Teens Lose Jobs to Minimum Wage in Arizona
February 14th, 2007 at 11:02 pm
February 14th, 2007 at 11:02 pm
HT: Donald Luskin
Coming soon to you, Ohio:
Companies maintain the new wage was raised to $6.75 per hour from $5.15 per hour to help the breadwinners in working-poor families. Teens typically have other means of support.Mark Messner, owner of Pepi’s Pizza in south Phoenix, estimates he has employed more than 2,000 high school students since 1990. But he plans to lay off three teenage workers and decrease hours worked by others. Of his 25-person workforce, roughly 75 percent are in high school.
“I’ve had to go to some of my kids and say, ‘Look, my payroll just increased 13 percent,’ ” he said. ” ‘Sorry, I don’t have any hours for you.’ “
Read the whole article from azcentral.com. We’re going to get it worse, as Ohio’s minimum wage keeps ramping up automatically.
February 15th, 2007 at 8:20 am
I’m sorry, but this “problem” is just way overstated.
If Mr. Messner was paying his workers $5.15/hr in 1990, then $6.75/hr in 2007 is actually an overall reduction in payroll costs, once he has adjusted for inflation. Assuming an inflation rate of 2.5% (which is about spot on for the period in question), then $5.15/hr in 1990 is equal to $7.47/hr in 2007.
$6.75/hr is CHEAP labor. Either Mr. Messner has gotten greedy, or he needs to raise the price of his pizzas.
February 15th, 2007 at 9:20 am
The article isn’t clear about what other costs have gone up in the interim. It could be that his decreasing labor cost was offset by material and utility costs.
Whether he can raise prices or not depends on his demographics. When I was in college I was very sensitive to the price of pizza.
Now we buy our pizzas on quality from the local shop.
Nothing prevents a person from going into that business and saying, “If you hire me at $8, I can increase your revenue 10% through maintaining a clean shop, getting orders right, cutting down delivery time, etc.” That decision is best left to the owner of the shop, not the government.
February 15th, 2007 at 10:33 am
Yes, we would prefer that the Marketplace take care of these, and by and large it does. Minimum wage hikes are, after all, market-following hikes, not market-directing hikes. (IOW, they ALWAYS lag behind the increase in cost-of-living).
Larger companies (say McDonald’s, In-n-Out, Pizza Hut) generally pay ahead of the minimum wage scale, knowing that they need to do so in order to be competitive. As the article says, In-n-Out starts at $8/hr.
Small businesses often times (more often than not, I would think) ignore the market trends. The owners are working 60-70 hour weeks, after all, who has the time to pay attention to the cost-of-living index? But as business owners, they are responsible for this. As this spreadsheet indicates, wages in AZ have been rising steadily (but not out of control) over the period in question. If the trend continued, Mr. Messner likely would have lost his business (he had a finite pool of people who were willing to work for him at the wages he was offering). But there is collateral damage when a small business ceases to exist, and minimum wage hikes help to limit such damage. If a competitor in the marketplace disappears, prices among the remaining business tend to rise.
Competitiveness comes at a price. Mr. Messner is learning this rude lesson. Now he will have to get fewer workers to work more efficiently (something he should have been working towards all along, and something which Mr. Luskin and other market-watchers applaud in other businesses.)
Paying workers low wages, is quite simply, bad business. Or bad capitalism. At least Adam Smith thought so. The workers that businesses hire are also the consumer force. Businesses need to learn to treat them nicely.
February 15th, 2007 at 10:34 am
Another oops: I forgot to link the spreadsheet. Here is the link: http://www.workforce.az.gov/admin/uploadedPublications/1358_ca34.xls
February 15th, 2007 at 10:38 am
As for this: The article isn’t clear about what other costs have gone up in the interim. It could be that his decreasing labor cost was offset by material and utility costs. This very well may be true, but it’s true for all other Pizza businesses as well.
It’s kinda like saying, “The Bears didn’t win because it was raining so hard.” Well, sure, but it was raining on the Colts, too, wasn’t it?
February 15th, 2007 at 12:23 pm
I think we might be looking at this problem from the wrong end.
The value of an hours worth of labor is not measured solely by the money earned. Another way to say this is the real value of labor is relative to the work being performed.
Here’s the problem with your argument Kepler: When we raise the wage of a worker it does not change the real value of the work being performed. Since the real value of the work remains the same with respect to the economy, we are effectively just paying more money for the same work. And all this does is devalue the money.
The worker experiences a short term gain in income, but as the money value rebalances with respect to the economy the worker’s living costs rise accordingly until the economy rebalances. In the end the worker gains nothing substantial.
The only long term impact is that some people get laid off to pay for the salary increase of others. And they may or may not get rehired later on.
But you ask why can’t employers just suck it up and keep all their employees and adjust accordingly? The answer is because the economy only contains so much wealth. Spendable income is finite, and is also relative to the economy. Moving it around by making business owners pay higher salaries does not increase the amount of wealth in the economy. It forces business owners to raising prices which just means that consumers can only buy fewer products.
Example: Let’s say I have $10 in disposable income and can buy 3 McDonalds hamburgers. Then McDonald raises their prices so that I can only afford 2 hamburgers with my $10. McDonalds isn’t going to make any more money from me now that the prices are higher than when they where lower. McDonalds can still only collect $10 from me because that is all I have.
If the prices go up because they are artificially forced to increase their operating costs, and I can’t increase the amount of money I have to spend, then they have to cut something out. It might be quality of food or service, which they then risk losing my business. Whatever they change risks losing my business. So, they generally choose to lay off some employees, make other employees work harder, or take up the work slack themselves, because they can’t afford to risk losing my $10 worth of business. Plus, now that I can’t buy 3 hamburgers, I have to make my $10 stretch to cover that 3rd meal. I may choose to stop buying their hamburgers and go with some cheaper option. In that case the business gets none of my money, and then they are really screwed.
So the results of artificially increasing minimum wages:
It does not increase the value of the work performed, relative the overall economy.
It devalues the dollar, which devalues the money consumers have to spend, which reduces the profit margin of the business in question, and directly drives up overall inflation. No Body Wins. In the long run all it accomplishes is lower profits, higher unemployment and higher inflation.
February 15th, 2007 at 12:28 pm
Now, we can argue that increase the minimum wage increases the amount of disposable income. Yes, it does for the lowest income level, but not the mid to upper income levels. Since the wealth of the economy is finitye, the increase in wage has to come from somewhere. At the lowest level, the increased income is offset by the increase in living costs. At the mid to upper level, the cost is offsett by lowering their standard of living.
And what this is, in the most basice definition, is nothing more that government mandated wealth distribution.
February 15th, 2007 at 12:29 pm
err… government mandated wealth “re”-distribution.
February 15th, 2007 at 12:43 pm
Please forgive my spelling errors today.
February 15th, 2007 at 1:07 pm
Lawrence: You are excused. Firefox 2.0 has a spell checker, btw.
Kepler: Yes, we would prefer that the Marketplace take care of these, and by and large it does. Minimum wage hikes are, after all, market-following hikes, not market-directing hikes. (IOW, they ALWAYS lag behind the increase in cost-of-living).
Minimum wage hikes are market directing. The equilibrium price/wage is the market. Minimum wage hikes by design force employers to pay more than the market price. If the equilibrium price is already above the government-mandated price, the minimum wage law is worthless (Hallelujah!).
February 16th, 2007 at 8:15 am
Dan: Minimum wage hikes are market directing. The equilibrium price/wage is the market. Minimum wage hikes by design force employers to pay more than the market price. If the equilibrium price is already above the government-mandated price, the minimum wage law is worthless (Hallelujah!).
The article stated that The Economic Policy Institute estimated that 145,000 Arizonans would receive a pay raise. That was how many made $5.15 to $6.74 per hour. Out of a population of 5.2 million, let’s assume that about half of those are in the work force: 2.6 million. Out of 2.6 million, 145,000 got a wage increase. So, an increase for 5.5% of the population is market directing? I hardly think so. The new minimum wage remains dirt cheap labor.
Lawrence: But you ask why can’t employers just suck it up and keep all their employees and adjust accordingly? The answer is because the economy only contains so much wealth.
Wait a minute. First of all you advocate laissez-faire market policy, but then turn around and defend it using a Keynesian principle? So, which is it? Choose one side or the other.
February 16th, 2007 at 10:17 am
So, an increase for 5.5% of the population is market directing?
Yes. Whether the rudder is large or small, it’s still turning the boat.
When a minimum wage is imposed, a disinterested third party is meddling in the legal transaction of services between two voluntary agents. Nobody is forcing the teenager to work for the pizza man, and apparently some teens want to work even when the wage was below the government mandate.
Those who benefit from the minimum wage are not prevented today from making more. They can get more, now, either by negotiating a higher rate from their employer, changing jobs, or going into work for themselves. So if you want to get into a fairness argument, you are taking away from people willing to work to give to people who are already able to earn more. Just because the statistics say we’re only interfering with a little bit of the population doesn’t give us license to interfere with them.
February 16th, 2007 at 5:52 pm
Kepler Says: Wait a minute. First of all you advocate laissez-faire market policy, but then turn around and defend it using a Keynesian principle? So, which is it? Choose one side or the other.
No, I advocate free-market policy, where value is accurately based on real value and real need.
What you have backwards is thinking that the dollar determines the value of work in the economy. Problem with this is the overal wealthy of the economy is actually based on real value of property, items, and work need. The real value of the economy does not change based on the number of dollars assigned to a given item or worker.
When we arbitrarily assign a higher dollar amount to a real economic factor such as minimum wage labor, it does not make that economic factor worth more. The only thing it can do is make the value of the individual dollar worth less.
Just like raising the price of food at the store, it does not make the food worth more in real economic value, it just makes it more expensive and harder to pay for.