Thursday, April 14, 2016

$15/hr Minimum Wage - Still Quite Possibly The Best Way to Collapse the Economy

Last August, I wrote a piece about the push for the $15 minimum wage called "The Single Best Way to Rip the Economy Apart".  In the intervening eight months, the push for the (more than) doubled minimum wage has increased, if anything.
Try this simple thought experiment: current federal minimum wage (which was never intended to be a "living wage" or pay "to raise a family on") is $7.25/hr.  $15/hr is more than doubling that, and there is a wide spectrum of jobs that make between $7.25 and $15.  By law, everyone in that gap will be given a raise to $15, and everyone who worked hard, sweated hard, and got specialized training will suddenly have all of the effort negated (and, I believe, get demotivated). They will suddenly see that couple of dollars that distinguished them from the newbies/new hires vanish and they'll be lumped together.  But, at least, they'll get something for it!  Think of the people making $15.25 or $15.35.  They will suddenly be just on the verge of being minimum wage workers.  I'd say "again" but it's possible they never worked even close to minimum wage.
When you think about how obvious it is that doubling min.wage is such a bad idea, it's amazing that people argue for it.  In that August '15 piece, I talked about an online payments processor called Gravity Payments, and their CEO who decided that he would increase the minimum wage at his company to far beyond a mere $15/hour. 
Back in April, CEO Dan Price announced a three year plan that would raise everyone's pay in the company to $70,000/year, even volunteering to cut his own pay to do so.  This made minimum wage in that company about $35.65 an hour.  Social Justice Warriors must have been beside themselves in orgasmic fits.  Today, just 3 months later:  not so much.  Now some of his best employees are leaving, the group isn't happy and the CEO has leased out his house, living in the garage to make ends meet.  Business Insider has the story:
“Everyone start[ed] screaming and cheering and just going crazy,” Price told Business Insider shortly after he broke the news in April.

But in the weeks since then, it’s become clear that not everyone is equally pleased. Among the critics? Some of Price’s own employees. 

The New York Times reports that two of Gravity Payments' "most valued" members have left the company, "spurred in part by their view that it was unfair to double the pay of some new hires while the longest-serving staff members got small or no raises."
Hmm: I went by their website and the company is still in business, and they're still talking up this plan.  Since it's a private company trying to work out how to attract and keep the best talent, I'm all for it.  At least it's not like what they did in Seattle.  But read that again:  "it was unfair to double the pay of some new hires while the longest-serving staff got small or no raises"?   That sounds to me just like the problem of wage-compressing all of the people making between $7.25 and $15, or those folks making just over the $15 line now.   How do you explain what's going to happen to the kids who think "the companies have that money; they'll just pay us moar!"  As I said another time and place,
If I could talk with the protesters, really talk instead of just sitting while they shout slogans, I'd say let's play make believe for a minute.  Let's pretend it would be legal to do everything I'm about to propose.  We just have to follow the consequences to logical conclusions.  Since we're talking about more than doubling minimum wage, here's the experiment.  Take every bill out of your wallet, pocket or money clip and double the denomination.  I mean, if you have $1 bills, mark them $2.  Take $5 bills and mark them $10, $10 bills and mark them $20, $20 and mark them $40 (yeah, I know there's no such thing; work with me here).   I'm going to assume if you're worried about minimum wage, you don't have any $50 or $100 bills, but do the same with them if you have any.  Congratulations, you now have twice the money you had a few minutes ago.

The kicker is that everyone else in America gets to do the same thing.  Are you further ahead in life because we've doubled the numbers on the money you have?  Or is the guy that you worry about all the time, the guy who used to make twice what you make still making twice what you make?  What if the price of everything doubled, too?  Wouldn't you be exactly where you started from? 
For a few weeks; even months, the allure of the bigger number of dollars will make everyone feel better.  The inevitable increases in the prices of everything will start to show up and the folks now making $15/hour will start to realize they're not really farther ahead.  They'll still have month left at the end of the money.  The thing is, it won't be completely obvious.  Everything will go up in cost, but proportional to the percentage of labor cost which we don't know.  Donald Sensing at Sense of Events has run a couple of pieces on this lately, and in one, he quotes a vice president at White Castle burgers
“We’re disappointed. What this means for White Castle is we really have to evaluate how we manage our business,” [White Castle vice president Jamie] Richardson tells me. “About 30 percent of every sales dollar covers the pay of our hourly workers, and that doesn’t include management.”

“It’s our biggest investment, our biggest cost. And it’s one that if we see increase dramatically through fiat, and we don’t do anything — it’s unsustainable,” Richardson says. “We are in uncharted waters.”
Since I haven't been inside a White Castle since dinosaurs roamed the Earth (there are none in town), I went to their website and looked up the price on a combo meal.  It was $8.06.  If I extract the cost of labor in that meal and double it, the new version of that meal is $10.64, a 32% increase.  The results for an overall cost of living is going to depend on how much labor goes into the costs, but it's simply not possible that the cost of everything doesn't go up.   Unless the jobs get replaced by robotics, which is completely possible and even worse, because then the minimum wage becomes $0.00 and even though prices stay the same, the former workers have no income. 


  1. I think it's important to also consider how these laws came into being...

    If you read about what was going on in countries when they instituted their minimum wage laws, you'll see that many of those have verifiable racist origins.

    For example:

    BC 1927
    "A 1927 B.C. Department of Labor report explicitly articulated the intentions to price Asians out of the job market through the introduction of a minimum wage: ?The Board of Adjustment has always taken the view that, if employers were obliged to conform to a higher standard of wages in the employment of Oriental labour, such labour would tend to become less desirable from an employer?s point of view, and to a certain extent would be substituted by the employment of white help.? "

    In this country, and example is the Davis Bacon Act of1931, which was the first imposition of a minimum wage by the federal government. This law is interesting because it's yet another case where the people who passed the act are on record specifically discussing their intent WRT race.
    "Our nation?s first minimum wage came in the form of the Davis-Bacon Act of 1931. During the legislative debate over the Davis-Bacon Act, which sets minimum wages on federally financed or assisted construction projects, racist intents were obvious. Rep. John Cochran, D-Mo., supported the bill, saying he had ?received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South.? "

    Here's one more quote to think about:
    " ?[O]f all ways of dealing with these unfortunate parasites,? Sidney Webb (1912, p. 992) opined in the Journal of Political Economy, ?the most ruinous to the community is to allow them to unrestrainedly compete as wage earners.?"

    It is truly amazing how politicians have been able to convince a population that laws that were specifically designed to hurt them, are actually there to help them.

    One can also ruminate on what happens when the government steps in and artificially limits supply of something. Expect it to become normal for there to be under the table kickbacks needed in order to get these $15/hr no skill required jobs.

  2. The more I read this stuff, the more glad I am that I'm an automation engineer.

  3. Don't miss the important point that it isn't 'just' the labor costs for the White Castle employee. ALL of the costs will increase due to a $15 minimum wage. The cost of the food delivered everyday will also increase 30-40%. Everything we buy and use will increase in costs AND we will pass those increases on to the consumer along with our own increased labor costs.

    I think that one of the unanticipated consequences of this will be a change in the labor force. Today, a building contractor or lawn maintenance contractor can hire a illegal alien and pay them $8-$10 an hour and not deduct the payroll taxes. This saves the contractor perhaps 20% between the lower wages and the 7.5% payroll taxes not deducted. After the implementation of $15 minimum wage I am pretty sure those same illegals will work for $8-$10 an hour and will now save the contractor 50%-60%. What will this do to American workers?

  4. Since Seattle triggered $15/hr there have been many that have complained that the raise cost them. How? Because now that they were making the higher wage they did not qualify for benefits like housing subsidy and EIC.

    Be careful what you ask for!

  5. Worker's comp is also based on payroll, as is
    Unemployment "insurance".
    All mandatory costs for employers.

  6. I work for Big State University in California. Many of the labor union contracts have a "me too" clause built in. If one group gets a raise, everyone else gets one too. These raises are percentage driven too. Lots of cost increases to come.

  7. If I could talk with the protesters, really talk instead of just sitting while they shout slogans

    The protestors are consciously choosing not to argue honestly with you; instead they are doing doublethink. To be able to do doublethink they have to already understand your points, so as to know what lines of questioning to evade by changing the subject. Their doublethink is method acting, in order to better sell their lies to you. In the short term you are wasting your time talking to people doing doublethink. In the longer term of years, I think continually having their contradictions thrown in their face wears them down.

  8. You mean white Castle burgers are not 10 cents, a buck for a sack of ten? OMG, what has become of my country?

  9. Lots of good comments here. Yeah, I really oversimplified my analysis of how much the price of everything goes up. I know it's not likely to double, but it's also likely to be quite a bit more than the 32% on that burger combo. That White Castle VP later on in the interview said he anticipated every cost going up by 50%.

    And, yeah, educated savage, you're likely to be doing well with a job designing automation systems.

  10. Yep, another "feel good" law written by people who are totally clueless on "Unintended Consequences"!

  11. On a high note if food service workers are earning $15 an hour you would have to be stupid to tip. Since tipping today is too expensive I for one will welcome not tipping.