Is $15 a fair minimum wage?

This morning in Atlanta, GA fast food workers are going on strike in an effort to demand a higher minimum wage of $15 per hour. That is $31,500 a year for a full time fast food employee (not including benefits).

As matter of practice I believe it is good policy for any given employer to treat their employees with a certain amount of dignity and respect – including paying their employees a fair wage. I believe this not just on moral grounds, but also as a matter of doing good business and competing in the marketplace.

For example, companies like McDonalds and Wal-Mart are notorious for treating and paying their long-time employees poorly. In response this has directly affected the quality of their businesses (no one shops at Wal-Mart or McDonald’s for the ambiance) and, perhaps more importantly, degrades their reputation with the consumer. In the long run this is just bad business.

Bad business doesn’t mean that the Government should necessarily litigate their business practices though. Bad business decisions for one company presents a new opportunity for another company (thus opening up new opportunities for employees as well). For example, companies like Costco and Chick-fil-a have decided to pay employees better and implement a different sort of culture. Ultimately, this has lead to better quality services, higher profits, and happier employees – all without Government intervention.

Problems with an artificially high minimum wage:

While the idea of every worker, regardless of their job title, earning over $30,000 per year may sound like a good idea to some people – it is important to point out that there are many unforeseen consequences.

1. It disrupts small business’s ability to compete.

Mandating an artificially high minimum wage (especially one as high as $15/hr) makes it very difficult for businesses to compete in the market place.

For example, let’s say that a local retail boutique (The Little Apple Boutique) offer’s high wages in an effort to draw in the best employees. They need these employees because part of their business model is to offer superior customer service in exchange for moderately higher prices for their goods. Their profit margins are low because the cost of paying their employees and running the business is high, but this is the niche that they have carved out for their business and it’s working.

When an artificial minimum wage is introduced this destroys The Little Apple Boutique’s ability to execute their business plan. They can no longer attract the best employees because every other business in the area is offering the same wage. The Little Apple Boutique can’t afford to raise their wages any higher and stay in business.  Six months later customers begin to complain that The Little Apple Boutique’s customer service isn’t what is used to be. Twelve months later The Little Apple Boutique is out of business.

2. High minimum wage closes the gap between the poor and the middle class, but not between the 1% and 99%.

In general, people are very aware (and concerned) about wealth inequality in America. There is a constantly growing gap between the super-rich and everyone else. But rather than addressing that inequality gap an artificially high minimum wage could serve to expand it.

US Wealth Distribution

2a. High minimum wages hurt small businesses and but do not affect big corporations

Most of the poor and middle class people in America shop at the same places. (We all shop at places like Wal-Mart, Target, Publix, McDonald’s, etc.) The places that we can afford to shop, in general, employee a large number of employees at or slightly above the current minimum wage.

Higher minimum wage (especially $15/hr) will ultimately drive prices up at places where the poor and middle class shop. Overall this means that the middle class will be poorer (assuming they already made above minimum wage, but now have higher prices) and only serve the poor marginally (assuming the poor now make $15/hr, but now have to pay higher prices).

The one class that the higher minimum wage does not affect is the rich. Moderately higher prices do not affect their lifestyle and they probably don’t shop at McDonalds or Wal-Mart anyways.

2b. Higher minimum wages hurt middle class small businesses, not rich corporations, ultimately helping the rich corporations.

On the surface, this seems like a battle waged against big and evil corporations. The type of corporations that treat their employees like trash and serve us mediocre food. We see this as a battle for the poor and against companies like Wal-Mart and McDonald’s. This is not the truth.

Ultimately, this is a fight against the middle class and an apathetic super-rich. If the people successfully lobby the Government to pass an artificially high minimum wage (specifically one as high as $15/hr) it will hurt small, middle class business – not the evil corporations.

In the long run companies like McDonalds and Wal-Mart will survive the minimum wage hikes. They will pass the expense on to their customers, to their suppliers of beef and paper products (who are probably small/medium sized businesses) and keep the profits for themselves. In fact, the poor (who shop at Wal-Mart) will keep shopping there, but since they make more money they will spend more. Ultimately giving Wal-Mart even more profits. Ironic.

The companies that will ultimately go out of business are the ones that ultimately treat their employees with respect in the first place. Small businesses like The Little Apple Boutique, Local Farmers, and Diners will go out of business. And in the end we will all keep shopping at Wal-Mart, but this time paying higher prices for the same bad service we’ve always had.

3. Outsourcing and the Value of low skilled labor

In the labor market of individuals who are paid less than $15/hr there are basically two classes: 1. low-skilled manual labor (cashier, hamburger cook) and 2. skilled-labor that doesn’t demand much money (tech support). I want to discuss how a higher minimum wage will affect each of these two classes.

3a. Does the low-skill labor demand $15/hr?

When people think about those people who are unfairly treated by their employers (and who deserve a higher wage) they often imagine the poor mother with two kids who cannot make ends meet. She gives life everything she has, but can’t make it. It is unfair.

This is a action-provoking idea, but it does not reflect the situation of the majority of minimum wage workers. Rather it serves as an artificial “poster child” used by lobbying groups to evoke emotion from the masses.

The truth is that over half of minimum wage workers are young people (probably in school and still gaining skills) not bread-winners. A research by the Pew Research Center shows that 50.6% are ages 16 to 24; 24% are teenagers (ages 16 to 19).

This begs the question: Do 16 year old teenagers and college students really need (or do their skills demand) $15/hr? I don’t think so and I do not think an artificially high minimum wage is an appropriate way to address the rare case of a struggling mother. There are numerous, more efficient, way to manage such cases.

3b. Skill-Labor: Outsourced jobs that could be in America:

The problem with most skilled-labor jobs that pay less than $15/hr is that they are easily outsourced to countries that do not have minimum wage standards or the job is subject to being automated.

The average outsourced job in India pays $13.46/hr ($28,000/yr). That is over $1.50 less than the proposed minimum wage of $15/hr. This means that all jobs that can be outsourced will be outsourced (or automated). 

The other idea to consider is that companies are smart. We already see retail stores replacing cashiers with automated machines. Would it seem strange to think that our food may be cooked by robots in the near future? I don’t.

In the future a $15/hr job might mean no job at all for many Americans. Food for thought.

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11 thoughts on “Is $15 a fair minimum wage?

  1. philebersole

    Atticus, just a few observations about minimum wage.

    Economic theory says that an increase in the minimum wage will, at some point, cause an increase in unemployment.

    Economic research tells us that the actual increases in the U.S. minimum wage have not reached that point. That is, the minimum wage increases that have been enacted have not had any measurable effect on employment.

    A union contract raising wages at Wal-mart will not hurt small business. In fact, it will help small companies that compete with Wal-mart.

    There have been times in the past when the U.S. minimum wage, adjusted for inflation, was above $15.

    What unions ask for is what they want. What they are willing to settle for is usually less.

    Reply
    1. Atticus C. Post author

      “What unions ask for is what they want. What they are willing to settle for is usually less.”

      I agree. They ask for $15, probably expect $9.

      “There have been times in the past when the U.S. minimum wage, adjusted for inflation, was above $15.”

      I feel that times are different now (maybe I’m wrong). Technology has come to the point where people can be replaced. Cashiers, clerks, and cooks can be automated.

      I think a lot of businesses would consider $15/hr worth automating.

      Also, I wonder if small businesses and diners could afford to pay their employees $15/hr? I don’t think so (again, I could be wrong).

      What about manual labor jobs? It is a lot easier to higher an illegal immigrant for $10/hr with no paperwork or benefits than a legal American for $15/hr with benefits.

      Just a few thoughts. I would rather companies like Wal-mart fail naturally (by losing business) than by broad sweeping minimum wage requirements.

      Reply
    2. philebersole

      Let me correct an erroneous statement in my previous comment. There never was a time when the U.S. minimum wage, adjusted for inflation, was equivalent to $15 an hour. My memory was playing tricks on me. The Pew Research article, to which you link, gives the true picture.

      Reply
  2. Holden

    Nicely put. I say look no further than states that have already risen their min wage levels to see the effects it has on their economies and business. At a minimum, I think raising the minimum wage will simply push cost of living up along with it, nullifying most of the effects the wage increase was meant to have in the first place.

    Reply
    1. Atticus C. Post author

      As you’ve pointed out in the past (from your personal experience) California has high taxes and a high minimum wage, but people are leaving the state in droves. Not even the perfect weather and miles of coast-line can keep them there.

      Reply
  3. Jon

    This is tricky, and I don’t have a clear position on it. But i think it’s intersting to ask whether to take an absolute position NO min wage laws, or whether to keep it to a reasonable level (one that doesn’t increase unemplyment or specifically hurt small businesses). Phil notes that we haven’t yet seen a rise in unemployment attributable to min wage laws). Regarding small businesses, one could enact min wage laws that exempt small businesses (defined in some way).

    I’m in favor of helping small businesses compete with the walmarts, and so I’d like to see min wage targeted to the corporations, so that the walmart employees spend their increased wages at the mom and pop store down the street.

    Reply
    1. Atticus C. Post author

      The problem with enforcing things like that with Wal-Mart (that I can see) is that it ultimately affects the little guys too. Wal-Mart uses a lot of suppliers for groceries, logistics, etc. etc. They will ultimately pass those costs down to those people and to the customer. Eventually we all pay for it in one way or another. Maybe that marginal cost for all of us is worth the benefit to employees. I don’t know.

      What I would rather happen is that companies choose to act better on their own or because of public opinion. We already see Wal-Mart spending money on ads to prove “there is more to Wal-mart” than meets the eye. That is all from public pressure.

      I’m always worried when the government gets involved because there are too many hands in the pot, it is a broad stroke, and it is final…

      Reply
  4. Jon

    The problem with taking the law (i.e. the govmnt) out of the equation altogether is that the history of that isn’t encouraging. Women and children end up sewing for pennies in sweatshops without fire exits, because not all businesses are dependent on a glowing public image. (Do we bother to look into the working conditions and wages at the joints that manufacture our underwear?) I know I’m reaching for extreme and maybe outdated examples, but it may be good to consider the extremes. The invisible hand that’s supposed to guide free markets has led to some pretty ugly results.

    Reply
    1. Atticus C.

      I see where you are coming from John and honestly I think I fall somewhere in between on the wage issue. I support human rights, but I think that $15 is a little high for some jobs. Not all jobs merit a “living wage” and not all jobs are meant to be permanent. Maybe that sounds harsh, but I really do believe that not all jobs are meant for people to live on. For example, if I were a small restaurant owner I would treat my employees with dignity, but I would not expect them to make a living off the wages they earned from my restaurant no would I expect to be forced to pay them that much.

      Reply

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