Saturday, January 4, 2020

How's that $15 Minimum Wage Working Out?

In places where the minimum-wage are going to be raised to $15, most people are already paying above that, in service jobs.

A recent article online tries to figure out if the $15 minimum wage law in Seattle has worked - bringing workers out of poverty, or whether it has failed - driving away employers.   And the answer, although the article never gets around to saying it, is neither.

They interview a "worker" who is working three minimum-wage jobs, and he says it has improved his life.  They interview some restaurant owners, and they say the cost of labor - among other things - is forcing them out of business.   The punchline to both stories is that these restaurants, and indeed many service-job employers, are already paying well over $15 an hour, even though that rate doesn't kick in until next year.   And at that wage, they are having trouble hiring people, because the cost of living in the Seattle area is so high, that workers don't end up coming out ahead in the deal.

By the way, the "among other things" was the staggering cost of real estate in Seattle. The restaurateurs interviewed cited high rents as one reason they were closing their stores.  High rents for housing also made it hard to attract workers even at $19 an hour.  Upper-end restaurants could pass on these costs in the form of higher prices.  One enterprising fellow put his servers on "commission" of 15% per sale and charged a 20% "service fee" on top of his prices.  The remaining  5% went to the employees "back of the house".   An interesting gambit, but is it even legal?   At his restaurant, anyway, some servers were making a whopping $70 an hour.

(Back in the day, with tips, many servers at upscale restaurants made huge amounts of money this way as well - but blew it all on cocaine.   Sad but true, there is a real drug-abuse issue in the restaurant industry).

So there is little or no conclusion to be reached about making $15 the new minimum wage, at least from the experiences in coastal cities where prevailing wages are already far higher than this.   A friend from Manhattan called for New Years, and he is making a lot of money - well into six figures - running a gourmet store on that island.   He is working ungodly hours, of course, and he is banking as much as he can - and maxing out his 401(k), too.   He will have a happy retirement, provided he retires somewhere other than Manhattan.

And he is planning on this.  It is easy to burn out on 60 to 80 hour workweeks, and he is getting older (the ripe old age of 45!) and has asked for a transfer to somewhere less hectic.  The company he works for treats their employees well, and they have offered him a store in a more rural area.  The catch is, he would have to take a 40% pay cut as well as loose a housing subsidy that is part of his current pay package.

And even with that, he would come out ahead.   Because where he would be moving to, you can buy a three-bedroom house, or one of those trendy loft condos, for under $250,000 - perhaps far under.  For under $150,000 you could buy a house out-of-town on 20 acres and still have a 20-minute commute.   Life is different outside of the large coastal cities.

And that is the problem with this $15 minimum wage talk.   In the places they have enacted it, wages were already higher than that, so it is pretty meaningless.   In the rest of America, it would have a distorting effect on local markets.

There are, in a way, two Americas, which is why people who live in Washington, DC, Seattle, Portland, San Francisco, New York City, Los Angeles - to name a few - have a hard time understanding the Trump supporters who live in the "flyover States" between them.    In second America, wages are far lower - but so is the cost of living.    You can buy a house for under $100,000 in many places in America - and not some slum shack, either.   Even around where we live, if you get off the island, two hundred-fifty grand buys you a nice house with a pool.

And the cost of a lot of things varies as well.   Gas in California is always a dollar more than everywhere else - mostly because of the special blends they use.   But as we drive cross-country, we notice that in tourist areas and major cities, the price of gas peaks the closer we get into the heart of the area, and then tapers off as you leave.   The cost of food has a similar effect - with big-city grocery stores (and stores in tourist areas) charging outrageous prices.   Out in the country, prices are far lower, unless you are in a "food desert" and have to rely on some local convenience store (which happens in the city as well).

Wages pretty much track the local cost of living.   So raising the Federal minimum wage would have no effect in the major coastal cities and other high-cost-of-living areas.   It will, on the other hand, distort the economy in low-cost-of-living areas.   In rural Alabama where the prevailing wages are $10-an-hour, a boost to $15-an-hour might seem like a windfall for local employees.  But of course, these costs will be passed on to consumers in the form of higher prices.

These employees, flush with cash, go out and buy things, increasing demand, which in turn allows retailers to raise prices (law of supply and demand).   Bubba and Lurleen go out one weekend to buy a new trailer-home with their $5-and-hour pay increase.   But when they get to Smilin' Sam's Manufactured Home Depot, they find the placed mobbed with fellow workers who all had the same idea.   Sale prices are scotched and Sam charges his eager customers full price - and then some.

In areas like that, raising the minimum wage to above market wages would just fuel inflation, which in turn would cause the same kind of housing crises and cost-of-living crises we see in these coastal cities.   Meanwhile, in coastal cities, people would realize that they could move away and still make good money - and would, as my friend plans to do - which in turn would force wages even higher there. 

Of course, eventually, even in rural Alabama or wherever, prevailing wages will increase over time - to $15 an hour and above - and at which point, raising the Federal minimum wage to that level will be a moot point.   In fact, I suspect that there are few people working at the Federal minimum wage, even in rural areas, even today.   I looked this up online, and it confirmed my suspicions:
In 2018, 81.9 million workers age 16 and older in the United States were paid at hourly rates, representing 58.5 percent of all wage and salary workers. Among those paid by the hour, 434,000 workers earned exactly the prevailing federal minimum wage of $7.25 per hour
In a nation of 300 million people, this works out to 0.14% of the population, or slightly less than the homeless population.  Oh wait, you thought homelessness was a crises?   Well, it is, if you read the papers and watch the TeeVee and click on the click-bait news articles.   But the reality is, very few people are homeless.   And before I hear it from some "community activist" - no, it is not a "tragedy" if "even only one person is homeless!"   The poor will always be with us - ask Jesus about that.

And before said same "community activist" gets on his high horse about the minimum wage, I worked minimum-wage jobs before in my life ($4.25 an hour in an era of 10% inflation, no less) and I was able to support myself on that money.   Not a family of four, of course, but that is not some God-given right.

So why is this $15-an-hour thing a burning issue?  In big coastal cities, it is a moot issue - everyone is already making more than that.   In more rural areas, few are trying to "survive" on minimum-wage jobs as it is - and the cost of living is far less anyway.   Wages rise in response to costs.  As the Seattle model illustrates, people will walk away from even $19-an-hour jobs, if they can't afford to live there, due to insane housing prices.  People will migrate to places not where wages are necessarily better, but where living is better - which is why so many Silicon valley places are opening up branch offices in cheap places to live.

The reason why this is an issue, is that someone is making it an issue.  And that someone is the Service Employees International Union, who is trying to "organize" workers in traditionally non-union jobs, such as hotel maids, fast-food workers, and whatnot.   You can't blame them for trying, of course, but in my experience, the real motivation behind "organizing" labor is to skim a little off the top in terms of union dues and then take bribes from employers to insure "labor peace" - it is organized crime, basically.

Since those glory days, not much has changed. The Teamsters have cleaned up their act, but the pension fund - used in the past as a personal bank account for the Mafia to build Vegas casinos - is underfunded, and the failure of that pension fund as well as others, could bankrupt the Pension Benefit Guaranty Corporation.  Good thing those unions looked out for the rights of the workers - who are now facing a bleak retirement as a result.

The UAW looks ready to fill-in for the Teamsters in terms of corruption - many Union leaders have resigned and some have been arrested for taking kick-backs from employers and also for abuse of union funds.   Gee, joining a union is a good deal, ain't it?

But that's the long and short of this "$15 minimum wage" malarkey (Thanks to Joe Biden for making that a word again).  It is just a union ploy, and these "stories" you read about it in the press are just press release news reprinted word-for-word from Union press releases.

Raising the minimum wage, locally or nationally, will not really help "the workers" for very long or much at all.  And as others have noted, it is pretty much a moot point, given the makeup of Congress and who is in the White House.   It is, however, a good "issue" to get voters riled up about - like most of the other empty promises politicians make.