of work I could buy 8 gallons of gasoline. The higher priced gasoline in the Midwest was up to about $.40 a gallon so one could buy only 5 gallons for an hour of labor. I could afford to drive my 4 year old $1000.00 Alfa Romeo. Michigan to California @ 30 mpg needed about 74 gallons which was less than $40.00 at L.A. prices. That was 20 hours of labor. At the $4.00 a gallon with the same car that would be $296.00 Absurd! So gasoline has gone up by 16x. That would be about $32.00 an hour minimum wage at $4.00 a gallon. If gasoline goes down to $2.00 a gallon that would be $16.00 an hour. The cost of university today has made it impossible for students to work their way through school at $7.50 an hour. The rich get richer and the poor have a much worse life than they did 45 years ago.

In 'the mid '70s, gas was about $.50 per gallon and I made $1.60 an hour. So, an hour bought about $3 gallons of gas. At $2.00 a gallon, that is only $6.00 an hour now...so it looks to me like things are getting better.

[rusnak]

I watch the price of gasoline fairly closely.

The problem with the concept of "cost of gasoline" is that it varies by as much as $.50 per gallon, depending on which side of the street you are on. Sometimes each street corner has that much variation at each store. The other day, Arco was at $2.95, Shell was at $3.45, and Chevron was at $3.40. Meanwhile Costco was at $2.70 or thereabouts. Each station operator drives the competition daily, and the cost of trucking and the wholesale cost can fluctuate several times per day.

Once the gas is in the ground, the operator of each station has the ability to price gas, at least in California, according to his market. That still allows a lot of leeway, as you can see.

[wdfifteen]

Originally Posted by Tidybuoy

Raising the lowest incomes to keep up is not the answer as it just keeps pushing prices up and service levels down. I believe that we need to reduce wages at the top and I would do that by limited the maximum tax deductions for payroll.

Interesting idea. Limit expensible labor to salaries of less than $100 or $150k. But instead of putting more money in the consumer's hands, it puts more in the government's hands. How is that better? A major benefit of a higher minimum wage is that it increases consumer demand and the circulation of money.

[rusnak]

Originally Posted by wdfifteen

Interesting idea. Limit expensible labor to salaries of less than $100 or $150k. But instead of putting more money in the consumer's hands, it puts more in the government's hands. How is that better? A major benefit of a higher minimum wage is that it increases consumer demand and the circulation of money.

I am all for higher consumer savings. I think a hiring tax credit for businesses might do it, but probably an investment credit would be better, for tangible assets. Put money into the hands of small businesses and they will spend it. Put money into the hands of the wealthy, and they will save it away. Force business to spend, and prices will go up in a nanosecond, draining the pockets of the working class.

[jyl]

Shift tax burden to big companies and the wealthiest; reduce tax burden on small businesses and the low income.

The biggest companies can use multinational tax strategies. Most big tech companies have tax rates 10-20%. Small businesses can't domicile overseas or hold intellectual property in low tax jurisdictions or hire teams of $600/hour tax lawyers. They get stuck with the full statutory 35%.

Quote de Tidybuoy

Raising the lowest incomes to keep up is not the answer as it just keeps pushing prices up and service levels down. I believe that we need to reduce wages at the top and I would do that by limited the maximum tax deductions for payroll.

Interesting idea. Limit expensible labor to salaries of less than $100 or $150k. But instead of putting more money in the consumer's hands, it puts more in the government's hands. How is that better? A major benefit of a higher minimum wage is that it increases consumer demand and the circulation of money.