Archive for Tuesday, April 1, 2008

Take a Stand: Inconvenient truth about minimum wage

April 1, 2008

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It's an election year, and bad economic policy is popular once again. One of the worst ideas bandied about is that raising the minimum wage is good for low-wage workers. On May 25, 2007, President Bush signed a bill into law that increased the federal minimum wage in three steps: to $5.85 per hour effective July 24, 2007; to $6.55 per hour effective July 24, 2008; and to $7.25 per hour effective July 24, 2009. Local politicians are scrambling to increase the Kansas state minimum wage to meet or exceed the federal minimum, and that's a really bad idea.

Three things happen when the minimum wage rises, and two of them are bad. Low-wage workers who keep their jobs benefit from rising incomes following an increase in the minimum wage. That's good, obviously. Nobody would begrudge rising incomes among kids and the working poor. Unfortunately, effects from rising minimum wages don't end there. That's only the beginning. Low-wage workers who get laid off because of rising minimum wage requirements suffer real economic harm. Also injured are potential workers who never get hired in the first place because of rising minimum wages. High minimum wages don't help when nobody's hiring.

In high school, the first paycheck I received was for a job as an usher at a movie theater. Then, a local gas station offered higher pay as a "gas pump jockey" to pump the gas, wash the windshield and check the oil. Later, I moved on to carrying out groceries at the local supermarket. Along with millions of other teenagers, those low-wage jobs taught me the value of getting to work on time, how to work with others and about paying taxes. All of those low-wage jobs have something else in common; they no longer exist.

Low-wage jobs to pump gas, carry out groceries, wash cars, act as golf caddies, and perform a host of other services have simply disappeared. Skinflint employers and greedy corporations did not kill them; rising minimum wages and cheapskate consumers like you and me ended a host of low-wage job opportunities. An inconvenient truth about rising minimum wages is that they eliminate low-wage jobs. When minimum wages rise above the going rate for unskilled labor, self-serve labor provided by cost-conscious consumers eliminates many low-wage employment opportunities.

Here in Lawrence, kids can now get jobs at local fast-food restaurants for roughly $6 per hour to start, and $6.50 per hour after three months or so. That makes the most recent increase in the minimum wage to $5.85 per hour irrelevant, at least here in Lawrence. In rural Kansas with fewer job opportunities for kids, $5.85 is above the going rate, and cutbacks in low-wage job opportunities are resulting. The biggest harm from increasing minimum wages is going to be felt after the election with scheduled increases to $6.55 per hour in July 24, 2008, and to $7.25 per hour July 24, 2009. Preparations have already begun for dealing with these scheduled increases.

Neither you nor I are willing to pay an extra 5 or 10 cents per gallon to have a kid pump the gas, wash the windshield, and check the oil. Instead, we choose to fill our own tank at the gas station; we also wash the windshield or leave it dirty. It would be nice to have someone bag the groceries and take them out to the car, but we're not willing to pay for help us at the grocery store. We also love "free refills" on soda at fast-food restaurants while employers minimize labor costs by not having to fill drink orders.

In Lawrence, next time you visit Chipotle or Pepperjax Grill, notice how those restaurants have designed their businesses to minimize the need for waitresses, busboys, and dishwashers - all once coveted jobs for low-wage workers. Those jobs are gone, and they are not coming back. As the minimum wage rises, expect longer lines and anticipate becoming familiar with self-service checkouts at the grocery store.

It's an election year, and politicians want voters to believe that they can help low-wage workers by simply increasing the minimum wage. In fact, the only way to increase wages is to make workers more valuable to their employers. That means workers must ultimately become more valuable to consumers. Rather than endlessly wrangle over harmful minimum wage legislation, why not devote that energy to finding ways to help make low-wage workers more valuable? Better funding for basic education and worker training are proven ways of making workers more productive, but that takes time and tax dollars.

Neither is popular in an election year. Enlightened economic policy focuses on ways to help workers earn maximum wages, not minimum wages. Unfortunately, this is an election year, and it remains popular to ignore a simple inconvenient truth about increasing the minimum wage. Rising minimum wages eliminate lots of low-wage job opportunities. That's bad for kids and the working poor.

Mark Hirschey is the Anderson W. Chandler Professor of Business at Kansas University.

Comments

notajayhawk 7 years, 4 months ago

The minimum wage was never intended to be a "living" wage. It has never been sufficient to keep a family above the poverty level as a single income, and that's not ever what it was meant to be.

Bruce Bertsch 7 years, 4 months ago

The distinguished professor of business has failed to tell the rest of the story. Raising the minimum wage in Kansas to meet the Federal wage would have almost no effect as the wage floor would still be less than the equilibrium wage. Having worked in operations in the fast food industry, increases in the minimum wage do NOT cause layoffs as few workers earn the minimum wage. It does not mean that all workers suddenly get an increase. There is no evidence of cost-push inflation.

usesomesense 7 years, 4 months ago

Minimum wage is for unskilled workers - why do we want to encourage people to remain unskilled?Increasing minimum wages furthers inflation - the cost of basic goods must increase to compensate for the increased labor costs on everything.The wage hike hurts those that are only a couple of dollars above minimum - and have worked hard to get there. My experience has been that those workers don't get a comparable raise when this occurs.Basic costs of necessities will go up and minimum wagers won't be any better off in the long run.The reality is that minimum wage isn't supposed to be lived on - at least not independently. If you work hard and prove your worth you should be compensated or you need to get a different job.

Robert bickers 7 years, 4 months ago

What they said. The artificial increase in the value of labor hurts far more people than it helps, especially small business just getting started.Say you can afford to pay out $17.25 an hour in wages - that's three new employees at $5.75 an hour. As your business becomes more successful, you can afford to pay them more. If the minimum wage is inflated to $7.25, you can only afford two employees. This not only leaves the third person out of luck, but diminishes the new company's ability to grow due to the reduction in work that can be done. I believe in paying a fair wage, but artificially selecting that wage isn't fair.

Robert bickers 7 years, 4 months ago

Moderationman: why the ad hominem against the author?If you are earning two dollars above the minimum, are you going to get a 20% raise when the feds mandate the change? Can your employer afford to do that? What happens to your individual purchasing power? These are real concerns for those earning above the minimum - concerns we don't want to think about because we like quick fixes that don't appear to have personal ties.

aginglady 7 years, 4 months ago

Everyone thinks they should earn big money for their hours time.Read this. It breaks down people and their mental function on 100 people you might see in a parking lot. The link to the whole page will be at the bottom._____Wandering Down to Walmart To gain a clearer perspective regarding what this means in terms of our daily contacts with people, let's take a trip down to a local Walmart. Let's suppose we're visiting the only Walmart in a small, rural town, so that neighborhood inhomogeneities don't affect the cohort of shoppers we'll find at the store. That way, we'll be seeing a nearly random cross-section of the public on our trip. OK. Here we are at Walmart. I can already see quite a few people out here in the parking lot. Let's suppose that we're going to see 100 other customers while we're here shopping, and then consider their breakdown by IQ. On the basis of the law of averages, we'd expect to see one person here with an IQ below 64! There'd be someone else with an IQ between 64 and 68. There should be 3 more with IQs between 69 and 75. In other words, if this is a random crowd, 1 out of 20 people we're going to meet will have IQs below 75, and will be seriously retarded! (I guess we're lucky the world works as well as it does.) Keep your eyes peeled. See if you can spot 'em. About 1 out of 10 people we'll walk past here at Walmart has an IQ below 80, or about 10 of the 100 people who cross our paths here in the store! Hey, look! Does she look kind of sagaciously-challenged to you? One out of 5, or 20 of the 100 people we're seeing have IQs below 87, with about 1 in 10 in the 80 to 87 IQ range. Half the crowd, or 50 out of the 100, has below-average intelligence! And of course, the other half has above-average intelligence. Twenty of them (1 out of 5) have IQs above 113. Ten of them, or 1 in 10, have IQs above 120. Five of them have IQs above 125, and have the potential to become university professors with Ph. D's. Two of them have IQs of 132 or above, and are potential members of Mensa. One of them has an IQ above 136.

aginglady 7 years, 4 months ago

cont. Did you spot them? I saw one or two possible candidates, but I suppose we'd better not walk up and say, "Pardon me, ma'am. You look mentally challenged. Are you?" She might hit us with her purse. If we spent time at a large urban mall, we might rub elbows with 1,000 shoppers. In an average, unenriched setting, where we saw 1,000 other shoppers at Christmas-time, IQs might typically be expected to range between 50 and 150. In a blue-stocking suburb like Norcross or Corte Madera, we might expect to find one or more folk with IQs above 150, and perhaps, an individual or two with an IQ above 160. This is a huge range of IQs. I think that the range of intellects that we walk past in the world is awesome. The span between top and bottom among 100 people chosen at random would be about 75 points of deviation IQ, or more than 80 points of ratio IQ. And we've been walking past them every day. This isn't the whole story. It's mentioned below that even on culture-fair tests, the average IQ of our African-American population falls about one standard deviation below those of the other components of our population. This means that 1 out of 10 African-Americans has an IQ below 59, and only about 2 Africans in 1,000 can qualify for Mensa. So most probably, on our trip to Walmart, we're going see an African-American with an IQ of 60 or below (mental age of 10). Until I wrote this up this afternoon, I had never stopped to think just what intellectual diversity awaits us at our local shopping centers. Half the people we meet in cars on the road have below-average intelligence, and 1 in 20 must be seriously retarded, with a mental age of 12 or below. Ouch! I think I'll ride my bike on back streets to the store._____http://www.geocities.com/rnseitz/Definition_of_IQ.html

MCwzMC 7 years, 4 months ago

Many of us earned minimum wage at one time or another, and that time was - high school. A minimum wage increase is a mere political ploy as are the economic stimulus package and the proposed bailouts of the housing industry. While the stimulus package at least benefits Americans broadly, the minimum wage increase and the housing bailout proposals do not.It will be a sad day if our elected officials decide to bail out the speculators and the other financially irresponsible individuals that decided to mortgage a house they could not afford. Given that the most dramatic effects of the housing bust have been felt in CA, FL and other hot markets, it seems any bailout will come at the expense of people living in more affordable (and slowly appreciating) housing markets in the midwest.The worst part of these proposals is that the politicians know they are a ploy but are willing to sacrifice long-term economic stability for personal gain.

notajayhawk 7 years, 4 months ago

There's another thing - remember the people not covered by the federal minimum wage are those whose compensation includes other income - tips, commission, etc. Just because people get 'paid' $2.85 per hour doesn't mean that's all they're making, some of them are doing quite well. Do we really have to raise the minimum wage above $7.00 for people who may be making more than $100 per shift in tips or a few thousand dollars per month in commissions?

SettingTheRecordStraight 7 years, 4 months ago

Thank you, Professor Hirschey! The truth is good.

jhwk2008 7 years, 4 months ago

"States with Minimum Wages above the Federal Level have had Faster Small Business and Retail Job Growth"http://www.fiscalpolicy.org/FPISmallBusinessMinWage.pdf"The simplistic introductory economics prediction that an increase in the minimum wage will result in job loss clearly is not supported by the actual job growth record. Rather, faced with an increase in the minimum wage, small businesses may have benefited from some combination of higher productivity through improved worker retention and savings on recruitment and training. There may also be a "Henry Ford" effect at work: if you pay workers more, they can buy more, boosting the overall economy, specially among small retail businesses."

MCwzMC 7 years, 4 months ago

State intervention is superfluous. If increased wages benefit small businesses, they will voluntarily adopt them. Moreover, the main class of employees who will benefit from the increase receive tips, etc. Seems to me that the author pretty much nailed the real purpose of the wage increase on the head - political demagoguery.

notajayhawk 7 years, 4 months ago

jhwk2008 (Anonymous) says: "States with Minimum Wages above the Federal Level have had Faster Small Business and Retail Job Growth"Now, for the $64,000 question: Which is more likely to have caused which?

Kat Christian 7 years, 4 months ago

Shoot I earn above min wage but I feel like I'm earning min wage. I can barely afford to live and everything I MEAN EVERYTHING is on the rise. Gas, food, rent, heating fuel, water, things are all on the increase. The harder I work the higher prices get and I'll never catch up at this rate. In the long run I'll work myself into a grave. I think our society has gotten too greedy for its own good. They raise the wage to pacify only while businesses/corportions gain more $$. The government steals us in raising taxes. So heck no one wins except the rich keep getting richer off the backs of the working class. As for low-wage jobs - the drop out rate of our kids are in for a rude awakening. If there are no low-wage jobs their will be an increase in homeless not just for the elderly, but for our youths who are too stupid to read and communicate. That worries me more than anything. It has already begun. You ask a young person where things are in a store and they look at you like you've just spoke a foreign language. Once I had to spell out an item and the kid couldn't understand what I was spelling. Duh! The only way society can regain a middle class it not to rise prices when the wage increase maybe every other time so people can catch up. Lets face it the more money consumers have the more they will spend. It's a win-win situation.

beatrice 7 years, 4 months ago

The basic support of the thesis that raising the minimum wage is a bad idea is found in these sentences: "Low-wage workers who get laid off because of rising minimum wage requirements suffer real economic harm. Also injured are potential workers who never get hired in the first place because of rising minimum wages."If the article was accurate and hordes of people lost their jobs and hordes more are never hired when the minimum wage is raised, then there would have been a demonstratable and sustained increase in unemployment immediately and continually following the hike in the minimum wage back in July 2007.This never happened. Thus the only conclusion must be that the article is not accurate.

camper 7 years, 3 months ago

I don't disagree with the editorial, nor the comments because they are all quite true. I can however offer some counterpoints to consider:1) Since the minimum wage has been increasing, beginning in the early nineties, it has had little (if any) impact on inflation. 2) Changes in technology and services have more to do with the reduction in the number of these jobs.3) Rising fuel and food prices pose a far greater danger to inflation.4) Higher wages mean more disposable income. This is beneficial to any economy, because this money is directed back into the economy.5) An increase in minimum wage can be viewed as a slight investment in those who want to move into a higher level job or save more for education. A higher wage will help them in achieving these goals.While there are surely other ways to stimulate the economy and the welfare of hard-working employees, I don't necessarily oppose "moderate" increases to the minimum wage.

Dorothy Hoyt-Reed 7 years, 3 months ago

In Lawrence, next time you visit Chipotle or Pepperjax Grill, notice how those restaurants have designed their businesses to minimize the need for waitresses, busboys, and dishwashers - all once coveted jobs for low-wage workers. Those jobs are gone, and they are not coming back.All companies would be thrilled if they could get rid of all their employees, except the 1 that has to fix all the automatons. It has nothing to do with minimum wage, and everything to do with making more profits for the CEO's outrageous salary. Of course, eventually it will make their business suffer, because no one will have money. duh. Not to mention making another Karl Marx viable.

beatrice 7 years, 3 months ago

vet, okay. I've re-read them, and they still say and suggest the same thing - raising the minimum wage will eliminate jobs. Look at the next to last sentence of the article: "Rising minimum wages eliminate lots of low-wage job opportunities." Again, I ask, if "lots" of jobs are are eliminated, then why isn't it reflected in a rise in the unemployment rate? It isn't reflected in the unemployment rate because it is actually a myth presented by business types who want to keep paying as low a wage as possible. "Lots" of eliminated jobs is a lie, proven to be a lie by the consistancy in the unemployment rate after minimum wages are raised. Do I think individuals should strive to achieve minimum wage? Of course not. I'm all for education and greater opportunities for everyone. But the argument that keeping wages low actually is a benefit to the low wage earner is ridiculous. It is a conservative scare tactic to suggest that it is better that people receive scraps, because they may just get nothing at all.

kansas778 7 years, 3 months ago

beatrice--"lots" of jobs aren't eliminated because the current price floor affects very few people. According to the Bureau of Labor Statistics, only 1.3% of all workers earned the minimum or less, most of them being in the food service industry, these being waitresses who earn tips. The next largest group is people in sales, who earn money on commissions. If you take these two groups out, people who are making more than just their wages, that leaves us with only 0.46% of workers who earn the minimum or less. These people are most likely between the ages of 16 and 25, unmarried, and work part time. What is likely to happen when there are small increases in the minimum wage is not large jobs loss, but an increase in part time jobs, as employers save some money by cutting hours, and not paying benefits to them because they're part time.

just_another_bozo_on_this_bus 7 years, 3 months ago

With few exceptions, anyone hired at the minimum wage is a "disposable" employee. They are hired because the employer or doesn't expect much from them besides showing up and do mostly menial tasks, and the message to the employee is to not expect much from the employer, or they'll be out of a job. In other words, it's based purely on exploitation and purely for the benefit of the employer. That's why the minimum wage needs to be raise periodically-- exploited workers tend to be very needy members of society, and cost is borne by the rest of society somewhere, somehow, to subsidize the greed of employers who are merely looking for someone to exploit, whether it's a teenager or a single mom.

aginglady 7 years, 3 months ago

dorothyhr (Dorothy Hoyt-Reed) says: In Lawrence, next time you visit Chipotle or Pepperjax Grill, notice how those restaurants have designed their businesses to minimize the need for waitresses, busboys, and dishwashers - all once coveted jobs for low-wage workers. Those jobs are gone, and they are not coming back.___And that is why, I never clean my own table at restaurants, fast food or not.1) if you clean the trash, the person wiping the tables will probably not see the salt and residual germs on the table and skip it.2) No one at restaurants was expected to ever clean their own tables before fast food and trays. They adopted the school lunch cafeteria thought..thinking now these kids are older and used to it.3) Why should I become one of the staff, just because a waitress didn't bring me my meal? I paid for my meal didn't I? Don't I deserve the same courtesy that I get at other restaurants, where I might spend the same?4) Everytime someone cleans their own table, they are doing a disservice to the next person, ie: it isn't disinfected.With MRSA around, this is just criminal.You are also doing a disservice to the employee who has, or could have that job.Note, I feel the same way about pumping my own gas, or taking my own bags to the car. My mother didn't have to do it, I grew up and worked at a Rusty's (who kept plenty of boys and men to do this), we had kids to carry them out for women, elderly. People didn't get stronger, this should still be done. And I'm not talking about having "ONE" kid to take out all the groceries for all the checkouts either.

kansas778 7 years, 3 months ago

bozo, the "exploited" workers you speak of are NOT the needy. They are mostly high school and college age kids that are single, have no children, and only work part time. In other words, it's kids in school who work at McDonalds on the weekends for a few bucks. It's interesting that on the one hand you say the employer doesn't expect much out of them, and on the other you say they are exploited. Which is it bozo? And if you think the employee is at high risk of being out of a job, think again. I've worked in food service, and they tolerate the worst employees because. People show up to work high or drunk, or not at all. Being late is daily routine for some folks, and theft is rampant, yet they don't get fired. I guarantee you that everyone in Lawrence has eaten food that was cooked by someone who was high.

notajayhawk 7 years, 3 months ago

camper (Anonymous) says: "4) Higher wages mean more disposable income. This is beneficial to any economy, because this money is directed back into the economy."It's only more disposable income for the people who got the raise. It's less disposable income for those who have to pay more for the products and services whose prices went up to cover the higher wages."5) An increase in minimum wage can be viewed as a slight investment in those who want to move into a higher level job or save more for education. A higher wage will help them in achieving these goals."Not really; an increase in the minimum wage (particularly in those places where it has been warped into the so-called "living wage") takes away from the incentive to move into a higher level job or to educate oneself. If you had a choice to make more money by moving up in a job that required more training and education and responsibility, or getting a raise to keep doing what you're already doing, which would you pick?

jumpin_catfish 7 years, 3 months ago

I love it when the commies get all worked up about the min. wage, you can hear their teeth grinding. We are in the midst of a artificially controlled economy and its a mess. So the answer is more government control or government meddling as it should called.

beatrice 7 years, 3 months ago

Which ever side of the argument you fall, whether for or against a minimum wage hike, the thrust of the article is that "lots" of jobs are lost when minimum wage is raised. The numbers don't support this argument, thus the basis of the article is incorrect.Unless, of course, the author considers a couple hundred across the country to be "lots." And chances are, virtually all of these workers will find other employment earning the new minimum wage elsewhere, hence no fluctuation in the unemployment rate when the rate is hiked. This article is based on incorrect information. Next.

notajayhawk 7 years, 3 months ago

beatrice (Anonymous) says: "This article is based on incorrect information. Next."Actually your argument is based on a false premise. You stated that if the author's contention is correct, then past increases in the minimum wage would have resulted in increased unemployment rates. And that's simply not true.The kinds of jobs we're talking about have a very large turnover rate. The employer doesn't have to fire anyone when the minimum wage goes up, he just doesn't have to replace the ones who leave through normal attrition. How would people who were never hired be reflected in the unemployment rate?I don't know how old you are, beatrice, but I remember when a typical fast-food place had four or more order takers, and that's all they did. Other people put the food into bags, while still others made drinks, fries, whatever. Now you see a couple of people who are taking your order while putting someone else's together while taking yet another order from the drive through on a headset, then hitting the switch on the automated drink and fries machines to complete yet another order. I've seen fast food restaurants get by with just two people, one in the front and one in the kitchen.In 1980 there were 7.8 million minimum wage workers, about 8.9% of the workforce. In 2005 that number was down to 1.9 million, or 1.5% of the workforce. http://politicalcalculations.blogspot.com/2006/06/disappearing-minimum-wage-worker.htmlNow, maybe you think these people just moved away and took a minumum wage job somewhere else, or that they moved up into a better job - but aren't these least-skilled workers the most likely to be unable to do that?

hockmano 7 years, 3 months ago

I dont know where you people eat at or shop at, but have you noticed that the minimum wage jobs no longer employ only college kids and teenagers?There are all ages working these jobs! Some simply take work there because ANY job is better than NO job! So the next time one of you lose your job and have to work for minimum wage you just might change your mind on the entire issue!

notajayhawk 7 years, 3 months ago

hockmano (Anonymous) says: "I dont know where you people eat at or shop at, but have you noticed that the minimum wage jobs no longer employ only college kids and teenagers?There are all ages working these jobs! Some simply take work there because ANY job is better than NO job! So the next time one of you lose your job and have to work for minimum wage you just might change your mind on the entire issue!"Those people were always there, you just didn't notice them as much. In the last 25 years, three quarters of minimum wage jobs have disappeared. The older employees that really need a job have always been in those fast food places, and management would rather hold on to them than the kids because they're more dependable, cause fewer problems, and work harder. And now that you can run a shift with three people instead of twelve, they're more noticeable, because there are fewer kids working around them.

camper 7 years, 3 months ago

Notajayhawk,"4) Higher wages mean more disposable income. This is beneficial to any economy, because this money is directed back into the economy."It's only more disposable income for the people who got the raise. It's less disposable income for those who have to pay more for the products and services whose prices went up to cover the higher wages.True. This makes it a wash though. And this was precisely my point (which was to counter the article which I also agreed with). No matter what side you have on minimum wage, there are offsets to whatever theory you may argue. I don't think either side is right or wrong...but I do believe moderate minimum wage increases will pretty much have a nuetral effect. For this reason, I just choose to side with small increases.Good points though. I do not disagree.

Richard Heckler 7 years, 3 months ago

IN Lawrence minimum wage is not nearly enough thanks to the rising cost of living due to creating a bedroom communitywhich brings on inflated values from rent to taxes. $17.50 per hour is about right in Lawrence,Kansas. Have no fear that wage will NOT be buying property anywhere near Aspen,Colorado or Maui.

HootyWho 7 years, 3 months ago

minimum wage isn't supposed to be a living wage??? what if thats all you can find? not everyone can go to college,

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