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Author Topic: minimum wage and welfare spending
LetterRip
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If we were to increase the minimum wage to match that of Australia (15.75/hr) - I'm curious how much that would reduce taxes that pay for welfare and how it would change the tax base.

It would increase the average cost of a meal out about 10-25%. However Australians eat out far more that Americans do, thus the argument that it would reduce restaurant utilization is likely false.

US - Spending on restaurant meals: $1485
Australia - Spending on restaurant meals: $2131

http://www.huffingtonpost.com/2013/09/06/countries-that-love-to-eat-drink-smoke_n_3880324.html

Just a jump to 10.10/hr would cut SNAP spending by
4.6 billion.

http://www.washingtonpost.com/business/economy/report-minimum-wage-hike-would-cut-food-stamp-spending-by-46-billion-a-year/2014/03/04/150e4bfa-a3db-11e3-a5fa-55f0c77bf39c_story.htm l

I suspect that raising the minimum wage could mostly eliminate a lot of welfare spending in the US.

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MattP
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Do Australian restaurant workers earn tips like in the US or do they get minimum wage? I wonder if that affects how this all works for them.
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LetterRip
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MattP,

quote:
On average, a full-time waiter in a Melbourne or Sydney restaurant can average about $250 to $500 in weekly tips, more for really top-end places, where staff can earn closer to $600 or $700.
http://www.goodfood.com.au/good-food/eat-out/tipping-the-australian-way-20130228-2f7vz.html
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Lyrhawn
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We're about to raise the tipped minimum wage in Michigan to $3.51 an hour from $2.65. For most servers it won't mean anything during the year. They don't see paychecks anyway, it all gets taken for taxes. But $2.65 isn't enough to cover taxes, so they all pay at the end of the year. I'm hoping the bump at least gets them even.

If we're keeping tipping, $15 is way too high for a server in the restaurant where I work (where I'm both a server and a cook). I think the $7 or so that Obama suggested is much more fair. But that's easier for me to say because I work at a slightly higher end establishment with good traffic and higher menu prices, so I do alright. It's not so easy for anyone working at diners and similar locations. But I still think $7 is better, and would be a hit most restaurants could survive while making a big, big impact for restaurant workers as a whole.

If I had to break my tips down to an hourly wage, plus my actual hourly, I can make anywhere between $8 and $20 an hour. Every day is different. I would never give up my cooking shifts though. Serving is just too unpredictable a paystream to not know a steady check is coming in.

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geraine
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Here in Las Vegas we don't have a tipped minimum wage. You have to pay at least normal minimum wage plus tips.

Most of the resort restaurant workers here in town are union though, so the average server gets between $17-$19 an hour plus tips. Bartenders get even more. My wife used to work for a very popular Mexican party cantina on the strip and their bartenders would sometimes make over $1000 in tips on a good Friday / Saturday night.

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Seneca
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I was very sad to see Seattle pass the minimum wage proposal. They seem to forget that things like city boundaries exist and businesses are free to move. The ones that don't have already placed orders for things like this: http://www.gizmag.com/hamburger-machine/25159/
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philnotfil
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An article from 2007 on how Washington state raising its minimum wage destroyed the economies of towns along the border.

nytimes.com

quote:
Just eight miles separate this town on the Washington side of the state border from Post Falls on the Idaho side. But the towns are nearly $3 an hour apart in the required minimum wage. Washington pays the highest in the nation, just under $8 an hour, and Idaho has among the lowest, matching 21 states that have not raised the hourly wage beyond the federal minimum of $5.15.

Jose Caro waits tables at La Cabana Mexican Restaurant in Post Falls, Idaho, a state with one of the lowest minimum wages in the country. His $5.75 base wage is 60 cents more than the Idaho minimum.

Nearly a decade ago, when voters in Washington approved a measure that would give the state’s lowest-paid workers a raise nearly every year, many business leaders predicted that small towns on this side of the state line would suffer.

But instead of shriveling up, small-business owners in Washington say they have prospered far beyond their expectations. In fact, as a significant increase in the national minimum wage heads toward law, businesses here at the dividing line between two economies — a real-life laboratory for the debate — have found that raising prices to compensate for higher wages does not necessarily lead to losses in jobs and profits.

Idaho teenagers cross the state line to work in fast-food restaurants in Washington, where the minimum wage is 54 percent higher. That has forced businesses in Idaho to raise their wages to compete.

Business owners say they have had to increase prices somewhat to keep up. But both states are among the nation’s leaders in the growth of jobs and personal income, suggesting that an increase in the minimum wage has not hurt the overall economy.


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Seneca
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Is there a reason you picked an article from the beginning of 2007? Is there something that happened to the economy just slightly after that? Just curious...


[Roll Eyes]

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Pyrtolin
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quote:
Originally posted by Seneca:
I was very sad to see Seattle pass the minimum wage proposal. They seem to forget that things like city boundaries exist and businesses are free to move.


They can try, but they're not likely going to get their day to day customers to suddenly take a break to dive out of town in the middle of the day rather than picking something in walking distance that chose to stay in the city and perhaps add the penny or two to its prices that the increase in wages might possibly require if they don't chose to just tighten their margin a little.

quote:
The ones that don't have already placed orders for things like this: http://www.gizmag.com/hamburger-machine/25159/
Something they would have done anyway, because it's absurd to force people to work menial jobs just for the sake of keeping employment numbers artificially high. Unless they want to sell hand made as a value added feature, why should they not apply reasonable technology to their process?
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Seneca
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quote:
They can try, but they're not likely going to get their day to day customers to suddenly take a break to dive out of town in the middle of the day rather than picking something in walking distance that chose to stay in the city and perhaps add the penny or two to its prices that the increase in wages might possibly require if they don't chose to just tighten their margin a little.

Funny thing about businesses shutting down and commercial areas hollowing-out, it makes less people want to move there and the people that are already there want to move away...

quote:
Something they would have done anyway
Says who? 1-800-PSYCHIC? Replacing humans with technology is never desirable unless it is mandated by excessive labor costs. Machines break. They fall over and can't right themselves. They can't deal with exceptional situations. And they don't make customers feel good.
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philnotfil
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quote:
Originally posted by Seneca:
Is there a reason you picked an article from the beginning of 2007? Is there something that happened to the economy just slightly after that? Just curious...


[Roll Eyes]

It was one that I had close at hand. A friend and I had just discussed it a few days ago.

Here is another more recent one if it will help you feel better about how high minimum wages destroy employment and ruin economies.

ibtimes.com

quote:
Also, as Bloomberg reported on Wednesday, Washington’s job growth is 0.8 percent annually, outpacing the national average of 0.3 percent. Since 1999, Washington’s restaurants and bars have expanded their payrolls by 21 percent, too.

After 16 years of having one of the country’s most progressive minimum wage policies, Washington’s unemployment rate has been below the national average for four of the past five years, and well below the two regions. And despite the uptick in unemplyment in the years after the wage floor was raised, jobless figures for the state now has a jobless rate that's lower than the national average.

Roland Zullo, labor economics researcher at the University of Michigan, explains what might have happened:

“Imagine how a firm would behave [when a high wage is mandated by the state],” he told International Business Times. “If you own a burger joint and you’re initially hit with a higher wage bill, maybe that forces you to find a way to get by with fewer people. But then later in the surrounding economy — because everyone at that wage level is getting paid more – you then have more customers. That in turn forces you to hire more labor back. Having customers is as important if not more important than the wage you’re paying your workers.”


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Pyrtolin
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quote:
Originally posted by Seneca:
Is there a reason you picked an article from the beginning of 2007? Is there something that happened to the economy just slightly after that? Just curious...

Sure- something that should have given preference to lower prices and lower wages, and yet higher wages with marginally higher prices won out because they ended up with the better work force, and thus better product quality and larger consumer base to actually generate revenue from in the first place.
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Seneca
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The problem with the current WA unemployment numbers is that they aren't counting a lot of people who have run out of unemployment and have dropped out completely and stopped looking for work. Into that hostile mix Seattle's Socialist city councilmember rammed through this populist nonsense.

What's ironic is that your article had this to say:
quote:
But then later in the surrounding economy — because everyone at that wage level is getting paid more – you then have more customers. That in turn forces you to hire more labor back.
Seattle is not a large city. It has a lot of geographical limitations like water, topography, etc. This will gut its low-wage service businesses and hollow-out the downtown.
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The Drake
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Surely there's a breaking point on these positive examples of raising minimum wage? Otherwise, we'd gain a large boon by raising the minimum wage to $100/hr.

I'm willing to believe that there is a net gain to raising minimum wage for some amount of increase - but like most onerous regulation and taxation, the higher the incentives to cheat the more cheating you get.

non-compliance, I predict, will be a huge issue in Seattle. Hours worked off-the-clock, under-the-table, and other violations will skyrocket.

Finally, it may be hard to predict mobility of jobs. Service industry workers may not be affected, but it would be easy to see a receptionist replaced by an out-of-area call service. These effects prompted McDonalds to move their drive-thru order takers offshore, probably a job nobody thought of as being mobile at one time.

Studies also suggest that more experienced employees will make up the difference by having their wages frozen or reduced.

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Pyrtolin
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quote:
Surely there's a breaking point on these positive examples of raising minimum wage? Otherwise, we'd gain a large boon by raising the minimum wage to $100/hr.
Sure there's a point of diminishing returns at which the change in disposable income stops quickly outpacing any marginal affect on prices, but we're nowhere near that point at the moment

quote:
Hours worked off-the-clock, under-the-table, and other violations will skyrocket.
Only if you can coerce people into doing so. One of the handy aspects of a higher minimum wage is that it gives workers a much stronger bargaining position to resist such coercion, because it ensures both that businesses need to hire more people to meet the upswing in demand and that the people they're looking to hire can turn to a more honest business that also needs them if they're being shady.

quote:
Service industry workers may not be affected, but it would be easy to see a receptionist replaced by an out-of-area call service. These effects prompted McDonalds to move their drive-thru order takers offshore, probably a job nobody thought of as being mobile at one time.
If it also happens to drive labor saving innovation, then that's a fringe benefit, even if it's through the much slower channel of sending the benefit through a longer chain. Short of a flat income subsidy across the board to help reduce the nominal wage levels needed to maintain economic viability, I'm not sure that there's any good way to fight offshoring adire from diving through it and ratcheting up demand on those services to the point that their local economies catch up with ours and begin to compete on an equal basis.

quote:
Studies also suggest that more experienced employees will make up the difference by having their wages frozen or reduced.
Maybe, for a moth or two, but once the additional spending from the higher pay levels hits the market, companies that don't compensate them proportionally more will lose them to others that need their experience more to keep up with consumer pressure.

Our current median income is half what it needs to be to have kept up with productivity increases and provide the necessary economic feedback to sustain growth. We've only been able to keep going because financial institutions have taken advantage of that starvation to replace income with private debt- effectively expanding lending using money wider profit margins generated by cutting pay rates- loaning people what should have been in their paychecks in the first place. One of the big factors that's contributed to that divergence is letting the minimum wage fall below a the baseline level needed to ensure the middle class baseline required for sustainable growth.

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Seneca
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quote:
Sure there's a point of diminishing returns at which the change in disposable income stops quickly outpacing any marginal affect on prices, but we're nowhere near that point at the moment]
What IS that point? I'm very curious. Is it $15? Is it $25 Is it $50?
When you control wages beyond natural market forces, how do you prevent the endless escalation of prices and therefore wages that keep pushing each other up in a cycle of tail-chasing? With price controls? Are you going to order that milk can only be sold for a certain amount?

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The Drake
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Actually, there are studies that put current minimum wage non-compliance at pretty staggering double-digit levels, due to low penalties and low enforcement.

As an individual in a $15/hr state, I might well agree to work a few hours off the books to beat out someone else for the position or to raise my value to the company. This isn't theoretical - I willingly collaborated when I was in my early twenties getting paid overtime hours at single-time under the table rather than getting sent home with 40 hours.

Some people might feel coerced into it, but a lot of others will simply bargain with their employers to mutual benefit.

The presence and allure of undocumented workers will also rise much more if such a policy were implemented nation-wide rather than on a very local level.

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Seneca
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quote:
he presence and allure of undocumented workers will also rise much more if such a policy were implemented nation-wide rather than on a very local level.
You don't say... so much for eradicating the shadow economy.
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Pyrtolin
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quote:
What IS that point? I'm very curious. Is it $15? Is it $25 Is it $50?
How high is the moon? Is it 10, 20, 50? The answer depends on how you're measuring, even more so when you're talking about a kind of unit is a variable in the system in question.

In current terms? The $15/hour mark is probably a good place to start, though we've got prior evidence that $20 in modern equivalent is still a healthy point to work with. So there's plenty of room to adjust and measure until a reasonable place to peg it is found.

When you control wages beyond natural market forces, how do you prevent the endless escalation of prices and therefore wages that keep pushing each other up in a cycle of tail-chasing? With price controls? Are you going to order that milk can only be sold for a certain amount?

quote:
When you control wages beyond natural market forces
If we were in a situation where market price signaling and not extortion were setting wages then that qualifier would be relevant. As long as we insist on maintaining a non-zero employment rate and baseline conditions that force people to be employed to remain above the poverty line, then market forces are already pre-empted, and the best we can do is compensate for that damage. I'd be glad to delve into better solution than unemployment again, an forced positive unemployment/minimum wage model is what we have to work with at the moment.

quote:
how do you prevent the endless escalation of prices and therefore wages that keep pushing each other up in a cycle of tail-chasing?
You don't need to prevent something that doesn't happen. Wages represent a small and shrinking fraction of prices as technology improves to allow allow workers to exponentially more goods for a given amount of effort in a given time unit. As long as discretionary income increases significantly faster than prices, then there is n chasing effect- you'd have to hit a point where prices increased faster than discretionary income to get that, which is pretty much impossible at the lower end of our economy, since the current minimum wage effectively doesn't allow any discretionary income at all, never mind enough that an increase wouldn't represent a significant change in it.

quote:
Are you going to order that milk can only be sold for a certain amount?
Bad example, since we've effectively done that for decades by buying milk off the market it prices threaten to drop below a certain rate and selling durable milk products back onto the market if their prices go over a certain amount (hence "government cheese"). That prevents forces completely external to the market, such as the weather from being able to destroy the dairy industry because of a bad season or due to flooding the market in a good season.
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Pyrtolin
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quote:
As an individual in a $15/hr state, I might well agree to work a few hours off the books to beat out someone else for the position or to raise my value to the company. This isn't theoretical - I willingly collaborated when I was in my early twenties getting paid overtime hours at single-time under the table rather than getting sent home with 40 hours.
Would you have continued to do it if someone else needed employees enough that they were willing to hire you to work that time on the books and receive your full pay for it? From my experience, under the table pay has been more about dodging taxes than it has been about minimum wage standards.

quote:
The presence and allure of undocumented workers will also rise much more if such a policy were implemented nation-wide rather than on a very local level.
Which is a problem easily solved by granting anyone that can find employment and passes a basic health and criminal background check residency and a work visa.
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Seneca
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quote:
Which is a problem easily solved by granting anyone that can find employment and passes a basic health and criminal background check residency and a work visa.
How do you do a criminal background check for someone from a country that doesn't keep adequate records for those kinds of things?

Do you think the US could absorb the entire population of Mexico all at once?

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Pyrtolin
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quote:
Originally posted by Seneca:
quote:
Which is a problem easily solved by granting anyone that can find employment and passes a basic health and criminal background check residency and a work visa.
How do you do a criminal background check for someone from a country that doesn't keep adequate records for those kinds of things?

The seem to keep adequate enough records for us now. We can work with them on a forward going basis if we want to help them improve that.

quote:
Do you think the US could absorb the entire population of Mexico all at once?
I don't think I could swim across the Pacific either, but both have the common factor that they're imaginary postulates that aren't actually going to happen and so completely irrelevant to the issue at hand.

[ June 12, 2014, 02:21 PM: Message edited by: Pyrtolin ]

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TomDavidson
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quote:
Do you think the US could absorb the entire population of Mexico all at once?
I think we could do it more easily than we could close the border.
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The Drake
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quote:
Originally posted by Pyrtolin:
quote:
As an individual in a $15/hr state, I might well agree to work a few hours off the books to beat out someone else for the position or to raise my value to the company. This isn't theoretical - I willingly collaborated when I was in my early twenties getting paid overtime hours at single-time under the table rather than getting sent home with 40 hours.
Would you have continued to do it if someone else needed employees enough that they were willing to hire you to work that time on the books and receive your full pay for it? From my experience, under the table pay has been more about dodging taxes than it has been about minimum wage standards.

quote:
The presence and allure of undocumented workers will also rise much more if such a policy were implemented nation-wide rather than on a very local level.
Which is a problem easily solved by granting anyone that can find employment and passes a basic health and criminal background check residency and a work visa.

Your economic and math skills are suspect. I don't have time for much more, but let's look at my example.

I could get paid overtime at time-and-a-half. If I'm seeking to maximize my pocket money, it is pretty stupid to take single time for tax avoidance. No company can afford to pay the theoretical me $22.50 for mopping floors, so any rational business (in the absence of cheating) would send me home and:

A. Send me home.
B. Have a salaried employee mop up - assistant manager will do nicely.
C. Hire some more workers so that we are all scheduled for 30 hours or less, and hungry for overtime when we can get it.

"C" is already happening for any variety of reasons, including mandated benefits. So if I'm going to work 50 hours, I'll need to find two different jobs (very inefficient in economic terms) which is also happening today. As opposed to me making what I am worth on the open market, which is just slightly less then the next person at the same productivity.

You cannot "exploit" someone when they are a willing participant. If everyone thought a wage was unfair, they would all refuse to take the job and the wages would rise. Labor is a very significant part of most service industry cost structures - a robot cannot easily clean a hotel room or detail a car. So prices for such things very clearly rise (assuming no cheating).

Show me two dozen dishwashers in Los Angeles making a legitimate minimum wage week in and week out and I'd be astonished. *hyperbole intended*

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PSRT
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quote:
You cannot "exploit" someone when they are a willing participant
Of course you can. Its more important to earn enough wage to feed your family than to be fairly compensated for your work. The way you exploit a willing participant is ensure that if he doesn't take a wage that is less than fair compensation for the work he's doing, he can't get any compensation at all.
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Lyrhawn
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quote:
If everyone thought a wage was unfair, they would all refuse to take the job and the wages would rise.
I keep hearing people say this and I continue to fail to understand why they think it's universally true.

Refusing to take a job at unfair wages is a luxury. If you're union, sure, then you have resources to draw upon to get you through a strike. But most people can't endure sustained periods of unemployment because they consider a wage unfair, so there's always a pool of desperate poor people who will do whatever they have to to make ends meet, whether it's fair or not.

That is how the world really works.

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LetterRip
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Most people utterly ignore risk of ruin and marginal utility when discussing economics.

They are probably the two most critical factors in any economic decision and are routinely ignored by most people.

The Drake - you point out two flaws with current compensation practices that allow gaming of the system.

1) that benefits are based on thresholding which encourages absurdities such as hiring for 30 hrs a week. They really should be continous - so a company that hires someone for 30 hrs a week provides them 75% benefits.

2) the allowing of salaried employment in order to dodge paying overtime.

quote:
You cannot "exploit" someone when they are a willing participant.
Most workers are not willing participants but work out of necessity.

quote:
If everyone thought a wage was unfair, they would all refuse to take the job and the wages would rise. Labor is a very significant part of most service industry cost structures - a robot cannot easily clean a hotel room or detail a car. So prices for such things very clearly rise (assuming no cheating).
This shows pretty fundamental misunderstandings of economics. Leverage in terms of necessity and competition greatly reduces bargaining power.

Needing to eat or needing to meet obligations often trumps the ability to refuse work due to unfairness of pay. Individuals can generally only refuse employment when they have little risk of ruin.

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Pyrtolin
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quote:
Originally posted by The Drake:
I could get paid overtime at time-and-a-half. If I'm seeking to maximize my pocket money, it is pretty stupid to take single time for tax avoidance. No company can afford to pay the theoretical me $22.50 for mopping floors,

This is untrue right out of the gate. Thier shareholders may see a fraction of a penny shaved off of their dividends,but just about any large company can easily afford it, they just claim that they have an obligation not to do so because they have to give that money to shareholders over employees.


quote:
B. Have a salaried employee mop up - assistant manager will do nicely.

And here you see the foundation for why unions tend to explicitly stipulate that this is contractually disallowed

quote:
C. Hire some more workers so that we are all scheduled for 30 hours or less, and hungry for overtime when we can get it.

Indeed- rationing out work among multiple people who need it is one of the core points of having overtime penalties for working people past a reasonable share of overall hours (along with allowing the workers a more reasonable balance and applying market pressure to prevent too many people from being pressured to constantly work past the point where productivity and health penalties rack up faster than any actual benefit)

quote:
"C" is already happening for any variety of reasons, including mandated benefits. So if I'm going to work 50 hours, I'll need to find two different jobs (very inefficient in economic terms) which is also happening today.
Or get higher pay for a more reasonable number of hours- you're forgetting that you're now making double pay on the time you're already working, so a 30 hour week pays you the equivalent of having worked about 53 hours, so you no longer need to take the extra 20 and someone else that needs income can get them instead.

quote:
You cannot "exploit" someone when they are a willing participant.
Which is only true in an uncoerced labor market. Give everyone a fixed basic income that meets living expenses and provides a small margin of disposable income to invest productively or not as they see fit, as well as a guaranteed, fixed rate/benefit employment option to always be able to fall back on, and then sure you can point to willing participants.

In a market where you're forced to participate or risk destitution, plus have to fight against a system that firces a certain percent of people that want to work to be unemployed in order to ally the threat of unemployment to reduce bargaining power, then "wiling participat" disappears, and you instead have a system that uses survival needs to extort people to accept less than natural market rates to survive.

quote:
If everyone thought a wage was unfair, they would all refuse to take the job and the wages would rise.
Only if they could afford to not take the job. As soon as you remove that essential component of market freedom, then they can be coerced to take the job, regardless of whether they think the rate is fair.

quote:
Labor is a very significant part of most service industry cost structures - a robot cannot easily clean a hotel room or detail a car. So prices for such things very clearly rise (assuming no cheating).
But people who are specialized in providing such services and equipped with proper tools and innovation in technique can produce those services at a high rate, meaning that labor only represents a small fraction of the overall cost, most of which goes into the static material costs. The food products that make up a burger represent a much larger portion of its cost than the few effective seconds per unit that each person who is required to handle it on its way to you do. IF a restaurant is capable of turning out 10 burgers per employee per hour, then adding $7.50 per employees per hour across the boars adds a total of $.75 to the cost of each burger (assuming competition doesn't require that the profit margin per burger absorb at least some of that cost, as it's supposed to do in the first place)- something that those employees can easily afford 10x over for every hour they work. That price adjustment might mean that they see something more like a 900% increase in their effective disposable income rather than a 1000% increase in it (assuming it was even positive to begin with), but it's still a large positive effect and out of that comes significantly more revenue for the businesses that they can now patronize, requiring, in turn more hiring at the higher rates or more investment in productivity enhancement to keep up with demand, which is the only direct driver of both of those desirable economic outcomes. (Odds are 10 units/employee-hour is a lowball of overall productivity for burgers nevermind most other businesses that operate at the low wage/low price end of the spectrum.)

quote:
Show me two dozen dishwashers in Los Angeles making a legitimate minimum wage week in and week out and I'd be astonished. *hyperbole intended*
And now, odds are, we're far more likely to be discussing the knock down effects of forcing a segment of our population to work under the table because we refuse to grant them legal working status so that they could legitimately stand up to such abuse than anything to do with the minimum wage.
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The Drake
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Regarding coercion, first lets recognize that raising minimum wage to $15/hr would affect almost half of all workers. That's a massive shift, surely not half of the country is being coerced to work? Granted, most of us would not work if we didn't need money, but that's not really coercion.

[url= http://s2.epi.org/files/2014/Raising-America's-Pay-2014-Report.pdf]wage report[/url]

I can believe that anyone getting minimum wage currently (less than 10%, since 90% of the population makes more than $8.37), MIGHT be considered to be coerced. But if you as an employer have this power of coercion, why would you ever pay more than the minimum? And who would agree to less?

Black markets *always* form when two people want to make a deal but onerous regulation prevents them.

Philosophically, why should anyone be entitled to more than bare subsistence? Gaining even a moderate amount of skill - heck, having an ability to show up on time for three months in a row will get you out of the cellar pretty quickly.

Second, shareholders will NEVER see a penny shaved off of earnings. That's not how it works. Every industry has a target margin. Companies will Raise prices, or Cut costs, but never lose profit willingly - certainly not for regulation. It is simply erroneous thinking to believe that would happen. If it did, investors would simply seek better returns from companies that do not employ significant unskilled labor. Prices rise.

MIT has an interesting calculator, they call a living wage calculator.

A single adult in Utah, where I live, is considered to be $8.95/hr. Of course, if you are a traditional family of 4, it is $18.54.

Now take one adult in Seattle, it is calculated at $9.64, not much more. Whoops, looks like city council overshot by a little bit. Unless you presume that people have a fundamental right to crank out children they can't feed and clothe.

Pyr, you've obviously never worked in a restaurant setting, or at least are unfamiliar with the accounting. You're doing pretty good if you can get labor cost under 30%, and usually labor and food cost are about equal. Double pay, and you'll have to increase price by at least 15% to maintain the same profit, and more to maintain margin.

And this is assuming that more money in the community allows for increased demand to offset the degree to which higher prices induce people to change supply. If my McDonalds meal gets too close to the price of higher end alternatives like Five Guys or Fuddruckers or Fridays, then I'm going to trade up and leave the guys who only competed on price. If I really dig saving money, I might drop down and microwave a burrito at 7-eleven.

It distorts the market, and removes consumer choices and worker choices.

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LetterRip
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The Drake,

people work for less than minimum wage for two reasons

1) When the take home pay is higher due to lack of reporting - this can be true for two reasons

a) taxes are not paid on the income

b) benefits that have income thresholds are not reduced

most benefits for the poor have a pervese incentive in that a slight change in income can result in a drastic reduction in effective income since benefits are based on a threshold instead of a continuous function. So 1000$ more in income could result in a 5000-10000 dollar reduction in benefits.

2) When the employee can't be hired legally (illegal immigrant) and thus as an incentive for the employer to break the law by hiring them command reduced wages.

[ June 13, 2014, 02:49 PM: Message edited by: LetterRip ]

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LetterRip
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The Drake,

quote:
It distorts the market, and removes consumer choices and worker choices.
The market is already heavily distorted since the public is subsidizing all employees that qualify for public benefits. So the lowest threshold for minimum wage should be sufficient that it eliminates welfare subsidy. Also the market is already distorted due to jobs being a non discretionary good.

The claim or 'reduced consumer choice' is also questionable.

quote:
Second, shareholders will NEVER see a penny shaved off of earnings. That's not how it works. Every industry has a target margin. Companies will Raise prices, or Cut costs, but never lose profit willingly.
That isn't how it works. Consumers have pricing elasticity with sticky prices. In most cases the profit maximizing price will tend to be the same due to sticky prices (any number that has a nine in the price will be extremely sticky). Also cost cutting will happen regardless of the cost of labor, so is largely irrelevant.

So while they won't 'lose profit willingly' the belief that they can simply 'pass the cost on to the consumer' by raising prices or that they can engage in cost cutting behaviors that wouldn't otherwise occur is mistaken.

It is true that restaurant prices will likely go up somewhat.

quote:
Philosophically, why should anyone be entitled to more than bare subsistence?
Because it costs society more when people only earn bare subsistence levels. This increases their risk of ruin due to any unforseen circumstance (car breakdown, medical emergency, accident, natural disaster, crime victimization); it increases their burden to the health system (money worries are a major health risk); it reduces the quality of human capital (bare substence can rarely afford education to increase the quality of their capital); it also reduces the consumer base and reduces consumption of domestic goods and services.
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PSRT
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quote:
Philosophically, why should anyone be entitled to more than bare subsistence?
Philosophically, what is the justification for allowing someone to pay bare substistence for work that they will profit off of at rates greater than bare subsistence, in situations where the person being made the offer has the choice between bare subsistence or starvation?
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PSRT
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quote:
Regarding coercion, first lets recognize that raising minimum wage to $15/hr would affect almost half of all workers. That's a massive shift, surely not half of the country is being coerced to work?
Since the late 70's, worker production has risen about 7 times faster than worker compensation. I would say that, certainly, well over half the country, and probably something close to 90%, is taking a wage or salary that is worth less than their share of the value of what they produce... due to coercive structures of our system.
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The Drake
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quote:
Originally posted by LetterRip:

most benefits for the poor have a pervese incentive in that a slight change in income can result in a drastic reduction in effective income since benefits are based on a threshold instead of a continuous function. So 1000$ more in income could result in a 5000-10000 dollar reduction in benefits.


I agree with that summary, generally, and would also add the observation that regressive payroll taxes for SS/Medicare are a particularly strong incentive for not reporting. 12.4% worth.
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The Drake
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quote:
Originally posted by PSRT:
quote:
Philosophically, why should anyone be entitled to more than bare subsistence?
Philosophically, what is the justification for allowing someone to pay bare substistence for work that they will profit off of at rates greater than bare subsistence, in situations where the person being made the offer has the choice between bare subsistence or starvation?
Because the employer has the money that they (or an ancestor) earned at one time by exchanging value for it - often time? Because it will damage small business? The Seattle law implicitly acknowledges that this is true, delaying compliance by four additional years for "small employers" (fewer than 500 employees!)

I find myself wondering how many of the minimum wage workers fall into that category.

If they believed this was a simple win-win as has been described in this thread, why so slow?

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LetterRip
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The Drake,

you misunderstand the reason for the delay. The delay is to prevent economic 'shocks'. If you change a variable rapidly in an economic system it can result in shocks (inability of the system to come to equilibrium quickly enough to accommodate the change in the variable). A slow phase in is almost always appropriate for any variable that has significant change. The reason that small businesses have a longer delay is that the ability of a business to adapt to a shock is proportional to the size of the business.

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LetterRip
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The Drake,

for instance infrastructure spending. We can probably agree that it is good. However changing from essentially no infrastructure spending, to substantial spending (as happened a few years ago) is a significant shock - since there is no workforce in place to do the infrastructure work.

Thus a planned phase in, to build capacity, etc. is needed to work efficiently.

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The Drake
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quote:
Originally posted by LetterRip:
The claim or 'reduced consumer choice' is also questionable.

That's fair enough, I'll agree it is up for debate as I don't have any real direct evidence to back up the claim.

quote:
That isn't how it works. Consumers have pricing elasticity with sticky prices. In most cases the profit maximizing price will tend to be the same due to sticky prices (any number that has a nine in the price will be extremely sticky). Also cost cutting will happen regardless of the cost of labor, so is largely irrelevant.

It is already happening in Seattle, and the law doesn't even get started until 2015.

Seatlle businesses adding "Living wage" line item to bills

quote:
MasterPark charges, taxes, and fees include a ‘Living Wage’ surcharge. This is due to the $15 per hour minimum wage requirement for certain businesses in SeaTac. The surcharge covers a portion of the resulting increase in operating costs.
quote:
So while they won't 'lose profit willingly' the belief that they can simply 'pass the cost on to the consumer' by raising prices or that they can engage in cost cutting behaviors that wouldn't otherwise occur is mistaken.
Possibly. Sometimes cost cutting is unpalatable unless you have little choice, as I said most businesses have a target margin (even small private ones). If they are hitting target, they may not be willing to make certain kinds of cuts. One will generally avoid staff reductions, cuts that affect quality, cuts that affect timely delivery of goods or services, or relocating to reduce lease costs as just a few examples.

quote:
Because it costs society more when people only earn bare subsistence levels. This increases their risk of ruin due to any unforseen circumstance (car breakdown, medical emergency, accident, natural disaster, crime victimization); it increases their burden to the health system (money worries are a major health risk); it reduces the quality of human capital (bare substence can rarely afford education to increase the quality of their capital); it also reduces the consumer base and reduces consumption of domestic goods and services.
At least that way it is a visible subsidy as opposed to burying it in the company income statements. You could accomplish the same goals by simply taxing people in lieu of price increases, and giving the money to people making less than $15/hr.

For that matter, note that even the Seattle government itself has a number of workers making less than their proposed minimum - surely if it is going to reduce the burden on the city they could at least have kept wages up for their own employees?

At the end of the day, it is interesting to have a view of coercion that says it "IS" coercion when a business makes an offer that is accepted by an employee who can freely apply to another job, move to a better area, or increase his skills, but that it is "NOT" coercion to force businesses to pay higher wages under threat of fines and jail.

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The Drake
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quote:
Originally posted by LetterRip:
Thus a planned phase in, to build capacity, etc. is needed to work efficiently.

I would put it a different way. The shock would be the obvious negative effect that might make it clear what the result of the policy would be. Nobody generally has to "Phase in" tax cuts, for instance, because it just makes everything better. It is only painful things that need to be phased in, like slowly turning up the heat so you don't realize you are being boiled.

If SeaTac jumped to $15 today, there would be mass layoffs, business closures, and/or price increases. By phasing it in, it is harder to see but I contend that the equilibrium point is the same.

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Pyrtolin
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quote:
Originally posted by The Drake:
Regarding coercion, first lets recognize that raising minimum wage to $15/hr would affect almost half of all workers. That's a massive shift, surely not half of the country is being coerced to work?


In general, no, but for less than they would if they had the freedom to negotiate on equal terms and in fields that they would not at the current rates, almost certainly.

quote:
Granted, most of us would not work if we didn't need money, but that's not really coercion.
That's flat out absurd. Most people would absolutely continue work, though many, many more would use the additional freedom to choose fields that hey were better suited to and even venture to invest in self employment rather than external employment, but the idea that people somehow default to being couch potatoes is absurd.
You'd certainly find that certain highly undesirable fields need to raise wages significantly to actually attract employees once they're no longer actually able to keep the wage prices artificially depressed due to desperation for any work, but that's just a reflection of what happens when you remove such distorting effects from markets and allow them to operate freely.

quote:
Philosophically, why should anyone be entitled to more than bare subsistence? Gaining even a moderate amount of skill - heck, having an ability to show up on time for three months in a row will get you out of the cellar pretty quickly.
You answer yourself in the practical sense- because being able to acquire a skill requires a sufficient margin of resources above sustenance to be able to afford to invest in building such skills. If you force someone to drag along as sustenance levels then you effectively deny them the margin of resources required to invest in any personal improvement to qualify for more.

From a philosophical sense, we should do it because that's the fundamental point of civilization and society- to take advantage of the fact that coordinating our efforts protects us all from the natural state of struggling to just barely squeeze individual sustenance out of the world and generates enough excess that we can afford to shelter all members of the community for having to struggle to survive.
If we only provide our least with bare sustenance, then we actively communicate that they're no better off respecting society than they would be on their own, and their behavoir changes to meet that message and return that lack of respect and support in kind.

quote:
Second, shareholders will NEVER see a penny shaved off of earnings. That's not how it works. Every industry has a target margin. Companies will Raise prices, or Cut costs, but never lose profit willingly - certainly not for regulation.
Of course not. That's what competition is for (and that's also, since at least Adam Smith, been a very explicit criticism of the inherent abusiveness and dangers of the corporate business model- part of why he essentially said that such companies should be established for specific purposes, where it could be proven that the risks of a given venture needed to be pooled, then disbanded in favor of direct ownership once that basic purpose was met and the overall field of endeavor sufficiently established for anyone to try to enter on their own.

We have to compromise further away from that ideal because of how much the scale of production and need for coordination of various specializations has expanded beyond what he even began to imagine, but that's not a problem as long as we do so in a way that's aware of the dangers and creates proper public mechanisms to offset just such perverse incentives as we grow.

quote:
A single adult in Utah, where I live, is considered to be $8.95/hr. Of course, if you are a traditional family of 4, it is $18.54.

This directly points to why I'd rather asee a baseline individual subsidy coupled with a full employment program over any purely wage based system. The grant portion of it would do far better to equalize the income needs of any given worker so that the same wage represents the same marginal improvement at a given wage level regardless of family size or any other similarly unrelated factors.

quote:
Unless you presume that people have a fundamental right to crank out children they can't feed and clothe.
"right" is completely irrelevant to the issue. PEople have families that they need to feed and clothe, and it is outright inhumane for us as a society to punish those families, particularly the children that didn't opt into their situation out of a paternalistic desire to tell other people how to manage their own affairs. The ability to have children is, for most people, not a resource dependent function (and, in fact, higher levels of income and social stability tends to actively reduce the rate at which people have children toward more sustainable levels as future orientation becomes a much more useful mode of thinking to invest in over simply getting by day to day because there's little point in worrying about future costs)

quote:
Pyr, you've obviously never worked in a restaurant setting, or at least are unfamiliar with the accounting. You're doing pretty good if you can get labor cost under 30%, and usually labor and food cost are about equal. Double pay, and you'll have to increase price by at least 15% to maintain the same profit, and more to maintain margin.
Sure- Can you work out what percent of a $5 hamburger as $.75 price increase represents?

Now, compare how many $5 burgers you could buy if if you worked for an hour at $7.50/hour vs how many $5.75 burgers you could buy after working an hour at $15/hour. You'll notice that that 15% increase was much less than the increase in ability to express consumer demand. If our economy was just burger makers and burger buyers, then you've more than doubled the rate at which you're going to need to turn out burgers to keep up with the number that people can buy, meaning either doubling employment or otherwise innovating to bridge the gap.

quote:
And this is assuming that more money in the community allows for increased demand to offset the degree to which higher prices induce people to change supply. If my McDonalds meal gets too close to the price of higher end alternatives like Five Guys or Fuddruckers or Fridays, then I'm going to trade up and leave the guys who only competed on price. If I really dig saving money, I might drop down and microwave a burrito at 7-eleven.
So, basically businesses that only exist to take advantage of suppressed economic conditions and don't have much actual merit on their own to attract customers may lose out if they can't find something of better value to offer, while those that offer more customer specific value. and thus represent a wider array of real choices between them will see an upswing in business and need to take on additional people to meet it? I'm not sure why you're framing this as a complaint rather than the market actually moving toward a much healthier functional level

quote:

It distorts the market, and removes consumer choices and worker choices.

Only to the extent that you assert that the current market isn't distorted, and thus removing pressures that actively serve to handicap it count as "distortion". It takes a significant dedication to maintaining our current dysfunctional state to suggest that a significant improvement in consumer growth, choice, and accessibility of quality is a distortion rather than a significant improvement in market health.

[ June 13, 2014, 05:55 PM: Message edited by: Pyrtolin ]

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