It Took Nearly 10 Years, But the Battle for $15 Has Mostly Been Won

Eddie_T

5 years ago

The American dream is now mostly a dream of corporate welfare, where the vast majority of ordinary people would much prefer to be employed by a large corporate business that will give them several things, including a living wage, fairly generous medical benefits, a subsidized retirement vehicle like a 401K, and the promise of steady long term employment.

And people believe this should be the norm, even for people without high skills or any kind of special knowledge base.

This is unfortunately NOT what happens when corporations go global and multi-national….and even less when AI and robotics can replace most drone jobs.

So now we have all this cognitive dissonance, as more and more people aren’t able to ever find this comfortable niche. Small businesses are the places people work while they wait for their ship to come in. Or where they end up when they give up on the dream.

Supposedly nearly half (47.3% according to the SBA) of the jobs in the country are provided by small businesses…but when they all shut down, for COVID it didn’t seem to really crash the economy. Partly that’s because of the way the SBA defines small businesses. Anything under a hundred employees is considered “small” business…..and “large” starts at 500 employees.

So many of the families of people I employ have one wage-earner who has corporate employment, while the other (female and less skilled usually) has to settle for the low paying job with few if any benefits. The higher earner provides some stability…so in that way all small businesses and their employers are beholden to the corporate system….and more especially so if the service we provide is paid for by the corporate benefits of the better employed spouse.

There is also a small but significant group of people who need a job but can’t get past a criminal background check, which is now required by nearly ALL employers…..this has changed in my time. I can remember when we didn’t worry about such things….but our corporate masters I healthcare now require it for any employee of mine who sets foot in a hospital, for instance, no matter that I’m paying them, not the corporation.

To me, this corporate welfare model is more like socialism than capitalism in many ways. So it doesn’t surprise me that the same people who have this dream of some entity taking care of them from the cradle to the grave….are happy to have the government do the same thing…especially if it means NOT working and just collecting a check.

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Carl_R

5 years ago

Reply to Eddie_T

Once upon a time, people came to the US with the dream of freedom, and of starting a business, and making a good living. I look back in my family tree, and in only the the last hundred years or so I find people that started lumberyards, tux rental, laundries, bakers, grocery stores, and legal work. Some did well, and others failed, but they kept starting over, because that was the American way. The new American dream is to get a job with the government, where wages go up every year and there is a pension, or to work for corporate America. Those that start a business are the garbage who couldn’t get a real job.

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davidyjack

5 years ago

I support a $15 minimum wage in higher cost areas (NYC, Chicago, LA, DC etc), but a $15 minimum wage in much lower cost areas such as rural Alabama is too high for now. It will likely lead to too many job losses in these cheaper regions.

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Carl_R

5 years ago

Reply to davidyjack

That is exactly why a National Minimum wage is a bad idea. It won’t have any negative impact in high cost areas, but will seriously harm lost cost areas. That, however, is why it it sought after by the urban centers. Big business, big labor, and big government are united: They do not want competition from low cost areas.

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WATERWIZ

5 years ago

Expect the workforce number to shrink and unemployment to increase.

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Doug78

5 years ago

The reason why the minimum wage was abnormally low for so long is that the Democrat and the Republican leadership were on the same team when it came to economic policy for the last 25 years and that policy was broadly Libertarian in outlook. One of the consequences was increased wealth at the top and a collapse of some parts of the Middle Class. The result was that they and the Lower Class had no bargaining power since unemployment and underemployment was rampant. Although I feel it is temporary I am glad to see the bidding up of wages. When a dam breaks it starts as a small leak and then the water breaks loose. It is high time that wages start to claw back all that they have lost vis a vis of capital. For businesses costs will rise and they will have to pass them on but that will be an incentive to find ways to their lower costs. We tried austerity for many years and it doesn’t work. When an economic policy no longer works you try to fix it. If that doesn’t work then you have to rethink your assumptions and maybe, just maybe come up with something better.

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Kimo

5 years ago

It Took Nearly 10 Years [of inflation], But the Battle for $15 Has Mostly Been Won.

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Carl_R

5 years ago

I agree that this is probably coming. We’re at $10-11, so it will be a 40% increase, meaning I’ll have to raise prices 40%. I’m in the process of raising prices by 8% by the end of the month, and then I’ll most likely go up another 8% at the end of the year, and then a couple more increases next year. When minimum wage is rising, it’s better to be a leader than a lagger when it comes to price increases. You’ve got to get your prices high, and any single jump over 8% is a bad idea. It will take five 8% increases to get the 40% needed, so I need to raise prices early and raise prices often.

In the end my volume will fall 40%, and that’s on top of the 30% we lost due to covid-induced changes. That may not leave enough to justify being open. At this point there are four of us in town. At $15, two will have to close. If two others close, we’ll have enough volume to stay open. If not, I’d be better off to just sell my real estate.

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whirlaway

5 years ago

Reply to Carl_R

Are wages your only expense? Almost surely not. There is rent, utilities, insurance, raw materials and supplies and so on. Will all of them go up by 40% as well? Highly unlikely.

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Jojo

5 years ago

Reply to whirlaway

Yes, those costs will all increase as every employer has to pay more, thus putting more money in people’s pockets, which will then be more liberally spent including upgrading living arrangements form say a studio to a 1-bedroom or a 1-bedroom to a 2-bedroom. As they vacate the formerly lower priced digs, landlords will raise the costs of those places because they know there is more money circulating in the economy resulting in the wage increases getting sopped up and leaving the people who thought they got ahead of the game in the same relative economic position.

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Carl_R

5 years ago

Reply to whirlaway

As a service business, payroll and payroll taxes combine to about 60% of revenues. But, when I raise my prices 40%, volume will fall 40%, so there will be less volume to support the other costs, so yes, my prices absolutely have to go up by 40%. If those other prices rise, on average, my prices need to go up by more than 40%. If the other costs fall, I can get away with less than 40%. Supplies will no doubt rise, but insurance might fall due to the smaller volume. If you chart my prices on average for the last thirty years, it is a direct match to changes in labor rates. During times when some other costs are unusually high (high oil prices), my prices are higher than you would predict from labor alone, and sometimes, when they are unusually low, my prices are lower that you would predict from labor alone, but on average, the direct relationship is very clear.

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whirlaway

5 years ago

Reply to Carl_R

“But, when I raise my prices 40%, volume will fall 40%, so there will be less volume to support the other costs, so yes, my prices absolutely have to go up by 40%.”

Circular reasoning?

And yes, raising wages would raise prices. But by how much? A Purdue University study found that “Raising wages to $15 an hour for limited-service [aka fast food] restaurant employees would lead to an estimated 4.3 percent increase in prices at those restaurants.”

IOW, a near 100 percent increase in wages results in a mere 4.3 percent increase in prices. Granted that in case of mom and pop restaurants, the prices may rise a bit more but the quality of their food would generally be much better.

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Carl_R

5 years ago

Reply to whirlaway

No, it’s not circular reasoning, it’s the voice of experience. Over the last 30 years, I have done probably 25 price increases. Over the month to 2 months after the price increase there is a net increase in revenue, but by three months after the price increase, the volume has fallen enough that the net revenue is back to where it was before the price increase. If i do a 2% price increase, volume falls 2%. If i do an 8% increase, volume falls by 8%. The only exception is that if i go more than about 8%, volume falls even more sharply, so I have learned to do multiple smaller increases rather than a single big increase. I prefer not to go more than 5% at a time, but with a need to go up 40% in two years, that would be twenty 2% increases, nearly one price increase a month. It will be ugly, whichever way I go.

In the end, the benefit of price increases comes solely from cost reductions. No, I’m not losing market share to competitors, by the way. There were once 35 competitors, and now there are 3. The only ones left are the ones that raised prices the most aggressively when labor prices rose. Soon two more will will be gone. Will one of them be me? Perhaps.

As far as fast food, the 4.3% number is possible. For them rent and food are higher percentages of cost than labor, plus they can, and will, increase automation to reduce the impact. Mom and pop restaurants have lower volume, and a higher labor cost component, are are less able to automate, so expect bigger price increases from them, putting them at a disadvantage, and expect a lot of them to close.

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threeblindmice

5 years ago

I’m the last standing pedant asking what gives the government the legal right to set any wage at all. I know I’m in the minority. But as Christopher Hitchens once said, “My own opinion is good enough for me.”

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Call_Me

5 years ago

Reply to threeblindmice

If a particular ‘right’ isn’t given explicitly, it’s just taken. For example, a U.S. citizen residing within 100 miles of a national border has likely ceded many ‘rights’ that they were not aware of ceding.

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Eddie_T

5 years ago

We had to break the $15 barrier a few years back. I think the social contract for employers is basically to provide a single worker a living wage. Not a great wage necessarily , but enough to pay for rent and food. But $15 doesn’t get you great help either. Living costs here are high and getting higher. Even if wages are stagnant in terms of buying power, they still have to go up.

I can see the argument against the minimum wage, on the grounds that it hurts people who are willing to work 3 jobs to boost their own surplus….cheaper pay means more jobs at the low end. But the real next line in the sand is $20, and I wouldn’t be surprised to see it get here sooner rather than later.

With capped fees we’re effectively trapped. I understand why old doctors go for the transition to the boutique practice, set some decent fees, and refuse insurance. That is the reasonable response…but it isn’t easy.

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shamrock

5 years ago

More robots will be coming sooner.

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Scooot

5 years ago

There’s an analysis on the effect of it on UK Employment here.

https://www.rand.org/content/dam/rand/pubs/research_reports/RR1800/RR1807/RAND_RR1807.pdf

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Dr. Manhattan23

5 years ago

Some sectors, some firms will not survive this. Business models simply wont support this type of pay as a result of the good or service being produced is inelastic. Will people pay more for a hamburger? Will employers hire when robots and automation can make it cheaper? https://www.creator.rest/ https://www.msn.com/en-us/news/us/burger-flipping-robot-debuts-at-restaurant/vi-BB16PP4j https://theroboburger.com/

Im certainly for paying a living wage, but this push wont help the cause its intended to help. The cost of everything else will increase, including the cost of employees up the talent chain to more skilled jobs. At a certain point, it wont make sense to hire employees above/below certain price points. Middle management is already being replaced and lots of firms are looking for any convenient reason to get rid of higher priced employees. This is a race to the bottom and Im not sure the majority will win and Im certain this wont help in the medium to long term.

Mike Mayo, an analyst from Wells Fargo, recently had a piece on how the banking sector was slated to cut headcount through the next decade. BofA had a similar sentiment. My point is, this will hit white collar, high skilled jobs, if not already. I have a few contacts in the tech sector, and they all point to how coders will soon become irrelevant. Just 10 years ago, coding was the “it” skill to have

I do think it’s a good idea for employees to discuss salaries. Not good for companies. Easier to pay less if employees keep everything to themselves, but this goes to my last point, its a race to the bottom

In my opinion, in the long run, this is deflationary. If enough people lose their jobs, the price of any good or service cant increase

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Zardoz

5 years ago

Reply to Dr. Manhattan23

A lot of people are going to have more money, so that stuff will still get bought. Most spend all they have, so the distribution of actual stuff won’t change much. Everybody will just have more money chasing the same supply of goods, but it’ll feel good for a while.

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Dr. Manhattan23

5 years ago

Reply to Zardoz

in the short term yes. I agree

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Carl_R

5 years ago

Reply to Dr. Manhattan23

Yet, the flip side is that if the minimum wage goes up, prices must rise, or the business will fail.

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Dr. Manhattan23

5 years ago

Reply to Carl_R

Yup. That’s what I said in my first sentence. Employers usually have a cost of an additional 20 to 25 percent for payroll. A $15 an hour employee costs the employer $18 to $20 an hour, depending on state, county, city taxes. Some goods and services simply aren’t elastic to have consumers absorb increased prices. Payroll & Salaries are usually the largest expense component, thus cutting head count is where most employers will look first

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TexasTim65

5 years ago

The guy who was making $15 when his co-workers made $10 will now need $20 to reflect the fact he’s a better employee/manager/higher position. The guy making 20 will need $25 and so on.

All the happens is everyone gets a raise of roughly 0-7 dollars (depending on whether the minimum wage in your area was already 15 or as low as 7) and then as Mish said $25 by 25!

Then expect all the manufacturing / call center jobs in the small towns and less expensive states that paid under 15 to leave the country to Mexico or China or where ever. Not on day 1 because it takes time to build a factory / call center but definitely in 10 years time (roughly how long the free trade agreement in 93 took to suck massive amounts of jobs out of Canada/US to Mexico). That’s the real long term effect of minimum wage rising while productivity remains the same. Well, that and automating out a lot of fast food type jobs with kiosks, app ordering and automated burger makers.

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Jojo

5 years ago

Reply to TexasTim65

The REAL, REAL issue is that this will be inflationary and everything else is going to go up also. Rents will be higher, food will cost more, services will cost more because ultimately, everything in the economy is interconnected. I have been posting about this as a consequence of the “living wage” talk for years now. Of course, the BLS/FED will still continue to say that there is no inflation.

Seems to me that Congress needs to now raise everyone’s SS payments by some equivalent amount. At least $200/monthly I figure using a calculation of say, $5/hr equivalent X 40 hours.

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whirlaway

5 years ago

Reply to TexasTim65

If that happens, then it will be time for UBI, funded by wealth taxes on billionaires (and if any of them leave the US, they should never be allowed to come back, even if their lives are in grave danger – let them die and go to hell wherever they are), higher taxes on incomes higher than 10X median US salary, and ending all the endless wars.

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TexasTim65

5 years ago

Reply to whirlaway

The problem is even if you confiscated 100% of the wealth of all the US billionaires (you’d get ~1 trillion dollars) you might be able to fund UBI for 1 year. Then what do you do in year 2, take 100% of all the millionaires wealth?

UBI’s problem is that it doesn’t produce anything for the money. Production needs to go up (overall) or productivity needs to increase (on a per worker basis) to maintain and raise standards of living. UBI doesn’t solve either of those so it’s useless.

The pandemic has shown that work from home is viable. What we need now is that people on benefits (welfare, unemployment) need to start doing something productive to earn that money even if it’s just answering phones, email, filling out forms.

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whirlaway

5 years ago

Reply to TexasTim65

First off, the total net worth of all US billionaires is 4T, not just 1T. Even a 5% wealth tax on that can net 200B per year.

I also mentioned about higher taxes on incomes > 10X median US salary. If you want lower taxes, increase the earnings of the average American. And also no favorable rates for capital gains made by buying and selling stocks, bonds and other securities. All such capital gains to be taxed as income. And I also mentioned cutting the spending on wars and military. Cut it in half (and even then, US will be spending about 2X the next nearest spending country).

Finally, UBI itself should be limited to bringing the individual/family income to the corresponding median US levels. Yes, that would make it something other than universal and that’s OK by me.

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Lipscomb407

5 years ago

Reply to whirlaway

That 200B you want to take from the rich will almost certainly have to come from the stock market. What a fantastic way to start a market crash and keep it going as every year you suck MORE THAN 5% of the wealth from the nation. Even the rumors of such a tax ever passing would cause a crash as the rich take their money and look for greener pastures.

This tax would be the end of American innovation. Period. Worst idea EVER! You want to tax the rich? I’m okay with that…but tax them as they SPEND their money. When they buy a plane, or a yacht, or even a building add a tax to that purchase. The rich will still buy their toys but you don’t have a giant sucking sound from the economy every year punishing investments. Investments = Future growth. No investments = No future growth.

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PostCambrian

5 years ago

It took so long that it really isn’t a raise. Probably didn’t even keep up with actual inflation.

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Mish

5 years ago

Reply to PostCambrian

Bingo

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Dr. Manhattan23

5 years ago

Reply to PostCambrian

Real wages have stagnated for about 20 to 25 years

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Carl_R

5 years ago

Reply to Dr. Manhattan23

Real wages are solely a function of productivity. If productivity does not go up, wages can not go up. If we want to increase real wages, we need to make productivity increases a national priority, as it once was.

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Zardoz

5 years ago

Reply to PostCambrian

Inflation calculator says 3 bucks an hour in 1980 comes to 9.72 now.

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whirlaway

5 years ago

Reply to PostCambrian

That is why the fight for $25 has to start yesterday if not last year.

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Mish

5 years ago

Reply to whirlaway

Just fight for $100 and be done with it, until of course it become $500

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whirlaway

5 years ago

Reply to Mish

No “done with it” stuff, my friend. You got to live with it for the next 40 years. After all, regular American working people have lived with the devastation caused by Reaganomics for the last 40 years. Yes, I know it is not at all a class war – until the average American Joe fights back.

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TexasTim65

5 years ago

Reply to whirlaway

What did Reaganomics do that’s devastated the US for 40 years?

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whirlaway

5 years ago

Reply to TexasTim65

Assuming that you are not merely trolling (and/or not living in a cave), here it is:

https://thedailybanter.com/2017/08/08/this-chart-shows-how-reaganomics-has-destroyed-the-middle-class/

https://www.salon.com/2014/04/19/reaganomics_killed_americas_middle_class_partner/

https://mgretailer.com/business/how-ronald-reagan-and-lunchtime-martinis-ruined-the-american-dream/

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It Took Nearly 10 Years, But the Battle for $15 Has Mostly Been Won

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