Should minimum wage be: Higher? Lower? None?

[jyl]

As I said, I think it is too early to see what the effect will be in Seattle or elsewhere. The early reports are unreliable, very ideological, on both sides. All the restaurants named as closing in Seattle, when actually asked, said their closing had nothing to do w/ minimum wage law (see my post above). I don't have much faith in the economic projections either. On either side.

I'm firmly on the "wait and see data" fence here.

[Tobra]

It is a pretty straightforward thing to predict. The elusive "reasonable man" would expect it. If you look at it logically, there are no surprises. When this shuts down a bunch of businesses, do you think it will be easy or hard to take the minimum wage from $15 to $10 an hour? After those businesses close, what would it take to bring them back?

[Nordwest]

My daughter's friend has worked at Wendy's for a year now. He works hard, is a good team member and was employee of the month. He just got his first raise of 15 cents....

[Rick Lee]

Originally Posted by Nordwest

My daughter's friend has worked at Wendy's for a year now. He works hard, is a good team member and was employee of the month. He just got his first raise of 15 cents....

I worked at Wendy's in 1988 and made more than double the min. wage because that's what the market commanded. My town had negative unemployment. I'm surprised the gov't. didn't cap the wages, since people seem to think it's fine for the gov't. to set the price of labor.

[Nordwest]

[QUOTE]I worked at Wendy's in 1988 and made more than double the min. wage because that's what the market commanded. My town had negative unemployment. I'm surprised the gov't. didn't cap the wages, since people seem to think it's fine for the gov't. to set the price of labor.

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.

[fintstone]

When I flipped burgers, a nickel raise was a big deal. It was incredibly well spent time as it made me realize that I needed to acquire some more valuable skills.

[fintstone]

I've scanned this thread and it appears to have missed one basic factor. Inflation.



The real dollar value of the minimum wage peaked in 1968 and has been the decline since. It's no surprise that minimum wage workers are struggling.

You expect people to stuggle when they do a minimum wage job. In 1968, the "minimum wage" really was not the true minimum like now. An awful lot of folks did not make that much.

[zedsdead]

The fact remains that the minimum wage hasn't kept pace with inflation.

Minimum wage workers are being paid less (in real terms) than they were historically.

BTW - I'm a small business owner and have been for the last 15+ years.

[rusnak]

If you look at that graph, the peaks in minimum wage "worth" coincide with recessions. And the drop in minimum wage likewise correlate with economic recovery. As it should.

[fintstone]

The fact remains that the minimum wage hasn't kept pace with inflation.



Minimum wage workers are being paid less (in real terms) than they were historically.



BTW - I'm a small business owner and have been for the last 15+ years.

But that is not apples to apples...because in 1965, an awful lot of people made much less. "Minimum wage" did not mean the same thing.

[jyl]

Economics is not medicine or physics. It is a lot more complicated and less understood. A reasonable man doesn't have a high chance of predicting the effect of this, and neither does a reasonable economist. Exhibit A, reasonable economists already disagree on this exact issue. Exhibit B, if $1-2 difference in minimum wage is enough to reduce the net number of restaurants, then we should see many fewer restaurants per capita in high minimum wage states than in low minimum wage states, but I know of no data showing that result.

I can certainly see how things might play out as you say: minimum wage goes up, crappy unproductive workers get paid more for being crappy and unproductive, more businesses close down than open up.

I can also see how it could play differently: minimum wage goes up, those higher wages get spent, some businesses benefit, the businesses paying minimum wage raise prices by a small percentage, it turns out that demand is inelastic, profit margins stay the same, worker turnover declines.

We really don't know.

Georgia has a very low minimum wage. Oregon had a high minimum wage. Are there more restaurants per capita in Georgia?. Do restauranteurs in Georgia make much more profit?.

We need data to form an opinion.

Old guys reniniscing about how $3.25 was a good wage 40 years ago is not data.

Seattle will give us data, in the coming years. I'm on the fence until I see that data.

Here are a couple other options. Maybe there could be a lower minimum wage for workers in their first six months in a job. If the worker is good, pay them more after that; if they are bad, fire them pronto.

It is a pretty straightforward thing to predict. The elusive "reasonable man" would expect it. If you look at it logically, there are no surprises. When this shuts down a bunch of businesses, do you think it will be easy or hard to take the minimum wage from $15 to $10 an hour? After those businesses close, what would it take to bring them back?

[Tobra]

Originally Posted by jyl

I can certainly see how things might play out as you say: minimum wage goes up, crappy unproductive workers get paid more for being crappy and unproductive, more businesses close down than open up.

This makes sense

Originally Posted by jyl

I can also see how it could play differently: minimum wage goes up, those higher wages get spent, some businesses benefit, the businesses paying minimum wage raise prices by a small percentage, it turns out that demand is inelastic, profit margins stay the same, worker turnover declines.

This ignores the fact that labor is generally the single biggest expense of a small business, along with a lot of other things.

You can say you want to have a rational discussion, but you have to look at it rationally to do so.

Economics is a fairly complicated discipline, but there are a lot of things about it that are not. Say labor is half your expenses, or 50% of the total. If that half goes up by 60%, your total expenses go up 30%. How could your overhead rise by 30%, and you only raise your prices a few percent and stay in business? A lot of businesses run at 50% overhead, or half the money they get goes to keeping the business going. If you are going to give most of the money you otherwise would keep to your employees because of a change in the law, you don't think it would be more likely for you to shut it down?

[wdfifteen]

Originally Posted by fintstone

In 1968, the "minimum wage" really was not the true minimum like now. An awful lot of folks did not make that much.

An awful lot of people don't make it now.
That chart is from the BLS and as such, presumably charts the change in the official FLSA minimum wage. The FLSA sets the minimum wage, and it is what the FLSA says it is. It was $1.15 in 1968, in 2012 it was $7.25. The comparison is valid.

[fintstone]

Originally Posted by wdfifteen

An awful lot of people don't make it now.
That chart is from the BLS and as such, presumably charts the change in the official FLSA minimum wage. The FLSA sets the minimum wage, and it is what the FLSA says it is. It was $1.15 in 1968, in 2012 it was $7.25. The comparison is valid.

No. Because a much larger percentage of the population actually received much less than minimum wage. It was only the minimum for the lucky few. Much of the population was exempt when it was enacted...but few are now. Every few years, less and less were exempt.

When I was young, few made as much as minimum wage...now few make as little.

[jyl]

If the minimum wage increases were as huge and as sudden as your example suggests, then I suppose you could confidently predict something dramatic would happen. But your example is very much exaggerated, and so is your conclusion.

Take Seattle's law. It is both more complicated and more subtle than your example. Since we are talking about restaurant workers here, this article is good reading:

Seattle's $15 Minimum Wage Law, Explained - Eater

In 2014, the biggest change will be from $9.50 to $11.00 (non tipped workers), the smallest will be from $9.50 to $10.00 (tipped workers and those with employer health care). Those are either 15% or 5% increases.

Typical restaurant labor cost is 30%, at least that is what successful restaurants target. That varies by type of restaurant, but let's keep it simple. So, say sales is $100. Labor $30, food $30, that is $60 in "prime costs". Leaves $40 for occupancy, g&a, marketing, etc, and pretax profit.
https://www.whitehutchinson.com/leisure/articles/primetime.shtml

So if sales is $100 and labor cost goes from $30 to $31.50 (+5%) or $34.50 (+15%), to keep "sales - prime cost" at $40, sales needs to rise to $101.50 or to $104.50, that is 1.5% or 4.5%. Again, this depends on whether the employees are tipped, non tipped, with healthcare, without.

So a logical thing a restaurant might do is increase menu prices by 1.5% or 4.5%. Some will convert employees from tipped to non tipped, and raise prices more but eliminate customer tips. There will be a variety of strategies.

Which will work and which won't?. Will certain types of restaurants do better than others?. Will a restaurant operator have to be smarter, hire better workers, change the way they do business?

Don't know.

In the coming years, we'll be able to track net new openings of restaurants in Seattle, and probably number of food service workers. Some people are already tracking new restaurant openings and permits, but to be complete you'd want to track closings too.

Seattle Restaurant Data Demolishes Conservative Argument Against $15 Minimum Wage | ThinkProgress

My point is, your example of a sudden 60% increase in labor cost is not close to the reality of what will happen to Seattle restaurants, so your logic starts from a false premise.

Yes, I realize minimum wage will gradually step higher over the coming decade under the Seattle law. So will all prices, thanks to inflation. I figure that the people who invest in starting restaurants are taking that into account, in deciding whether to start new ones in that city. So far, they seem to think the numbers still pencil out.

Quote de jyl

I can certainly see how things might play out as you say: minimum wage goes up, crappy unproductive workers get paid more for being crappy and unproductive, more businesses close down than open up.

This makes sense

Quote de jyl

I can also see how it could play differently: minimum wage goes up, those higher wages get spent, some businesses benefit, the businesses paying minimum wage raise prices by a small percentage, it turns out that demand is inelastic, profit margins stay the same, worker turnover declines.

This ignores the fact that labor is generally the single biggest expense of a small business, along with a lot of other things.



You can say you want to have a rational discussion, but you have to look at it rationally to do so.



Economics is a fairly complicated discipline, but there are a lot of things about it that are not. Say labor is half your expenses, or 50% of the total. If that half goes up by 60%, your total expenses go up 30%. How could your overhead rise by 30%, and you only raise your prices a few percent and stay in business? A lot of businesses run at 50% overhead, or half the money they get goes to keeping the business going. If you are going to give most of the money you otherwise would keep to your employees because of a change in the law, you don't think it would be more likely for you to shut it down?

[rusnak]

San Francico and Seattle will be the test case.

You could no sooner compare two different states for the number of restaurants and get any sort of good data than you could compare the Moon to Venus.

San Francisco already squeezes the customer for too much as it is, and their minimum wage is going to go up to around $12, then keep going. Los Angeles is contemplating a $15 minimum wage as well, but I think they'd be well advised to see how SF and Seattle play out.

When your operating margin is less than 15%, and your overall costs go up 10%, your busines is not long for this world. That is the case. It's going to be up to customers to decide whether they want to take the hit, because business can not.

[Chuck Moreland]

What if the government set minimum prices for used cars. Let's say $15,000.


We'd have some sellers unable to sell their POS car because it isn't worth $15k to anyone. (aka unemployed worker)

And we'd have some buyers that can no longer afford to buy a used car. (aka business that eliminates a job)

[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. http://www.restfinance.com/Restaurant-Finance-Across-America/July-2013/That-McDonalds-Salary-Study-Gets-It-Wrong/ 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.

[rusnak]

^ you need to go over those stats again, my friend.

[wdfifteen]

Originally Posted by fintstone

No. Because a much larger percentage of the population actually received much less than minimum wage. It was only the minimum for the lucky few. Much of the population was exempt when it was enacted...but few are now. Every few years, less and less were exempt.

When I was young, few made as much as minimum wage...now few make as little.

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