> Do you expect your employer to keep his same prices and same amount of work force and just eat the labor cost?
Many will simply eat the cost, actually. The minimum-wage debate is more about politics than economics. There's not as many minimum wage workers as people think, so for very little economic cost, you can increase the quality of life for the lowest paid workers in our society.
A few businesses may be forced to change, but those are the ones that run razor-thin margins.
> What happens if you make $9 now, make $15 tomorrow, but tomorrow the prices of everything you buy suddenly doubled?"
Nothing will double in price. Given the amount of minimum wage workers that actually exist in the US, prices shouldn't increase by more than 5%. Anything more would just be opportunistic gouging.
I don't know the numbers, but far more then 3 million will be affected. 3 million are at or below minimum wage, but how many make more than minimum wage but less than $15?
3.3 million is about 2% of the workforce of the US. The point I'm making, is that the economic cost of the price increase (which is the argument made against minimum wage increases) is far less than the tangible quality-of-life benefits to those 3.3 million workers.
I'm for raising the minimum wage BTW. Because the pros (better life for those workers) far outweigh the cons, especially from an economic standpoint.
How many minimum wage workers are there? If you only look at the number of current minimum wage workers there may not be many, but we are talking about raising the minimum wage to $15. That means everyone under $15/hr is affected. So, I think the real question is how many people are making less than $15/hr. I skimmed this article http://en.wikipedia.org/wiki/Personal_income_in_the_United_S... and it seems that median personal income is somewhere around 30K in the US. Well, $15/hr of full time work is about 31K. Therefor the number of people who will see a rise in their wages is potentially very large. So, I think that the problems with price increases are a real issue.
Another issue I thought of is this. If min wage workers all suddenly have wage increases by law, then businesses like fast food chains might just replace many them with machines. I mean, you already know your McDonald's burger is disgusting, so probably wont mind if it gets pooped out of a dispenser like pudding. So, this policy may simply lead to layoffs.
If the median is the middle number, wouldn't that mean that around half of america makes less than $15/hr? The same wiki page says "slightly under 45% had incomes below $25,000". So a raise to $15/hr would potentially impact half the county.
Wawa in Pennsylvania has touch-screen sandwich ordering machines, and has since a pilot program in 2001. It briefly gained national attention when a edited clip surfaced of Mitt Romney being "amazed" by the machines.
That's incredibly naive. Most business owners won't eat the cost. They'll cut hours. How do I know? Because I used to work in the fast food industry as a GM. Whenever CA increased the min wage, the first thing our owner would do is ask us how much more this was going to cost us, then he'd instruct us to cut the number of hours scheduled. Because in fast food, it's not like it only affects the workers making minimum wage, it bumps the entire pay scale. So if min wage is raised by $1, everyone working hourly gets a $1 bump. For a restaurant that has say 100 man hours of labor a day, that means $100 extra cost per day right out of the owner's pocket. Multiply that by 365 and you have a pissed off owner. He can't always raise prices, and labor costs are the largest controllable expense. So what happens is that each store manager is told that they need to make everyone work harder, and they have to cut $100 worth of labor each day. So the survivors get more money, but they get worked harder; the losers get their hours cut, or they don't get hired as the positions/hours are not replaced when attrition occurs. TANSTAAFL!
I worked in fast food as well for a while. There ain't no such thing as a free lunch for the restaurateurs either - at some point people want more for the demands of increased productivity, and if they don't get it they'll quit. Employers have been in a buyer's market for most of the last decade, while a great many employees have done a great deal of belt-tightening. If labor pricing is such a concern for a restaurant owner, it may be time to consider raising prices or raising the quality of the offering, or watch your employees walk across the street. there's enough churn in the restaurant business that anyone who thinks they're the employer of last resort is lying to themselves.
Owners are limited by franchise agreements to what they can charge, as well as limited by what the market will bear. As wages got pushed lower and lower in fast food, QSC declined dramatically. Owners have already invested a lot in automation (steps that ironically have damaged quality), and there's only so much blood you can squeeze out.
The issue isn't that owners will fare worse, but that raising the min wage while it makes us feel good won't necessarily help lower income workers. Doubling the salary of an entry level position will only reduce the number of entry level positions. And as I'm sure your experience in fast food illustrated, there's some people who aren't even worth paying min wage. Except for a few management folks, it shouldn't be a long term job or career.
I'm fine with people exiting the market in that situation. They're not providing jobs any more, but their departure leaves underserved demand that can be met by someone else.
Just because demand is underserved doesn't mean it can be met when it's unprofitable.
I used to love flying flight sims back in the Falcon 4.0 days, and I expected flight sims to progress as hardware advanced. Nowadays the flight sim market is DOA, despite my demand.
Most will and do, judging by the amount of fast food outlets that still are in operation, and still hire people, despite the numerous wage hikes over the years.
Sounds like you just worked for an asshole. Also sounds like you guys eventually adapted to the wage hikes (I'm assuming he's still in business?).
Of course no one's happy when things become more expensive. Here they just announced a new tax on gas (making it as expensive as before the price of oil went to shit), and a new tax on booze. Guess what - people still drive, and drink beer (hopefully not at same time).
I don't understand why the restaurant waited until there was a wage hike to do that. If they were able to cut hours and make the remaining people work harder in order to make up for the extra costs due to minimum wage, couldn't they have cut hours and made the remaining people work harder long before that, when instead of the savings going to offset a new expense, they would have gone into profit?
I can't speak for all owners, but our franchisee had relatively higher standards than many. He expected QSC (quality, service, cleanliness) to surpass the minimum expectations of the parent corporation. However, he was only willing to pay so much in salary. Just because we made the remaining people work harder didn't mean that things were the same in terms of QSC. Service was slower, and the place wasn't as clean. Quality didn't drop as much as the other two metrics.
Also, he had a lot of longer term employees who were making more than min wage, but still would benefit if it was raised. So it became more economical to let them go, despite the loss of their higher productivity.
Also, you can't just think in terms of the hourly rate. Increases in the hourly rate also affect worker's comp rates, Social Security contributions, etc. So an $8 increase would probably be at least a $10 cost increase to the owner.
Well, first off, maybe the restaurant doesn't run on greed? Hopefully there's room in your philosophy for that to be a possibility.
Outside of that though, raising prices immediately hurts sales, but worse customer service due to the restaurant being chronically short-staffed takes longer to hurt sales. Being chronically short-staffed also makes for a worse working environment which leads to employee turnover, which is more costly in the long run, but when you're struggling to make rent this month, the long term costs may not be as apparent.
Finally, if it's a small restaurant where the owner also helps with the day-to-day operations of restaurant (maybe they're even the chef), it mean's they'll have to work even harder. The owner may just find it worth the cost to have an extra employee and be able to work just a little bit less.
Another issue is the misperception of franchisees as fat cats. Our owner had five franchises; each cost over $2M back in the 80's. The average annual sales were around 1-2 million, and he would net around 10%. So he invests $10M to make $750K a year before taxes. That's 7.5% return. Not exactly AAPLesque.
So if you increase his labor costs from 20% to 30%, you just wiped out his return. If you double it to 40% like a $15 increase would do, then he's got to either automate or cut to the bone.
And yes I realize I'm conflating figures from the 80s to today, but the percentages still hold.
Sounds like he overpaid for the franchises themselves. That's just called a bad investment.
I'd generally expect a restaurant to do twice as much in sales (or more) in a year compared to the initial cost, and be able to recuperate the initial investment in 5-10 years (one of the more recent restaurateurs I worked for paid back his investors in 3 years, and has a second location 5 years in).
But even using his sub-par numbers, $750K a year since the 80's means he's already recuperated his costs and made some serious profits since. What more does he expect? He could close them all tomorrow and be ahead. If anything, this anecdote does show just how greedy some people are.
The franchise business is just wacky really. The parent corporation owns the land you use, so they become real estate tycoons, and they can cause huge headaches to franchisees who don't play ball with their latest initiatives. It's really hard to compare them to regular restaurants though. I'm not sure if it's much different in Canada, as I've lost touch with a cousin who owned some White Spots in BC when I was a kid.
Or they'll just hire more illegals. There's 11.5 million illegals in the US already [1] (edit: vs 3.3m legal workers on or below minimum wage [3]!), a large part of which are probably doing "minimum wage" type jobs for less than minimum wage. Every rise in the cost of doing business legally will push a few more jobs towards the illegal, or law-abiding businesses to bankrupcy from lack of competitiveness. My entirely anecdotal evidence places the dishwasher illegal salary in big cities (my data is from New York in 2010 or so) at around $3/hour.
Different countries handle the issue of high minimum wage differently. Some countries have very thorough enforcement and drive the cost of everything through the roof, but end up with a more egalitarian society (I think Norway, where a beer costs as much as a large meal in neighbouring countries, counts). Singapore chooses not to have a minimum wage and to make it easy to import manual labour legally, and affords these labourers the same legal protection afforded any other resident. China uses the hukou system [2] to regulate the influx of unskilled labourers into more prosperous regions.
The US simply turns a blind eye to the rule of law when it comes to unqualified labour, which allows businesses to keep their costs low, and politicians to save face and pretend they did something "for the workers", whilst a side effect is increasing the stress on the legal unskilled residents which might even be a positive for politicians as they love a good crisis.
Conclusion: legal unskilled workers should fight for the law to be enforced, not for minimum wage to be legally increased. It would both remove competition and drive up demand for their unskilled work, and since there is no population explosion in the United States and legal immigration is incredibly regulated, should result in a natural rise of wages matching the higher cost of living in locations like Seattle.
So that's why, even with the recent strengthening of the US dollar vis à vis the Canadian dollar, things are still dirt cheap in the US compared to Canada.
I do enjoy travelling down there to Montana - ski tickets are cheaper, gas is cheaper, and good beer is much, much cheaper (I seriously love the micro-brew scene in the US. Canada has a good micro-brewing scene too, but not to the same degree).
I'm guessing there's other factors. For example, Australian prices are high because of labour (it's very hard to illegally immigrate to an island surrounded by oceans) but also because everything has to be transported over vast distances and many products have to be imported.
I'd guess the much smaller market (35m inhabitants vs 320m - Australia has 22m), the weather, the distance from production centres and major ports, and so on would impact prices as well.
As for beer it might be taxes, which Wikipedia says are amongst the highest in the world.
Seriously? If you were a Mexican national, why wouldn't you come to the US? Better jobs, more safety, more hope for your kids. Mexico has so many problems that a trip across the border solves. I have no ill will towards anyone traveling north. It's a rational response to conditions in Mexico that seem intractable.
Yes, because there is no choice in the matter. The only durable way to stop mass illegal immigration would be to relieve the enormous incentives for both illegals to come in, and businesses to hire them, which means making it legal for a restaurant to hire anybody - including foreigners - to work 16 hour days for $3/hour vs 10 hour days for $9/hour. This will never happen, not even under the most hardcore Tea Party government, not even if Goldwater rose from the ashes and brought with his election victory a House and Senate majority somehow with the same spine he had.
I thought the (excellent) movie "Act of Valor" pointed out the other way this issue could be resolved. In the movie, terrorists use the people smuggling networks to allow suicide bombers into the US, targeting a few stadiums in Southern cities. This is not the first time enemies of the US try to smuggle people in illegally - the Soviets and the Cubans especially sent many agents that way, as well as infiltrating US criminal organisations (see for example Oleg Kalugin's biography [1] which explores the links between the Soviets and the Italian mafia).
In the real world, no criminal organisation would be mad enough to let that happen (much as gangs in Mexico try to avoid killing gringos) because it would mean a promotion from "criminal organisation" to "effective terrorist organisation" and we saw after 9/11 how the American public reacts to that. So long as you're "just" smuggling drugs and people, it's "just" the DEA and ATF and the odd border agent.
If they did facilitate terrorist attacks, you can bet there'd be an enormous appropriation and militarization of the border, coupled with a systematic destruction of virtually all smuggling networks on Mexican soil and maybe temporary occupation of the territory south of the border. Panama was invaded for less.
But this is not going to happen just because a few people go on strike, especially when the majority of manual labour (11m vs 3m) appears to be illegal already without much outcry from the public which tacitly understands that this is key to cheap food and service.
> No, I'm more surprised that the US is so bad at dealing with illegal immigration. Do they tacitly accept it?
Some industry players benefit from having low-skilled workers that are demotivated to complain to government of labor violations, etc., so there is some of that.
OTOH, a bigger issue is that, while most people would agree that illegal immigration, per se, is bad, there is no census on how to deal with the issue.
There are groups that oppose not only illegal immigration, but are strongly concerned with controlling the level of immigration (and often with managing its origin), so that they see the solution in enforcement measures (though even groups in this category often don't agree on which enforcement measures.)
Then there are groups that are less concerned with the level of immigration than with illegality itself, and so would favor new avenues of legal immigration, or increased quotas within existing avenues, etc.
And there are additional disagreements over approaches to dealing with the existing population that is present without proper immigration status beyond the different views on "going forward" policy.
Strange. Even though Canada strongly supports multi-culturalism, our public is equally opposed to letting illegal immigrants stay (and we certainly make it more difficult for illegal immigrants to stay).
Many will simply eat the cost, actually. The minimum-wage debate is more about politics than economics. There's not as many minimum wage workers as people think, so for very little economic cost, you can increase the quality of life for the lowest paid workers in our society.
A few businesses may be forced to change, but those are the ones that run razor-thin margins.
> What happens if you make $9 now, make $15 tomorrow, but tomorrow the prices of everything you buy suddenly doubled?"
Nothing will double in price. Given the amount of minimum wage workers that actually exist in the US, prices shouldn't increase by more than 5%. Anything more would just be opportunistic gouging.