Thursday, January 31, 2008

Real life and the minimum wage

I've worked for minimum wage; if I remember right, it was $3.35/hour at the time. I remember wishing that my wages were higher, and grumbling about my paychecks with my buddies as we spent our take on pizza and cokes.

Would my situation have been improved if the minimum wage had been magically raised to, say, $7.00/hour while I was working that first job?

I doubt it -- I doubted it even then. I may have been a resentful teenager, but I wasn't a complete economic illiterate. Even as I grumbled to my friends, I strongly suspected that, given my limited skills and maturity, I was barely worth what I was making. Hike the minimum wage much above where it was, and my paycheck wouldn't grow -- it would disappear as my responsibilities were shifted to people who could actually perform at that pay level.

So it's with interest that I read the account of businessman Warren Meyer -- a fellow who runs private campgrounds and public campground under contract -- as he details his experience with and response to minimum wage laws. As he describes it, his company's survival isn't threatened by mandated hikes in wages. But the number of people the company employs and who it employs does change dramatically when government tries to set a minimum price for labor. That's because, when minimum wages are raised, his company has options; it can:

  1. simply refuse to engage in certain projects (therefore hiring nobody)

  2. hire more-productive employees (excluding whole classes of potential labor) or outsource to contractors who hire more-productive employees

  3. replace workers with automation

  4. raise the cost of its offerings to the public.

For example:
Anyway, on this particular concession we have to pay our living-on-site workers based on the SCA. This means, for example, that someone who sits in a parking lot booth collecting parking fees must be paid something like $12.50 an hour, which translates to a bit over $15.60 when you factor in FICA, SUI and workers comp. Over 2000 hours a year that is $31,200 a year.

A fully automated fee collection machine (which actually does more than the attendent, since it takes credit and debit cards as well as makes change for cash) costs $23,000. Plus, the machine never will sue over wrongful termination, never will discriminate against or sexually harass a customer, never will steal, and never will fail to show up for work.

What would you do? I would prefer to have the person there, and if we put the machine in I will still probably staff the booth on busy summer weekends to help customers out, but over 5 years the machine may save us over $100,000.

Economists and policy makers have long made the case against mandated minimum wages as job killers, but such arguments are in dry language and seem abstract when compared to the promise of a fatter paycheck at the end of the week. Meyer's anecdotes put a little flesh on the bones of the argument against minimum wages.

By the way, when you check out Meyer's piece, don't miss the comments. Some are well thought out, but the pro-minimum bits are doozies. In particular, there's the poster who wants to shut down all businesses that pay less than $10/hour because such low pay "is an abuse."

I guess it's better to have your pride -- and your unemployment.



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