Monday Morning Thoughts I: Perspective on a $15 Per Hour Minimum Wage

minimum_wage

I was reading a Facebook post yesterday, and someone had posted an exchange they had with an employee where the employee seemed to misunderstand the concept of giving a two-week notice.  At the end of the exchange the guy writes, “The thought of someone having to soon pay this person $15/hr is mind-boggling.”

Someone else added, “I guess the only math they know is their hourly wage… but even that won’t give them a work ethic.”

Leaving aside a lot of possibilities here, I have a big problem with this mentality.  Yes, I can understand those who, on principle, oppose minimum wage because they believe the market rather than the government should dictate wages.

But at the core – no one is forcing you to pay this particular person $15 per hour.  The management makes the decision on whom to hire.  Right now we have a buyer’s market in that there are far more people seeking work than positions open to them.  So, at the end of the day, hire someone who can do a good job and bring a good work ethic, and then you don’t have to worry about paying a bad employee too much money.

The problem that I see is that most people do not know how to hire well.  In my view that is understandable, because hiring someone you can predict will do a good job is difficult.  Everyone who applies says the right things.  Most can find someone who can vouch for them.  People who look like they would be good on paper may end up lacking in key things you need.

So I get it – but I consider that to be on me rather than on the government.  The government is not forcing me to pay a bad person $15 an hour.  And frankly, paying someone who does a bad job $9 or $10 an hour is no better.

I strongly support the $15 minimum wage.  It will end up benefiting those who are able to identify and can hire good employees.

Fifteen dollars is definitely coming, but it’s not coming tomorrow.  In April, California and New York became the first states to go to a $15 minimum wage – but California won’t get to $15 an hour until 2022.  In New York, it will be by 2021.

Recently, the Bernie Sanders folks gained approval from the Democratic platform committee to commit to a $15 minimum wage with an index for inflation.

Is that sort of lead time enough to allow businesses to adjust to the increased costs?  The pattern of many minimum wage increases is that businesses initially lay people off and then end up adjusting and rehiring.  What would be different here is speed and amount of the increase, coupled with the indexing for inflation.

This has led some to speculate that businesses will invest in automation systems that right now are too expensive but would be justifiable in the face of wage increases.

I have three thoughts on that.  First, I think we are headed that way anyway, and this simply hastens the move.  Businesses becoming more efficient may not be a bad thing anyway.

Second, while automation will be a temptation, companies that keep employees to interface with the customers will have a competitive advantage.  A lot of companies now market themselves on having a personal touch.

Third, minimum wage is a tricky issue.  Right now the wage is not enough to live on.  By increasing the minimum you may end up with fewer people in the labor force, but those in it get a better wage and are able to better afford to live off that wage.

The hope for those who support such a wage is that this situation ends up lifting everyone up, causes the economy to expand, and, in the second wave, the labor force deepens and erases the loss of jobs caused by the initial hike.

Whether that will play out will depend on whom you ask.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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26 Comments

  1. South of Davis

    David wrote:

    > Third, minimum wage is a tricky issue.

    > Right now the wage is not enough to live on.

    Since all the people currently earning the minimum wage are all currently “living” your statement is false.

    > By increasing the minimum you may end up with fewer

    > people in the labor force,

    By increasing the minimum wage you “will” end up with fewer people in the labor force since EVERY time you increase the price of something the demand for that item drops (you can increase the price of beer, downtown parking or labor and in the short term demand will drop).

    P.S. If you don’t believe me track the number of beers sold at a bar in Davis this Friday and the number of cars that park in the free lot downtown.  Next week make big signs that say “All Beers $15” and “Parking $15”  and I guarantee you will have less people buying beer and parking.

    P.P.S. I read an interesting piece about the $15 minimum wage that said it will do a great job killing small business in poor rural white America where there are plenty of guys living in a $200/month double wide and happy at their $10 hour job working at a junk yard.  If we have a $15 “National” minimum wage it will hurt states like Ohio (where you can BUY a nice home for under $300/month) more than states like California where homes cost 5x more (20x more in Palo Alto)…

  2. Topcat

    By increasing the minimum you may end up with fewer people in the labor force, but those in it get a better wage and are able to better afford to live off that wage.

    OK, so let’s focus on those people who are not in the labor force because they don’t have the job skills, temperament or personality to successfully find employment.  What are they supposed to do?  They can resort to illegal activities including burglary, robbery, drug dealing, or prostitution.  They can try to live off of relatives or friends who might take them in.  They can try to get government assistance.  They might also become homeless and live of the streets or in shelters.

    I would much rather see a discussion about how to lift disadvantaged people up rather than a discussion about raising the minimum wage which tends to push the most disadvantaged people out of the labor force.

    1. Topcat

      I think the second part of the discussion is how do you get the people without skills trained and educated.

      Yes, I am a bit advocate of more training and education.  The problem is that there are a lot of people who have problems that are not easily corrected with training and education.  They have tremendous difficulty finding employment.  As a society, we need to find a way to provide people with disadvantages and disabilities  a way to contribute to society and improve their own situations.

  3. Barack Palin

    Was minimum wage ever meant to be a living wage?  Activists always use the example of one person possibly with children trying to live off of a minimum wage.  But they don’t ever use examples like a high school kid having a summer job to make a few extra bucks, a college student who’s subsidized by their parents or grants that wants some extra spending money and to help their parents pay their bills or a spouse whose mate makes a good salary and wants to help subsidize their budget.

    Remember many of the minimum wage jobs aren’t really minimum wage because these workers also take in tips.  Since they will now get what’s considered to be a living wage are we now not to tip restaurant waiters and bartenders?  That’s how it is in Europe where waiters get paid a living wage, tips are non-existant to very small.

      1. South of Davis

        David wrote:

        > The original Fair Labor Standards Act of 1938 was supposed to allow

        > workers to live on what they earned.

        Today “workers” will have no problem living on the minimum wage (if they live somewhere with low expenses like the link below that would cost < $5/day for a room in a nice apartment).

        The original Fair Labor Standards Act of 1938 never said that one “worker” should be able to support a family of seven (plus some older relatives) on the “minimum wage”

        https://showlow.craigslist.org/apa/5648391469.html

      2. hpierce

        Technically correct (?) but unresponsive as to high school/college students’ “need” for a ‘living wage’, or how “tipping” (often under-reported, and hence free of income and SS taxes) would play in, nor the two-earner situation…

        @ $15/hr, with two adults, working full time, we’ll be saying the minimum wage for a two person household is $60k/year.  I’m not judging that one way or the other, but that’s what it would be…

    1. Tia Will

      TopCat

      I would make a simple suggestion that is non partisan. I favor a Universal Base Income. Some of the people who do not have formal “jobs” are really very industrious, productive people. They may be a stay at home parent, or someone who is providing full time in home care to a relative. They may be a full time students also trying to earn enough money to keep themselves economically solvent, or trying to go to school while helping to support their family. They may be an individual who has talent or skills that we simply do not choose to reward with a salary sufficient to live on.

      We have chosen to base our society largely on the production of goods and provision of services that are in excess of what anyone could be argued to “need”. This leads to an endless cycle of more and more consumption. While we hear a great deal on the Vanguard about Davis being “unsustainable” in its current form, we rarely hear anyone state the obvious which is that our consumption driven economy is not sustainable.

      1. Topcat

        I would make a simple suggestion that is non partisan. I favor a Universal Base Income.

        Yes, some sort of “Universal Base Income” is probably a much better idea than continuing to push for a higher minimum wage.  I know that there is interest in this from all sides of the political spectrum.

        I think that the EITC (Earned Income Tax Credit) is a good idea too.

        The trick is to avoid the negative effects of a minimum wage increase on the most disadvantaged people in society.  Unfortunately, the people pushing for just an increased minimum wage never talk about what happens to the many, many people who can’t find jobs and are priced out of the job market.

        1. Barack Palin

          Topcat, how much would a Universal Base Income be?  Since we’re hearing $15/hour is what’s needed for someone to live on would a UBI be $30,000/year? Would a person have to work in some capacity in order to get the UBI?

        2. Topcat

          Since we’re hearing $15/hour is what’s needed for someone to live on would a UBI be $30,000/year?

          No, I think the UBI would be much lower than that.  Perhaps in line with what SSI disability pays now which comes out around $1,000 per month based on some people I know that live on SSI.  UBI would have to be low enough that it does not take away the incentive for people with a little bit of motivation to seek work.  Of course there will be some people who just don’t want to work.  In their case UBI should be just enough to keep them from living on the street.

          Would a person have to work in some capacity in order to get the UBI?

          This would be one of the things that would need to be worked out in the political realm if we ever got serious about implementing UBI.

    2. Tia Will

      BP

      But they don’t ever use examples like a high school kid having a summer job to make a few extra bucks, a college student who’s subsidized by their parents or grants that wants some extra spending money and to help their parents pay their bills or a spouse whose mate makes a good salary and wants to help subsidize their budget.”

      Of course these groups are not mentioned by minimum wage activists. Why would they be ? They are not the targets of the intended change ? Do you regularly write about groups that you do not think need help ?

      1. Barack Palin

        Tell me why a college kid working a summer job needs a living wage?  How many students or spouses of mates who make a good living now not be able to find those jobs because employers are forced to pay a living wage?  You say these groups are not the target of the living wage but they will be targeted when there jobs disappear.

        This comment will self destruct in 5 seconds.

  4. Adam Smith

    Right now we have a buyer’s market in that there are far more people seeking work than positions open to them.

    This is not my experience in the lower end of the job market today.   In fact, it is very hard to find people.

    So, at the end of the day, hire someone who can do a good job and bring a good work ethic, and then you don’t have to worry about paying a bad employee too much money.

    Many of us  already pay hard working, talented people far more than the minimum wage.  It doesn’t take much to get someone paid more than minimum wage – show up on-time, sober and ready to work purposefully and positively  for your shift.     That’s it for me, and you’ll get yourself well above minimum wage quickly.  However, there just are not enough of them to go around, so we are forced to hire less motivated, less qualified workers,  It is for this group of people that I am opposed to raising the minimum wage.

     

     

     

     

     

    1. South of Davis

      Adam Smith wrote:

      > This is not my experience in the lower end of the job market

      > today.   In fact, it is very hard to find people.

      I agree and have never found an adult who has a good work ethic that will work for any less than 3x the minimum wage…

      They may be nice people, but when you are over 20 and are making minimum wage (not including the people that go home with $100 in tips every night) you typically have some issues understanding the basics or showing up on time (or at all)…

    2. Topcat

      It doesn’t take much to get someone paid more than minimum wage – show up on-time, sober and ready to work purposefully and positively  for your shift.

      This is correct as far as it goes.  The problem is that there are a lot of people in society who have problems that make it difficult for them to find employment.  These include people with mild disabilities, people who are developmentally disabled, people with substance abuse issues, people with criminal records, people who have poor interpersonal skills and people with poor language skills.

      In many cases these people could do productive work under close supervision or with special help.  It seems to me that it would be in the best interest of society to allow these individuals a chance to work and be productive, even if an employer might not be able to pay them the government mandated “minimum wage”.

  5. Frankly

    Sorry I missed this.  It is clear that David does not understand some things about employee hiring and management.

    The wage rate paid any employee should be equalized with his peers and the market.  It should also be representative of the actual job responsibilities.

    That work is delicate to ensure the right employees for the right jobs, and to accurately gauge and recognize progress and provide fair recognition and reward.

    Government stepping in to make the decision what people should be paid throws a bomb into all of it.

    This is really just a tax on business and consumers as an end around to supplement social welfare.

    1. hpierce

      The wage rate paid any employee should be equalized with his peers and the market.  It should also be representative of the actual job responsibilities.

      In “peers”, do you mean those with same ‘title’ or do you make allowances for subject matter expertise?  Productivity?  Meant as an honest question…

      1. Frankly

        All of the above.

        I am in the middle of a comp study for my position.  I do it every three years for employees and for all management.  It is common for private companies to acquire market comp studies and match employees to peers in their respective markets and industries.  It is based on role and level of responsibility within the role.

        For example, in my industry we are the 7th largest out of 250 similar companies.  That would be taken in consideration… My roles as a chief executive given my responsibility for the number of employees and asset-size on the balance sheet.

        I had a conversation with one of my key employees recently who was frustrated with the personality of one of the managers.  My comment was that this was a personality issue and not any actionalble performance problem and that he, the employee, would have to decide if he wanted to stay and figure out how to deal with it, or quit because he could not take it.  As the manager I had great confidence that he, the employee, was being compensated to what the market would bear.  And so the employee would not be leaving to make more money… It would then keep the decision pure.

        Government pushing a non-market-based wage increase really disrupts all this.

        1. hpierce

          Frankly, you said,

          It is based on role and level of responsibility within the role…

          So, does actual performance/expertise fit in? Meant as a question for clarification…

        2. Frankly

          Depends on the company practice.  My method and my experience working for best-practice companies is that performance within a role and level of responsibility is tied to a performance-period bonus tied to a number of performance criteria (individual, team, department, division, company, goals, etc)… usually end of the year… and that during the performance evaluation there can also be a merit increase if there is demonstrated growth in the employee’s ability to handle more responsibility within the role… or in the case where they employee has demonstrated the ability to assume additional responsibility in a new role.   Each role would have a compensation guide based on quartiles.  The practice is to start someone new to a role in the first quartile and then they can progress upward to the forth quartile over time (several years generally) as they master the role and demonstrate top proficiency.  Usually there are salary grade levels that represent these four quartiles. Once they top-out for a given role, they top-out for a given role.

          In addition, the quartiles might be adjusted upward as the result of a compensation study and at end of year performance evaluation there might be more upward adjustments made.  Typically there would not be any downward adjustments… just smaller merit increase until the wages for a given role reached parity with the market for that role.

          Again, the goal is to balance the compensation with the regional labor market for a given role and level of responsibility.  It is the only way to make it fair for the employee and the employer.   Government mandated wage increases mess it up.  It will settle down at some point but not without consequences.

          Note that “expertise” isn’t a measure… it is a means to an end of taking on more responsibility that then leads to higher pay. This is one big problem I see with a lot of public sector jobs… gain more credentials and expertise and the system will pay more even though the role and responsibility is the same. That is a problem in my book.

    2. Topcat

      Government stepping in to make the decision what people should be paid throws a bomb into all of it.

      That sounds like an argument for eliminating a government mandated “minimum wage”.

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