Blake Griffin

Wrapping up: If $15 is not the answer, then what is?

Throughout this blog I have discussed what is likely to happen if we see the minimum wage increase to $15 an hour. Big business will thrive and move to automation, smaller businesses may lay off employees, raise prices, or be forced to cease operations, unskilled workers will have trouble finding job positions, and unemployment will begin to rise. These are hard facts which have already been observed in areas with a rising minimum wage such as Seattle. If $15 an hour is not an effective minimum wage, then what is?

There is, without a doubt, a wage problem in America. Families all over the country are struggling to get by on the federal minimum wage and the state mandated wages, but simply raising the wage is not going to solve any problems. Joon Suh, a writer and economist for the Third Way think tank has come up with a plan which is quickly gaining traction among other economists. Suh argues that minimum wage should be adjusted across the country to reflect the cost of living in certain areas. To put it simply, $7.25 in a high cost of living state, such as California, will not go nearly as far as it would in a low cost of living state, such as Idaho. Some states have state mandated minimums which already account for this, but the majority do not. According to data presented by the National Conference of State Legislatures, Delaware has an $8.25 an hour minimum wage, but thi number was not derived from the cost of living in the state, and it is not updated annually.

Joon Suh believes a federal “variable” minimum wage should be enacted which varies based on the given region. He believes wage tiers should be enacted, ranging from $11.90 in the most expensive cities, to $9.30 in the least expensive cities. These numbers are derived from what is known as a Regional Price Parity, or RPP for short. Suh explains RPP as follows:

RPPs are expressed as a percentage of the national average of the cost of common consumer goods and services. A score of 100 on the RPP represents the national price average. So, an area with an RPP of 110 experiences costs that are 10% higher than the national average. Residents of an area with an RPP of 85 experience costs that are 15% lower than the national average.

To demonstrate his idea, I will use Tampa, Florida and Honolulu, Hawaii as examples. According to data compiled by Suh, Tampa has an RPP of 99.5, which is 0.5% lower than the national average. This means that $8.05 in Tampa has the same purchasing power as $8.09 in relation to the national average. On the other end of the spectrum, Honolulu has an RPP of 122.5, which is 22.5% higher than the national average. Their minimum wage of $7.75 currently has the same purchasing power as $6.33.

Currently, the federal minimum wage is nearly useless. There are very few regions of the country which allow people to easily live on $7.25 an hour, so states take it upon themselves to set the minimum wage to what they believe is appropriate. The issue is that states can set the minimum wage to almost anything they want. Georgia and Wyoming, for example, have a state minimum wage of just $5.15 an hour (NCSL). According to data presented by NCSL, 17 states have a minimum wage different from the federal minimum, but have no clear reasoning for doing so.

This system is a mess, and it is time that something is done about it. Suh’s approach would ensure that workers all across the country have access to a fair minimum wage no matter what region they live in.

Works Cited

“State Minimum Wages | 2016 Minimum Wage by State.” State Minimum Wages | 2016 Minimum Wage by State. N.p., n.d. Web. 14 July 2016. http://www.ncsl.org/research/labor-and-employment/state-minimum-wage-chart.aspx

Suh, Joon. “Doing the Right Thing, the Right Way: A Regional Minimum Wage.” Third Way. N.p., 11 Feb. 2016. Web. 14 July 2016. http://www.thirdway.org/report/doing-the-right-thing-the-right-way-a-regional-minimum-wage

 

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Small Business Owners

A few times throughout this blog, I have mentioned that raising the minimum wage to $15 an hour would be harmful to small businesses and franchises due to cost increases. Many people, including some commenting on this very blog, have mentioned that this all evens out in the end, because consumers will have more money to spend at small businesses. The fact of the matter is, small businesses will be hit much harder by a wage hike because they do not have the economies of scale, or the market reach that a large company does.

Economies of scale is defined by Investopedia as “the cost advantage that arises with increased output of a product.” An example of this: A small company may order 5,000 units of a specific product, and they pay the supplier $1 per unit ($5,000 spent in total). A large company would order much more, because they have more cash to spend on inventory, and much more demand to meet. A large company could place an order for 50,000 units and get them for much less than $1 per unit, because they are ordering in greater amounts. Not only does a large company have more distribution and market reach, they also have higher profit margins on their products. Because of this, they can afford to eat the profit loss caused by an increase in minimum wage. They may make less money than before, but they will stay in business and continue expanding.

This can severely cripple small business, especially those which sell to only the local market. Take a small, brick and mortar paint supply store, for example. They only sell to people who physically walk into the store. Because of this, they order less inventory, and pay more for it, so they have smaller profit margins. They also only sell to the amount of people who visit their store, whereas a large company will sell to distributors, wholesalers, customers, and businesses who need bulk supplies. Not only do they sell less product, and have smaller profit margins, they still have to compete with the large companies who sell mass amounts of product all over the internet. Perhaps you can already see how raising their payroll costs by 106% is the last thing they need, and could possibly be the end of their business. They can either lay off employees, or they can up their prices to compensate for the payroll increases. The problem with the latter option is that they now have no room to compete with large companies which sell online, or may even have products available in the local market at big box stores such as Wal-Mart.

The Employment Policies Institute (EPI), very recently conducted a study of small businesses to see what they would do in the event of a wage increase. For the sake of the study, businesses were able to choose multiple things they would do to combat the wage increase. The results are as follows: For franchises, 65% said they would reduce staff, 64% said they would reduce hours, and 54% said they would use more automation. For non-franchises, 51% said they would reduce staff, 46% said they would reduce hours, and 37% said they would use more automation. EPI also detailed in their study that “90 percent of franchise hotel owners said they are likely to raise room rates compared to 70% of non-franchise hotel owners.” Virginia Chamlee, a writer for popular food blog Eater, recently spoke to a franchise owner and documented his thoughts on the matter. Patrick Pipino, the owner of an ice cream chain in New York, told Chamlee “I’ve run the numbers and we can make it right up to [a minimum wage of] $12 an hour. Above that, it’s anyone’s ballgame. Essentially, to go to $15 an hour, we would have to raise our pricing structure $1 on every item in the store.”

This is one of the areas of the minimum wage debate that is rooted into fact, and not so much into opinion. The fact of the matter is that when small businesses are faced with rapidly rising wages, they must adapt and make a move to compensate for the rise in expenses. The method of compensation can come from multiple sources, rather it is increasing prices, or decreasing labor hours – something has to be done. Some small businesses may be able to continue operations, while others will be forced into dissolution.

Works Cited

Chamlee, Virginia. “How Minimum Wage Hikes Could Affect Franchisees.” Eater. N.p., 09 May 2016. Web. 07 July 2016. http://www.eater.com/2016/5/9/11438452/fast-food-franchisees-minimum-wage

“Economies Of Scale Definition | Investopedia.” Investopedia. N.p., 18 Nov. 2003. Web. 07 July 2016. http://www.investopedia.com/terms/e/economiesofscale.asp

“Employment Policies Institute | What’s in a (Brand) Name?” Employment Policies Institute. N.p., n.d. Web. 07 July 2016. https://www.epionline.org/studies/whats-in-a-brand-name/

The Ripple Effect

In my last two blog posts I cited multiple studies and authors who believe that minimum wage will only affect a small group of people. Policymakers, analysts, and authors, regularly state that only a small percentage of the workforce actually earns the federal or state minimum wage. These people usually argue that most workers earn slightly above minimum wage, so a raise to $15 an hour will not have a large negative effect on businesses, but will help the few who are earning minimum wage and struggling because of it. According to Melissa Kearney and Benjamin Harris, writers for The Hamilton Project, these studies all miss a key point known as “the ripple effect.”

It is likely that you have heard of the domino effect. You knock down one domino in a series, and it begins a chain reaction of completely identical events until all of the dominoes have fallen. A similar, but less known reaction is the ripple effect.  The ripple effect is when one action causes multiple homogeneous events which grow in influence or severity the further they are from the source. In context to the minimum wage, this is what happens when all the workers in a company making $7.25 an hour, suddenly receive a raise to $15 an hour. What happens to the workers who were already making $15 an hour? It is only fair for them to receive a raise of the same 106% increase. Now, all the workers making $15 an hour are making $31 an hour. This process continues through the entire company until all workers being paid hourly have received a 106% increase in wages.

Ben Zipperer, a writer for the Washington Center for Equitable Growth brings up another issue with the ripple effect. The ripple effect is not only something which internally effects individual companies, it is a broad effect which ripples through entire industries. Zipperer explains it as follows:

Imagine all firms occupy rungs on a ladder, ranked by how well they pay their workers. After a minimum wage increase, the lowest paying firms raise their wage to the new minimum. This leads the next rungs of higher-paying firms to raise wages as well—to increase their ability to recruit and retain workers who would have better options elsewhere due to the minimum wage increase. The minimum wage then filters its way up the labor market, with ripple effects declining in influence further up the ladder.

This sort of activity can get very expensive, very quickly for both small and large businesses, and can cause product and service prices to increase throughout different industries to compensate for the payroll increases. As discussed in previous blog posts, studies have shown that increasing the minimum wage will increase the competition for jobs as businesses lay off workers and designate more work to less employees in attempts to save money. When the ripple effect is taken into account, it is not only minimum wage jobs which see increased competition and less fillable job positions, it is the entire workforce.

Works Cited

Kearney, Melissa, and Benjamin Harris. “The “Ripple Effect” of a Minimum Wage Increase on American Workers.” The Hamilton Project. N.p., 10 Jan. 2014. Web. 29 June 2016. http://www.hamiltonproject.org/papers/the_ripple_effect_of_the_minimum_wage_on_american_workers

Zipperer, Ben. “How Raising the Minimum Wage Ripples through the Workforce – Equitable Growth.” Equitable Growth. N.p., 28 Apr. 2015. Web. 29 June 2016. http://equitablegrowth.org/research-analysis/raising-minimum-wage-ripples-workforce

 

Book Review

Raising the minimum wage to $15 an hour has been a hot button issue since around the fall of 2012. A movement which began with just a few hundred fast food workers striking in New York City, has expanded to become an international movement in over 300 cities, consisting of thousands of workers from many different job industries. David Rolf, the author of “The Fight for Fifteen: The Right Wage for a Working America” has been at the center of this movement since the beginning. David Rolf is currently the president of a labor union known as SEIU 775. Rolf has also been known to lead some of the largest wage movements since the 1930’s, and is often credited with being a key figure in the passing of the $15 an hour minimum wage in Seattle.

The Fight for Fifteen outlines, through a mix of statistics, math, and opinion, as to why America should pass a $15 an hour minimum wage. David Rolf introduces the reader to his book by talking about how we once were. He argues that we are beginning to stray from the American Dream of the 1960’s, a time when Americans would expect to become a member of the middle class, and have the ability to retire into a comfortable life after some decades of working. He argues that due to the low minimum wage, this is no longer the reality for most.

Throughout the book, Rolf gives both lengthy and detailed examples of the successes of specific labor protests. He discusses Alice Lord, the underpaid and underworked restaurant server who fought to create the Waitresses Union in the year 1900, which petitioned Seattle to establish a ten hour workday for women. An entire chapter is dedicated to SeaTac, the wage protests of 1999, and many other historic moments in the battle for a “fair wage”.

While fast food workers are, without a doubt, the loudest voice in the Fight for $15 movement, Rolf makes sure to not to leave out the plight of other minimum wage workers. Rolf talks about janitors, deli workers, store clerks, pizza delivery drivers, and home care workers.  In all of these examples, Rolf personally interviews workers and illustrates how they are struggling in life due to low pay, and what America can do as a whole to remedy the situation.

Rolf has managed to pack a ton of information into just 329 pages, but at some points it seems that he may have “lost sight of the forest for the trees”. At times it seems like Rolf just wanted to cram as much information and statistics as he could into the book. While that isn’t necessarily a bad thing, statistics are meaningless if they are just put in front of the reader without any explanation. The entire book is based on why America should have a $15 an hour minimum wage, yet nowhere in the book does Rolf actually describe why $15 is the magic number. He never explains why it is better than $14, but worse than $16. I also spotted what appeared to be mistakes in some of the claims put forth by Rolf. He states throughout the book that minimum wage should increase at the same rate as inflation, yet if minimum wage actually increased at the same rate as inflation since it was established in 1938, it would only be $4.24, according to the Bureau of Labor Statistics. Simple math shows this, and for him to make such an important claim in this book, it seems hard to believe that he would make such an error. Perhaps this is actually an error, or perhaps this is just one of the many figures in the book where Rolf does not bother explain his reasoning, or how he calculated the numbers. Nonetheless, after running into a few inaccuracies such as this, it led me to seriously doubt most of the claims made in this book.

This book seems to cater to those who have already made up their mind on the minimum wage debate. Even the title is filled with opinion, “The Right Wage for a Working America”. While this book does argue for an increase in minimum wage, most of the arguments seem to be based more on opinion and emotion rather than actual economic principals and unbiased statistics. I would not recommend this book for someone who is wanting to objectively learn about the economics of minimum wage. I would, however, recommend this to someone who wants to understand the view of those who support raising the minimum wage to $15 an hour.

Works Cited

“Inflation Calculator: Bureau of Labor Statistics.” U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, n.d. Web. 02 June 2016. http://www.bls.gov/data/inflation_calculator.htm

“Minimum Wage – U.S. Department of Labor – Chart1.” United States Department of Labor. N.p., 09 Dec. 2015. Web. 02 June 2016. https://www.dol.gov/featured/minimum-wage/chart1

Rolf, David, and Corrie Watterson Bryant. The Fight for Fifteen: The Right Wage for a Working America. New York City, NY: New, 2016. Print.

 

 

Young Workers

Minimum wage will always be a controversial issue no matter what the actual wage is, but sometimes we can get so caught up in statistics and dollar signs, we forget which groups are actually being affected by the changes to the minimum wage. I often hear people talk about Walmart workers and fast food employees, but not so often do I hear people talk specifically about just teenagers, or workers who are new to the workforce. Like any issue, there are two sides to this argument. Some argue that teenagers will benefit from a wage increase, while others argue that teenagers will be hurt by a wage increase. Nonetheless, both sides tend to agree that teenagers will largely be affected, be it positively or negatively, by a change in the wage.

James Sherk, a writer and economics data analyst for The Heritage Foundation, believes that raising minimum wage will benefit teenagers because “these workers represent the largest group that would benefit directly from a higher minimum wage, provided they kept or could find a job.” Sherk claims that the majority of minimum wage workers are new to the workforce, or are teenagers who are not relying on their earnings from work, because they live with their legal guardians. Sherk cites many statistics from reputable sources such as the U.S. Census Bureau to back up his claims. He states that 79% of minimum wage earning teenagers only work part-time, 62% are enrolled in school, and the average family income of these teens is $65,900 per year. He believes that instead of helping adults who are in poverty, raising the minimum wage will mostly be a benefit to teenagers because they do not live entirely on their own earnings. The only problem is that all of this hinges on the assumption that a teenager will be able to keep, or find a job when the minimum wage is bumped up to $10, or even $15 an hour.

No matter what the wage is, if you cannot acquire a job, then you will never benefit from that wage. The other side of the argument is based on the idea that if minimum wage becomes too high, most employers will avoid hiring workers with limited, or no experience. The Employment Policies Institute, also known as EPI, conducted some research on this, and came to the conclusion that a higher minimum wage will decrease jobs for teenagers. According to EPI, the reason for this is that when the minimum wage rises, employers will try to save money by cutting down on low-priority positions. Teenagers and new workers have very limited experience, so they are sometimes given very simple jobs, which could be handled by others who already work for the company in a higher position. EPI also reports that if minimum wage were to increase too much, employers will have less money to spend on hiring new workers, which leaves unskilled teenagers out of the job.

To conclude: I think, if faced with the choice, most people would rather make $15 an hour than $7.25 an hour. Making extra money sometimes can come with costs, though. James Sherk talks about how being paid $15 an hour would be a huge benefit for teenagers, assuming they can get a job, of course. The problem is that it is very likely they will not be able to get a job at all if the minimum wage was actually raised to $15 an hour. A $15 an hour minimum wage is not at all helpful if you can never acquire a job to actually earn it.

Works Cited

“Employment Policies Institute | Minimum Wage: Teen Unemployment.” Employment Policies Institute. N.p., n.d. Web. 16 June 2016. https://www.epionline.org/minimum-wage/minimum-wage-teen-unemployment

Sherk, James. “Who Earns the Minimum Wage? Suburban Teenagers, Not Single Parents.” The Heritage Foundation. N.p., 23 Feb. 2013. Web. 16 June 2016. http://www.heritage.org/research/reports/2013/02/who-earns-the-minimum-wage-suburban-teenagers-not-single-parents

 

Minimum Wage Workers

Protests for a minimum wage increase are becoming more common every day. Even in Manatee County, it is no longer surprising to see groups having peaceful protests outside the County Administration Building, or outside businesses such as Walmart or McDonald’s. They walk around with signs reading “Fight for $15”, and “We are worth more”. Why is this becoming so much more common, though, and why do they feel they deserve more?

According to David Rolf, the author of The Fight for Fifteen: The Right Wage for a Working America, minimum wage workers are simply fed up with working long and hard hours, seven days a week, and in return receiving a “low” pay rate of $7.25 per hour (122). David Rolf goes on to talk about how the cost of living has increased 67 percent in the past twenty five years, yet minimum wage has not increased anywhere near the same rate. People earning minimum wage, according to Rolf, are constantly struggling to afford basic expenses such as rent, gas, groceries, and health care. (167)

David Rolf makes some interesting claims, such as saying that the minimum wage and the cost of living has increased at an unequal rate. From my own experience and listening to protestors, this is a fairly common argument among those who believe wages should be increased. It is worth checking to see if it is at all based in reality, or if the differing rate of increase is even something worth noting. David Rolf, in his book, never actually states the rate that minimum wage has increased, he only says that it has increased at an unequal rate to the cost of living in the last twenty five years.

According to the United States Department of Labor, the minimum wage was $4.25/hour in 1991 – twenty five years ago. Today in 2016, the same year David Rolf’s book was written, the minimum wage is $7.25/hour. That comes out to a 59% increase (rounded from 58.6%), which is only 8% less than what David Rolf claimed was percent of increase in the cost of living.

The question still stands, though: Why $15 an hour? David Rolf does not ever directly state the mathematical reason behind $15 an hour. There is no mention of why $15 is better than $14 or worse than $16. However, David Rolf does state in his book that it would make sense for minimum wage to rise at the same rate as inflation (153), and the fact it has not risen at the same rate as inflation is a reason for the growing wage gap between earners at the bottom and earners in the middle (153). Even this, though, does not explain the claim of $15 an hour. According to The United States Department of Labor, the minimum wage was 25 cents an hour when established in 1938. If the minimum wage increased at the same rate as inflation, then the minimum wage would only be $4.24 today according to the online inflation calculator provided by the Bureau of Labor Statistics.

Many minimum wage workers and people such as David Rolf got what they wished for in Seattle. On January 1, 2017, Seattle will be raising the minimum wage to $15 an hour. (Seattle.gov) Tim Worstall, a writer for Forbes investigated what business owners in Seattle are doing to plan for the increased minimum wage. He states that Seattle restaurants have been closing at rates higher than normal, and to compensate for increased wages they have been “needing to raise menu prices, source poorer ingredients, reduce operating hours, and reduce their labor”

It appears that minimum wage workers simply want more money for the same amount of work they have always done, and there does not seem to be any solid basis on the reasoning behind $15 an hour. As said by Tim Worstall “Human labor really is an economic good like pretty much all of the others. Raise the price and the demand for it will drop”.

Works Cited

“$15 Minimum Wage.” Mayor Murray. N.p., 06 May 2014. Web. 02 June 2016
http://murray.seattle.gov/minimumwage/

Grossman, Jonathan. “U.S. Department of Labor — History — Fair Labor Standards Act of 1938:.” U.S. Department of Labor — History — Fair Labor Standards Act of 1938:. N.p., n.d. Web. 02 June 2016. https://www.dol.gov/oasam/programs/history/flsa1938.htm

“Inflation Calculator: Bureau of Labor Statistics.” U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, n.d. Web. 02 June 2016. http://www.bls.gov/data/inflation_calculator.htm

“Minimum Wage – U.S. Department of Labor – Chart1.” United States Department of Labor. N.p., 09 Dec. 2015. Web. 02 June 2016. https://www.dol.gov/featured/minimum-wage/chart1

Rolf, David, and Corrie Watterson Bryant. The Fight for Fifteen: The Right Wage for a Working America. New York City, NY: New, 2016. Print.

Worstall, Tim. “We Are Seeing The Effects Of Seattle’s $15 An Hour Minimum Wage.” Forbes. Forbes Magazine, 16 Mar. 2015. Web. 24 May 2016. http://www.forbes.com/sites/timworstall/2015/03/16/we-are-seeing-the-effects-of-seattles-15-an-hour-minimum-wage/