May 15, 2014

$15? Or $10.10? And how quickly?

After figuring out that Thomas Piketty has written a left-neoliberal book on capitalism's faults that ignores organized labor, and also figuring out that Bill Clinton will never, ever apologize to labor for NAFTA and the WTO, I can sympathize with the international fast-food employees' strike in wanting a higher minimum wage.

(Hat tip to Perry for reminding me of this.)

But, per the header of this piece? That said, in details of the strike, I think $15/hr, without a phase-in of seven or so years, is too high. Even then, it might be a bit much. The $10.10 of Beltway rounds, with a four-year phase-in, AND a COLA clause as part of that, sounds about right to me.

And, that's in part due to strategy reasons — reasons of what's realistic — as well as other considerations. And, I'm not alone:
Gary Chaison, a professor of industrial relations at Clark University, said Thursday’s protests were an example of “the labor movement reinventing itself. It’s the most experimental thing labor has done in a long time.”

But he characterized the goal of a $15 hourly minimum as overly ambitious.

“They seem to forget you have to take little steps at a time,” he said. “When you don’t have very much, getting a little can mean a lot. You can’t get it all at once.”

And, expecting $15 an hour and almost immediately? Your store managers would put you all on salary and abuse comp time laws. Or try to figure out a way to classify you as independent contractors. Or simply shut down less profitable locations.

Yes, I know big businesses often use threats of closure or cuts as their own negotiating tools. And, I know that McDonald's jobs can't be outsourced to China.

And, I know it's true that wages are a fairly small portion of overhead for fast-food restaurants. Nonetheless, asking for them to be more than doubled off the current US minimum wage of $7.25 is a bit much.

And, if wages get to honestly be too big a portion, businesses will do more than just threats. Besides closures, or cuts, you could have cuts combined with split shifts. Every day of your work week. Or, even more of last-minute call-ins, or last-minute stay-homes, on your work schedule.

We also have to remember that a country as fast, populous and diversified as the US has great regional income disparities. In my current location in Texas, a $15/hr minimum wage would pretty much gut half the jobs here.

I blogged about this a bit before with Seattle's push for a $15 minimum wage. Protesters need to, per Chaison, have some sense of political reality.

They also need to have some sense of economic reality.

And, that's not just at the local level. The movement behind this all, Fast Food Forward is reportedly backed financially by Service Employees International Union.

A $15/hr minimum wage, at a full-time, year-round job, would produce a higher wage than the current individual median income, per the Census Bureau. I can understand (unlike Barack Obama) a deliberate "overshoot" as part of negotiations, but when you're pricing yourself out of the ballpark at the start, you don't sound very realistic. Or very well-informed. And, it's not just small-town Texas. Let's take Maplewood, Mo., a down-on-the-edges, but not totally "out," St. Louis suburb. A minimum wage of $15/hr on a 40-hr week puts you at 95 percent of annual household income there, and at almost 45 percent above per capita income. Nearly the same is true in a nowhere near down-at-the-edges heartland city, Grand Island, Neb. About 40 percent above the per capita median, and while only about 75 percent of the household income, still.

And, given that these protests are being backed or organized to some fair degree by organized labor folks well above the level of individual fast-food workers, that too is sad. Even in the glory days of Eisenhower, when adjusted into real dollars, the minimum wage was never but a sliver above $10 an hour.

So, restaurant workers? Dial back to $10.10, but with unionization rights as part of the deal. As for the $10.10, the Center for American Progress agrees. Its reason? That would be 50 percent of the national mean (not median) per capita. Elsewhere, Dylan Matthews notes than $15 would be 75 percent of the national median. Given the amount of economic diversity I indicated exists in America, I am confident in saying that it would be more than 100 percent of the median for census tracts of 25 percent of America.

Sadly, per Matthews, Felix Salmon is dumb enough to tout the $15 minimum, too. He says it would help the feds by bringing in tax revenue and moving people off the Earned Income Tax Credit. He should know better. He should know that with as high of a hike as I propose, even in northeastern metropolitan areas, some of this will happen.

Of course, about nobody I link above has ever lived in small-town Midwest or South areas.

SEIU? The same for the bulk of the types of workers you represent. Don't overshoot; you won't get sympathy for the broader issues behind this, including ever-increasing judicial hostility. Beyond that, that hostility is backed by Rick Snyder's election as governor of Michigan, Scott Walker's election as governor of Michigan, and more. A lot of Americans think that "union" is a four-letter word.

That said, I know that not a lot of workers are working 40 hours a week on minimum wage and that American unions like to use the minimum wage to bolster employees on the first tier above that. That then said, that's why a $15/hr request is really bad. SEIU? Nobody's going to want to pay janitors and security guards $17/hr in Grand Island, Neb. Simply ain't happening. They'll put up with dirty banks and fewer security guards.

Tocqueville missed noting that America is a land of confrontations, as part of American democracy. Too bad he wasn't here in the 1880s.

Speaking of him, this is part of why the US can't be fully like Western Europe. Lower population density, and more diversity within the various states. Well, maybe Western Europe will learn its lesson that a "Western Europe" that includes places like Greece under the euro umbrella can't be fully like Western Europe, either.

Finally, it's also why I identify myself on this blog as a skeptical left-liberal. I attempt to subject left-liberal ideas to some form of logical and empirical analysis before discussing them.

Update, May 18: Another way to put this, per the comment of Simon, who's non-American, is that the minimum wage, with that much of hike, has a broad parallel to the European Union's Eurozone crisis, to more clearly spell out what I first said. The rural South and Midwest are Greece, and New York City is London. Raise the minimum to $15/hr, and fair chunks of the US become post-eurozone crisis Greece.

And, per Simon's one comment, I noted that at $7.25, wages are a relatively modest part of fast-food overhead; I specifically indicated that likely would not be the same at $15. (Also, per that link to the Washington Post blog about the Center for American Progress, Australia's $16+ minimum wage would only be about $12 at most, here, at least under CAP's sensical idea. Also, Australia's minimum wage has a variety of loopholes, per that same link.

So, with that, and the added links above, can we please stop believing that a $15 minimum would be a painless panacea? I've already knocked down attempts to link it and helping the homeless.


Simon said...

"And, I know it's true that wages are a fairly small portion of overhead for fast-food restaurants."

So lets step back.

Can McDonald's, Subway, Burger King, Wendy's, and Starbucks only survive if they give below living standard wages and the government must chip in food stamps to keep them from starving?

we already know the answer.

"Nonetheless, asking for them to be more than doubled off the current US minimum wage of $7.25 is a bit much."

Why? If it is coming off absurdly low base, doubling isn't the issue.

This is more than just economics/profitability but morality as well and the wort of society you live in.

So you work full time yet still cannot feed yourself or your family. The companies that they are working for are making a good profit yet must be subsidized by government.

Something is seriously out of whack here.

So let me get this straight?

Allowing these corporations to keep these profits -when labor is is such a small proportion of their overheads- is more important than allowing full time workers to work and at least feed themselves -and maybe some extra basics like rent etc - and not rely on government so they or their families don't starve?

You could do it but don't because people won't by it, so it shouldn't be done?

Ok forget the corporations, what about a family restaurant. So other countries like Australia can provide a living wage, have profitable small restaurants and not have to provide food parcels to workers so they don't starve, yet it is beyond businesses in the US?

Sorry if I seem to be always taking a skeptical line to your skepticism but this just doesn't make sense.

Gadfly said...

Simon, if you'll look back above, you'll note that I showed two specific places in America, both of which I have knowledge of, a $15 minimum would be above the current MEDIAN. You simply can't have a "minimum" wage above your median.

$15 might work fine in NYC or Seattle. In small towns across the US Midwest and South, and much of the non-urbanized West, it would cause carnage.

I know Australia is even more urbanized than the US. Maybe it's much "flatter" in terms of income disparities between the different states, regions within the states, etc. I don't know.

But I do know that a $15/hr min nationwide, for the US, simply isn't feasible.

Gadfly said...

I should note that, per the two towns whose demographics I linked, my best guesstimate is that a full 25 percent of the US would be in similar straits.

Simon said...

Thanks for the reply Gadfly.

I'm still looking at relationships between OECD minimum and median wage levels, but being a richer country you have a higher median wage yet we can support a higher minimum wage. What gives? Is it all about our urbanization? Or by putting money into peoples hands we can actually create demand? Robert Riech would argue that.

Next I did have a step back and also thought about business viability. What if a small hardware store argued well we cannot compete with higher wages so we must be able to offer what is affordable when competing against the likes of Walmart?

Is such a business a viable concern? How far down could we go with wages with this sort of argument?

Having asked that ok a small business -esp given remoteness or small population or density -might well argue it should be able to offer a lower minimum wage. That is better than nothing & the workers getting food stamps to assist them and the small business is warranted.

In the other hand many of our small and isolated towns still have small takeaway shops and they can still pay the minimum wage so I take your argument with a cup of salt.

But that that won't cut it for the profitable corporations. As you have said labor is a small % of their expenses so they could easily do this and only be slightly less profitable.

Isn't this pure exploitation and little better than 1st world sweat shops? Instead of jumping out of building your low skill workers rely on food stamps.

As I said there is apart from the economic, an ethical component to this. They could after all give even lower wages if it was purely about skill levels. What economic argument argues against that?

As Ha-Joon Chang argues a Indian bus driver is more skillful than a Swedish yet the Swede is paid much more. So rather it is also about the relative wealth of a country and what it can afford to pay so it doesn't have sweat shops and full time workers begging for food handouts.

I haven't had a chance to watch Robert Riech's doco but I think he would argue you could afford and benefit from it.

Gadfly said...

First, per the added paragraph at the end of the body of the post, the US is like the Eurozone, with large swathes of the US Midwest and South being like Eurozone Greece and a $15/hr minimum being like the Great Recession.

Second, I like a lot of what Reich has to say. However, he's never lived in a small town, or even a small city, in the parts of the country I mentioned, and probably has never studied its economic demographics.

To relate that to one "nowhere" place I know about in Australia is Alice Springs. Is the median income there, say, 1/3 of Sydney?

Per this piece, per the Center on American Politics, a moderate-liberal think tank, $10.10 is about right for the US.

Per this piece, even if it's coming from any place associated with "Hayek," I'm not sure how much the US and Australian labor markets can even be compared.

Simon said...

1st I did say sure cut small business some slack but you haven't addressed profitable multinationals. Talk about welfare queens; why should the US tax payer subsidize profitable multinationals?

Next not always obvious -at least by state- who can have the higher median. Even so apart from neoliberal types who are in favor of austerity type slash and burn and lowing the rate of increase of the minimum wage to 44% of the median, arguments that even remote communities shouldn't pay the min wage isn't on the radar.

Australia has changed but the
idea that you could have a full time job and be unable to feed yourself would disgust many Australians.

& yes i spotted the Washington post article, and you will find others

that show a country can have a high minimum wage and still be prosperous. Also it does mention we do have exceptions but there was a push for youth also getting the full minimum wage.

Back to Ha-noon Change the reason why developed countries pay more is that they can pay more not that their low skilled are better. Yes in some places cost of living is lower but that won't account for all this disparity.

The fact remains the US is rich enough-beats Australia on GDP and median incomes- to pay more & even if we do cut small business some slack the Subways and Walmarts etc could easily pay the increase.

Maybe the difference isn't so much in labor or in economic power, but Australians like to think we are a egalitarian country and that we give our workers a 'Fair Go' for a fair days work.

& while many Australians dream of being wealthy we don't worship wealth or business anywhere near the extent you do in the US. So the idea of profitable corporations paying sweatshop wages -ones where workers cannot feed themselves & the company could pay more and still be profitable- just wouldn't cut it here.

Or I could be too harsh and the real difference is the corruption in your politics where business rules -you know of the recent study on that?- through lobbyists and in fact many average Americans would welcome an increase.

Gadfly said...

I don't think you're being too harsh, but, to detail.s.

First, I've not opposed a min wage hike. In fact, I support one to $10 or so, nationwide. I have opposed a $15 **nationwide** hike, but support local communities where it's feasible, ding that.

As for Alice Springs? Maybe there's more median income nearness between it and Sydney than between small-town interior America and New York City or Seattle; I don't know, but it sounds like maybe that is somewhat the case.

As for my estimates that it would severly damage 25 percent of American communities to have a nationwide $15 minimum? Well, if a lot of Americans are too coastal-centric or urban-centric to think about "flyover territory," I certainly know that my powers of persuasion on you will be limited.

I don't know how else to say that small-town Texas, Nebraska or Missouri, is far, far, far, far from NYC in terms of overall economic structure.

Gadfly said...

I also recognize one other diff between the US and AUS, per the start of your last comment.

The only "slack" in the US minimum wage is a subminimum wage for restaurant workers, who are expected to collect the difference, and more, in tips.

The US minimum wage otherwise applies equally to any and all businesses.

Gadfly said...

Thanks for the Cowgill link, because it talks about purchasing power parity.

First, per that second bar graph there, the one about purchasing power parity, $10/hr would be nice and solid here in the US, as you can see. $15/hr would be well above anybody else on that chart.

Second, PPP illustrates what I mean about purchasing power parity. At a $15/min in my current location, working full-time 8-hour days, I would pay my apartment rent in 4 days. You see how out of whack that is with what a minimum wage should be in a small-town, small-income area?

Simon said...

Ok that clear things up, I failed to appreciate purchasing power.

Though as far as policies, if mandated I would still use other policy tools like tax credits for small business so it wouldn't impact on those regions you are concerned about.

As long as the end point is that they can feed themselves, pay a reasonable rent and living expenses; whether it is 10 or 15 isn't the issue.

So I concede.

Gadfly said...

Oh, I wasn't meaning to "crush" you as far as conceding ...

Simon said...

Sounds corny as hell but being wrong is ok for me as long as I get at the truth or learn something. I'd rather be shown I'm wrong, be shown the truth or stronger argument, than win an argument and delude myself.

Purchasing power makes your case, as long it gets them off foodstamps and they can afford a minimally basic life.

So I concede, you have a strong argument. :) Next topic

Katy Anders said...

If you put any thought into it at all, it's really amazing that there is NOT a COLA written into the minimum wage law...

Simon said... Reihan Salam

You have been outed Socratic Gadfly lol ;) Indexed with cost of living with small business assistance way to go