Minimum wage in California to become $15/hour

@cicerone imposter,

I've heard the argument that raising the minimum wage will cause businesses to raise prices and so eventually all prices will rise making the minimum wage insufficient once again, an endless cycle. My thoughts are, prices rise steadily with or without a minimum wage increase, and since minimum wage jobs aren't the majority of the economy, an increase of prices by those businesses will not result in across the board price increases.

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@TomTomBinks,

Could be. In any case, I'm pretty sure that employers who pay minimum wage are already using as few employees as possible, so an increase shouldn't affect the unemployment numbers.

As you say, minimum wage jobs are not the majority. We always pick on McDonalds as the minimum wage/employer of last resort. In fact, around here they have few, if any minimum wage employees, and they darn sure don't hire just anyone who walks in the door.

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@TomTomBinks,

But the amount that prices increase are very small compared to the benefit to the employees. I figured out that prices at Wal Mart would have to go up 1-2% to cover the cost increase (using numbers from its annual report and some estimates concerning how much of the payroll is impacted). Workers making $10/hour will get a 50% pay raise, so I think they will pay the extra amount without too much fuss.

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@engineer,

I vaguely remember reading something about the 1-2% increase to cover the cost of the increase in the minimum wage. I also believe it's a good idea. Inflation alone has kept the middle class income value decreasing almost every year. The California minimum is now $7.25/hour. Cities such as San Francisco raised their minimum to $12.25/hour. We were in San Francisco about one week ago, and we didn't feel their prices were out of line with our prices in Silicon Valley.

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@cicerone imposter,

I believe that someone who is putting in a solid 40 hour work week should not need food stamps. I'd rather pay higher prices than additional taxes so that hard working people can depend on the government for food and shelter.

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The argument against minimum wage increases to the effect that it will make prices higher ignores the reality of competition, especially in businesses which rely on low wage employees. None of them will want to raise prices for just a percentage point or two of increase in operating costs. In businesses which employ unskilled labor, labor costs are not a big proportion of operating costs. Insurance, physical plant and employment costs unrelated to wage rates (such as state and federal unemployment contributions, workers' compensation payments which are not tied to payroll in many states, but rather to the number of employees) amount to a good deal more, often, than payroll. I worked for many years as a business manager for small businesses and insurance costs were consistently the biggest recurring expense. The last company i worked for employed skilled labor (security systems, sales, installation and service) and the monthly cost of liability insurance, required to even bid on projects, ran about 2/3 of the payroll costs. When vehicle insurance, premises insurance and health insurance were added to that, those costs exceeded monthly payroll. Inventory costs, while partially recovered by the completion of contracts, represented an amount in excess of payroll.

The corner store is not going to jack up prices if the proprietor thinks his competition will not raise theirs. Prices in low-end industries are often a Mexican stand-off when it comes to competition.

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As Engineer points out, it's probably better to put money in peoples' pockets than to rely on government handouts. Businesses are almost always more efficient than government agencies, and higher wages means more tax revenue in municipal, state and federal coffers.

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I am all for raising the minimum wage to $15. The thing about California is, the raise is to be phased in over a period long enough that 15 might not be enough.

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@engineer,

What if the people you're talking about are only skilled enough to produce $6 per hour of value to the economy? I don't believe that's the only reason people sometimes get paid a pittance, but surely it's part of it--in these days when ever increasing automation is causing the demand for manual labor and low-skilled clerical labor to drop.

Seeing someone work 40 hours a week and have to supplement that with food stamps is sad. But I don't see how a $15 minimum wage is going to solve that. A minimum wage of $15 per hour doesn't force businesses to pay people $15 an hour; it tells them they have stop paying people $14 an hour.

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@Kolyo,

Kolyo wrote:

What if the people you're talking about are only skilled enough to produce $6 per hour of value to the economy?

Then no one will give them a job at any salary.

Kolyo wrote:

I don't believe that's the only reason people sometimes get paid a pittance, but surely it's part of it--in these days when ever increasing automation is causing the demand for manual labor and low-skilled clerical labor to drop.

The price of labor has nothing to do with productivity, it is completely driven by the market. If someone is generating $200k per year in benefit to a company, but the market salary for that person is $40K/year, they are going to get $40k/yr and if they don't like it, there are others willing to take $40k/yr to replace them (hence the market salary). That is the real story with the women US soccer players. They are paid so little compared to the men because they have no where to go. If they want to play soccer, the very best paying job in the US is the Women's National Team. The best men in the US have a lot more options so US Soccer pays more. It doesn't matter that the women produce a better product and make more money. It should though. The only way low wage workers are going to get more money is if (a) there is a labor shortage or (b) the minimum wage.

Kolyo wrote:

Seeing someone work 40 hours a week and have to supplement that with food stamps is sad. But I don't see how a $15 minimum wage is going to solve that. A minimum wage of $15 per hour doesn't force businesses to pay people $15 an hour; it tells them they have stop paying people $14 an hour.

If a business needs X employees to make Y dollars, they can't just decide to hire less people. Less people means less sales and less profit. It does change the equation of profit per person, but if all your competitors have the same cost hit, then the cost gets transferred to the customer. Wal Mart is a perfect example. Wal Mart is already doing all they can to optimize the size of their labor force. They are not hiring additional people because they pay $10/hr. They will hire the same number regardless of salary because they have computed that that is the absolute minimum they can hire to make the maximum sales. The same is true of a small business. We had this discussion a couple of years ago and I looked up a full cost for a pizza startup done by some college engineering students. The cost of going from $10/hour to $15/hour was $0.11 per pie. There is no way the owner of the shop is going to cut his sales in order to cut labor when he can just charge a few cents more per pie. Often in the minimum wage debate, there is an assumption that just because labor is cheap, business owners will hire people they don't need and that if you raise the salary threshold, owners will fire people they require. Both assume that owners don't act in their best interests. Owners will hire the exact right number of people regardless of whether they cost $10 or $15/hour.

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@Setanta,

I haven't worked for several decades, and worked in management. Payroll related costs were never 2/3ds of payroll. The company provided health insurance through an HMO, and we covered family members. Since I worked in the service industry, payroll costs were 80% of our total costs. I live in the San Francisco Bay Area.

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@engineer,

engineer wrote:

Kolyo wrote:

What if the people you're talking about are only skilled enough to produce $6 per hour of value to the economy?

Then no one will give them a job at any salary.

That's obviously not true. It's certainly possible to do $6 worth of work for a company. A small company, with little bureaucratic overhead when they hire someone, could find a reason to hire someone who did $6 worth of work.

engineer wrote:

The price of labor has nothing to do with productivity, it is completely driven by the market. If someone is generating $200k per year in benefit to a company, but the market salary for that person is $40K/year, they are going to get $40k/yr and if they don't like it, there are others willing to take $40k/yr to replace them (hence the market salary).

Quick aside, and then I will contest that.

ASIDE--

You have you no idea how refreshing it is to hear you say that! Smile

I studied Economics in college (although it was awhile ago), and there seems to be this idea going around the world of mainstream Economics that totally unregulated markets are perfectly fair, with no exploitation either way. "You get out what you put in..." etc.

With that said, I cannot agree. If John Doe produces $200k a year and gets paid $40k, and if he doesn't like it, then of course he will ask for more money! They're going to find someone else who's the bargain he is? I don't think so! The person who replaced him would probably produce only $40k of value for the company. And I say this because I do believe that at some point there is some positive correlation between the market rate for a type of labor and what that labor is actually worth to the company.

But that's not the whole story, of course. Big companies, with more financial breathing room than workers who are living paycheck to paycheck, can force workers to accept less than what they're worth. So yes, if enough laborers of a certain type are desperate for work, then that type of work will be underpaid.

I just think your statement that "the price of labor has nothing to do with productivity" is unfair to market capitalism. Productivity does not completely determine wages, but it partly determines them.

Quote:

That is the real story with the women US soccer players. They are paid so little compared to the men because they have no where to go. If they want to play soccer, the very best paying job in the US is the Women's National Team. The best men in the US have a lot more options so US Soccer pays more. It doesn't matter that the women produce a better product and make more money.

Interesting riddle for economists...

"If female footballers are contributing more to US Soccer, why are their male counterparts paid more?"

It's late, and I'm too tired to think through that one now.

engineer wrote:

Kolyo wrote:
Seeing someone work 40 hours a week and have to supplement that with food stamps is sad. But I don't see how a $15 minimum wage is going to solve that. A minimum wage of $15 per hour doesn't force businesses to pay people $15 an hour; it tells them they have stop paying people $14 an hour.

...Often in the minimum wage debate, there is an assumption that just because labor is cheap, business owners will hire people they don't need and that if you raise the salary threshold, owners will fire people they require. Both assume that owners don't act in their best interests. Owners will hire the exact right number of people regardless of whether they cost $10 or $15/hour.

I don't think that if you raise the minimum wage, owners will "fire people they require". Of course they won't do that. What I think is that it may become the owner's best option to fold completely if the minimum wage goes too high for them. Or maybe, if they're a big business, they'll move certain divisions overseas or out of state.

A friend of mine is interested in working 48 hours a week, assembling semi-conductors, at $13/hr. He has no interest in starting a family, so $676 per week (almost $3000 per month!) is more than enough. But if the state no longer allows workers to get paid $13/hr, the company will move 1000 miles down the road to a state that does.

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@cicerone imposter,

Until recently, no employer was required to provide health insurance, except for some minimums requred in some states. I suspect you had no real idea of the cost of premises and insuring them; inventory, and insuring that if the items were high end (like electronic equipment); liability insurance, required of everyone, and very expensive if you have customers coming onto your premises, and even more expensive if you are in a construction or physical services trade with employees working on site--you can't even bid on jobs of that type until you provide an insurance certificate. Maintaining even a modest fleet of vehicles (and you can't expect employees to transport materials, tools and equipment in their POVs) and providing the fuel costs is another big ticket item.

I'd say that being an accountant for a shoe company didn't really give you an accurate idea of the cost of doing business in most industries.

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@Kolyo,

Kolyo wrote:

That's obviously not true. It's certainly possible to do $6 worth of work for a company. A small company, with little bureaucratic overhead when they hire someone, could find a reason to hire someone who did $6 worth of work.

Not if they are in business to make money. An engineer with my company typically generates $200k to $500k in annual cost reduction. They are paid based on the market value of an engineer, a number that is researched and published regularly in HR. Do great engineers make more than average? Yes, by a few percent even if their contributions are 5x. If I were an employer, I would fully expect a worker to produce 2x or better in productivity than what I'm paying them otherwise I can't get a return on my investment.

Kolyo wrote:

If John Doe produces $200k a year and gets paid $40k, and if he doesn't like it, then of course he will ask for more money! They're going to find someone else who's the bargain he is? I don't think so!

They might pay him a little more, but John is limited by his other opportunities. He may feel he is undervalued, but if there aren't any other jobs available, he's not going anywhere. The opposite is also true. If John is just an average Joe but the job down the street pays more, he's going to command more money even though he is just average.

Kolyo wrote:

I do believe that at some point there is some positive correlation between the market rate for a type of labor and what that labor is actually worth to the company.

There is a correlation, but it isn't anywhere near 1 to 1. It is a pain to hire and train workers so there is some incentive to keep decent workers, but ask anyone if there are slackers in their workplaces who get similar pay to the hard working folks and they'll tell you "of course".

Kolyo wrote:

"If female footballers are contributing more to US Soccer, why are their male counterparts paid more?"

It's late, and I'm too tired to think through that one now.

It's pretty depressing.

Kolyo wrote:

What I think is that it may become the owner's best option to fold completely if the minimum wage goes too high for them. Or maybe, if they're a big business, they'll move certain divisions overseas or out of state.

And of course, that has already happened in spades. Businesses that are very sensitive to the cost of labor and have the freedom to move are already gone. The ones that remain are here for a reason, either access to markets or access to a trained workforce.

Kolyo wrote:

A friend of mine is interested in working 48 hours a week, assembling semi-conductors, at $13/hr. He has no interest in starting a family, so $676 per week (almost $3000 per month!) is more than enough. But if the state no longer allows workers to get paid $13/hr, the company will move 1000 miles down the road to a state that does.

This is actually a perfect example. Why is he making $676 for 48hr of work? Because the Federal Government mandates overtime pay. The business is not paying almost $20/hr for those last eight hours out of the goodness of its heart. The five day/ 40 hr work week was not widely embraced by business. The things we take for granted today weren't codified until the Fair Labor Standards Act in 1938. Your friend's company would really love to pay him $13/hour and have him work 80 hours a week because he's trained and probably pretty competent, but since it has to pay overtime, management does a very straightforward calculation using the cost of benefits and fixed costs to say that the optimum amount of overtime is around 15%. Where I work, the equation is a little more complex and involved handling business cycles and avoiding the layoff/call back cycle, but the answer is still around 10-15%.

So why won't your friend's business move. They might, but they already pay $13, so like most manufacturing businesses, this really doesn't impact them much. The employer might also not want to move from Silicon Valley where all the vendors and tech centers are. They are in California for a reason. For most companies still manufacturing in the US, labor costs is not their biggest concern.

But what will your friend do with the money? I can't speak for your friend, but for most people on the bottom of the economic ladder, any additional pay goes right back out into the economy. In a world where economic growth is driven by consumer spending, this is a whopper stimulus package that counters the downside of slightly higher prices.

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@engineer,

It's not limited to engineers. Productivity and quality should be rewarded no matter what the work is - even manual labor.
When we were kids, we lived in the city, but worked on farms during the summer months to earn money. My kid brother was a hard worker, and earned in a half day what most of us took the whole day to earn in harvesting fruit. He became an ophthalmologist, and did very well. He and his partner had two offices; one in Lodi and the other in Stockton until he retired.

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@Kolyo,

If a company paid an employee $6 per hour, that person will definitely require government assistance (food stamps, Medicaid, housing assistance, etc.). The more that person require in government assistance, the more taxpayers taxes will increase to pay for those assistance. I rather the employer pay that person a fair LIVING minimum wage over me paying higher taxes to cover what the employer is not paying. I have no problem paying a few CENTS more for Big Mac, fries, and a soft drink. I have no problem paying a few CENTS more for a large pizza. I have no problem paying a few CENTS more for a pair jeans. That's a whole lot better than having more taxes coming out of my paycheck.

No one is saying that everyone should be paid the same salary. That would be ridiculous. Higher skilled workers should definitely be paid more. Obviously a medical doctor, an engineer, a jet mechanic, a housekeeper, and a fast food worker will not be paid the same salary. The discussion is whether or not their should be a minimum wage and what that minimum wage should be.

I believe the minimum wage should equate to a Living Wage. We can debate what is a living wage, but I know without any doubt in my mind, your suggestion of an unskilled worker making $6 per hour is not a Living Wage.

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@Real Music,

In Cuba, everybody earns about the same at about $20/month. Your cab driver might be a doctor trying to earn extra money.
Beyond that, all citizens are provided housing, health care, and food subsidies.
Cuba has two currencies; one for the locals, and the other for tourists. Tourists pay US dollar prices. One US dollar = one CUC.

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@Real Music,

I think most people in this thread agree that "but prices would go up" fails an argument against the minimum. Engineer pretty much demolished that notion.

Here's my position: I support a national minimum of $11 as a lifeline to the struggling poor, for now.

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@cicerone imposter,

You had mentioned that in Cuba everyone earns the same income. I would have serious issues if a cab driver and a doctor earned the same income. That would be counter productive and damaging on so many levels in the United States. I just don't think everyone in every profession should be earning the same income. There would be no incentive for anyone to pursue a career in a high skilled profession. Yes, I do believe unskilled workers should be guaranteed a minimum wage from their employer. Yes, I believe the minimum wage should be high enough to equate into Living Wage. What that dollar amount should be can be debated. $11 per hour, $15 per hour, or some other amount.

You also had mention that in Cuba that everyone received housing and food subsidies. In the United States I don't think the government should be paying everyone housing and food subsidies. I believe housing and food subsidies should only be provided for low income earners. An engineer or a doctor making six figure salaries can pay for their own food and housing. I would be fine with single-payer/Medicare for all. Currently Medicare is only provided for the elderly. I think it should be provided for every man woman and child.

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Minimum wage in California to become $15/hour

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