Friday, May 9, 2014

Minimum Wage

I've been digging around to figure out who was supporting the minimum wage hike and why.  There are a number of unsurprising supporters - notably almost any leftist organization.  Like the Economics Policy Institute - which is backed by unions and is constantly on the attack when it comes to conservative economics.  

Somewhat less obvious is Walmart - while they haven't come out in favor of the idea, they are considering it.   Why?  well let's think about what it's passage would really mean.    To a company like  Walmart the cost could be measured in millions for a company that deals in billions - that's not a crippling number.  But what about the small mom and pop shop?  If you're trying to run a business where your profit margin is about %30, raising your labor costs by 20% or more could be fatal.  Even if you're not losing money as a business, you will likely not be making enough to live on yourself.  How long are you going to run a business for the benefit of your employees when you need to go find another job to support yourself?   Not long.

Washington D.C. has a minimum for big stores - $12.50 and hour, Walmart decided to cancel the building of three stores.  Coincidence? No.  If on the other hand, that wage affected all of their competition... well that might have been a different story because those smaller businesses would have been hit much harder in terms of cash-flow, and net revenue.  Using the government to help you build your monopoly?  Yes.  Walmart already has a deleterious effect on small competing businesses. Sure it's good for consumers who aren't too picky about quality, or those shopping for brand name commodity type goods - canned and boxed groceries are the same no matter where you buy them, I tried their produce and their meats - never again thank you.  I've always thought the old saying about getting what you pay for is, not quite right, but in this case, yeah, I saved money and wished I hadn't.

Subway is another who thinks the minimum wage bump is a good thing - you have to ask, if it's such a good idea why aren't you doing it?  There's nothing to stop you from paying your people more... Oh, well except competition...  And when you have the deep pockets, encouraging the government to pile on expenses that your smaller mom and pop competitors can't handle, well that's just good business right?

What happens when the mom and pop's fail?   We lose jobs, and with the competition gone, you can expect some cuts from the big guys, since they don't have to compete on service anymore - they won't.

This really is a case of paying for what you get, rather than getting what you pay for.

So here's just one of the fallacies perpetrated by the left - it will only raise prices by a little bit.  Well sure, if we're talking about Walmart and Costco - and you didn't apply the minimum wage adjustment to all their suppliers, and to the manufacturers and the shippers.   If you raise the cost of manufacturing, the items in question will cost more.  When the distributors price goes up, they need to raise their price, if their employment costs go up too, then they have to account for that as well, which means an even bigger jump in price. The products still need to be shipped but if you've increased employment costs to the shipper they're going to have to pass those on.   Now it get's to the Retailer, who's employment costs have increase as well as their cost of goods - so when you calculate things like who much prices will rise for the consumer, just taking the minimum wage of the retail associate in to account doesn't tell the whole story - by a wide margin.

Should they be paying more?   We'll it's possible.  If you compare Costco and Walmart you get a little surprise - Costco pays better, and business has been improving at a good clip - Walmart typically doesn't and they're growth rate has dropped to something like %1.2  hardly stellar.  What's the difference?  Happy employee's work better - they're better with customers, they're better at keeping things stocked, they're better at keeping the place clean.  If you can afford to pay more, I'd argue it's worth it.   Not everyone can, generally in small shops there are other incentives, some provide greater flexibility in scheduling, some are just closer to home, some just provide a less rigid cookie cutter environment - in the end, if you have a choice you're better off.  If Costco pays more there will be more competition for those jobs, they'll get the more energetic employees, and they'll use them.  The mom and pop Pizza shop might have to settle for second best, but as long as it's good enough they can keep their business open, and that's a few more jobs... times a million small businesses.

Ultimately choice is better than no choice.  Every time the government get's involved choice is reduced.   Some businesses have made the choice to pay more, and in some cases it's paid dividends. But it's a choice.

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