Who Loses From The Minimum Wage Mandate? Immigrants And Kids Trying To Make Something Of Themselves
It's the "Affordable" Care Act that ruined my (previously affordable) health care all over again. (I still have health care; I just can't afford to use it.)
As some legislators said, they passed that to find out what was in it. Lovely.
They've gone equally "let's close our eyes and hope it works out!" about the minimum wage increases.
Mark Antonio Wright writes at NRO at how it's likely to affect White Castle:
White Castle, established in 1921 in Wichita, Kan., now operates more than 400 locations, with many in the New York City metropolitan area, which makes the news of New York governor Andrew Cuomo's signing a bill that steeply hikes the minimum wage deeply personal. The wage will go from $9 to $15 an hour by 2018 in New York City, with the rest of the state seeing a more gradual phase-in schedule....Unfortunately, despite the Castle's Empire State history, the road ahead may be difficult: "We're disappointed. What this means for White Castle is we really have to evaluate how we manage our business," Richardson tells me. "About 30 percent of every sales dollar covers the pay of our hourly workers, and that doesn't include management."
..."Is there any room to raise prices to cover costs?" Richardson muses. "We think we'd need to increase menu prices by something like 50 percent. It's not something we've done before. It'd be catastrophic."
In fact, Richardson says that White Castle has historically seen its customers react noticeably to even slight increases in menu prices. "Some people think that we can just raise menu prices to cover the increased labor costs," he says. "But it's a ripple effect. We're not the only place to eat, we compete with other restaurants. And people alwayshave 'L cubed': Making Leftovers Last Longer."
Richardson says -- and common sense dictates -- that if menu prices at fast-food chains shoot up by anywhere near 50 percent, many people will stop eating out as much, replacing trips to White Castle with trips to the grocery store. Customers can always vote with their feet and their dollars.
But thinking through the implications of raising prices to cover increased costs, which could reduce sales, isn't what irks Richardson the most: To him and to White Castle, New York's minimum-wage hike is a threat to a culture of opportunity in the neighborhoods that they have always called home.
"Candidly, this could create a whole generation of kids who won't get their first job," Richardson laments. "We're in tough neighborhoods -- and White Castle hasn't abandoned those neighborhoods. On the surface, higher pay seems noble, but it's not - because it denies the reality of the free-enterprise framework that has allowed small businesses like ours to thrive."
White Castle is very proud of providing what for many of its workers is the first rung on the ladder of employment. And it loves to promote from within. Richardson tells me that of White Castle's 450 top employees in restaurant operations, "444 of them started out behind the counter in an hourly job." Susan Milazzo, the regional director in charge of the 35 Castles in the greater New York City area, is a prime example of a worker who started out on the bottom rung and worked her way up.
But some of White Castle's successes are even more exceptional: Richardson tells me the story of Jahangir Kabir, a Bangladeshi immigrant who came to America without knowing a word of English. He got a job as a cook at a White Castle and learned the vernacular by interacting with customers. In four years, he was a general manager. On the way to being promoted to district supervisor in charge of eight Castles, Kabir went to school, earning an MBA from St. Joseph's College in Brooklyn in 2005. Recently he completed a Ph.D. in business administration -- and it all started at White Castle, cooking fries.
Gregg picks up In-N-Out here when he's too tired to make us dinner. I think our bill for two burgers (double-doubles, protein style, with cheese and extra grilled onions) is maybe $8.36, if I'm remembering correctly.
If it rises to, say, twice that -- if In-N-Out's costs are anything like White Castle's, well, it suddenly becomes more motivating to pick up hamburgers at the supermarket.
Everything I've said here has been borne out by events in those idiocracies which mandate increases.
Radwaste at April 12, 2016 4:53 AM
Mark Antonio Wright accepts bad math and runs with it, unless you
can believe that "something like 50 percent" means "at most 30
percent". The effects of a raise in minimum wage may be bad, but
exaggerating the impact doesn't help the case.
Given: labor represents 30% of the expense. Let's use simple
numbers to make things obvious. Assume a meal costs $10. That
means $3 is the labor part. Now, let's suppose wages double.
Thus, labor on that meal is now $6, an increase of $3. That's
an increase of 30% on the price of the meal.
In actual fact, the current minimum wage in New York is $9 an hour.
So, the labor cost increase (to 15/hour) appears to rise by 66 percent.
In the above example, that would be a $2 increase on the meal cost,
or a 20 percent increase. Seems to me that's well under 50 percent.
Ron at April 12, 2016 5:18 AM
Ron, I'm no math whiz, but even I can figure out if White Castle's labor costs go up, then every vendor they use will have increased labor costs, which means every product used by White Castle will likely have a price increase. Those costs get passed through to us. So yeah, I can see why it would be an almost 50% increase.
About 10 years ago in California when gas prices were first really skyrocketing, and gas was almost $4 a gallon, everyone was charging a fuel surcharge for delivery of goods. UPS, FedEx, the guy who delivered the toner for my copiers and printers, and beer, wine and liquor distributors...everyone was charging for fuel. That cost was not absorbed by the businesses my boss ran, the costs were absorbed by the customers. The Co2 and nitro tanks had a $10 per tank surcharge tacked on for fuel...beer and soda prices were raised.
sara at April 12, 2016 5:56 AM
I think sara is right -- and the delivery example is a good one.
Amy Alkon at April 12, 2016 6:41 AM
The rest of the story: The unions, having spent a ton of their members' dues to fight for these minimum wage increases, now want an exemption for union members. Why would they want that? The hidden motivation is now revealed: they want to use the law and political muscle to price non-union labor out of the market. They can go to small businesses, an area that unions have traditionally had little success with, and say, "If you hire union members, you can reduce your labor costs". And they will, in the short term... until a large swath of small business is unionized, at which time there will be a strike that will destroy most of them at one whack.
Big, union-controlled business will then be the only choice for both the worker and the consumer. Huzzah! The 21st century is defeated! It's 1968 again! (Or 1938...)
Cousin Dave at April 12, 2016 6:46 AM
That last paragraph should have started with "Big, crony- and union-controlled business..." I meant to put that in, but I got in too big a hurry to hit the "Submit" button.
Cousin Dave at April 12, 2016 6:48 AM
I agree with Sara's modification up to a point. The gas price
increase affected everyone. The minimum wage increase affects only
New York labor. How much of White Castle's vendors' costs are New
York labor?
Ron at April 12, 2016 6:49 AM
I'm so struck by these stories of immigrants working their way up. I love this about this company. It's also smart.
I have a woman who works for me (editing me) and I am invested in her and her future, and try to help her in meaningful ways. It's just the right thing to do, and it ends up paying off for me, because when people see you care about them, they tend to care about you.
Amy Alkon at April 12, 2016 6:54 AM
Raising the minimum wage to bolster the lifestyle of low-skill, low-wage workers is faulty. Such a policy assumes that with increased wages, these workers can afford to purchase more and better food, etc. No account is taken of the increased costs of these items thanks to the increase in cost of goods sold.
Grocery stores operate on a ≈1% profit margin. Fast food and fast casual restaurants operate on a ≈3% margin. Increases in the cost of labor cannot be readily absorbed by these industries without a price increase passed on to the consumer. Said price increase destroys the increased purchasing ability afforded by the higher wage and creates higher prices for all.
In order to increase the purchasing power of low-skill, low-wage workers, it is necessary to increase their skill sets. Taking classes at the local community college is one way to do that. Unions representing low-skill workers, like the SEIU or UFCW, could offer these classes or provide stipends to pay for classes instead of demanding ever-increasing wages for a stagnant labor force.
Most union contracts are indexed to the minimum wage. An increase in the minimum wage results in an increase in the union base wage.
Conan the Grammarian at April 12, 2016 6:58 AM
Ron, California just signed a bill raising minimum wage to $15 an hour by 2020...it's going to be that way everywhere eventually. Using White Castle in New York, where do you think those delivery drivers are coming from? There are positions that can be automated, and you're going to see more and more automation as these minimum wage increases go into effect. There are already several restaurants you can go to and order from an ipad at your table, McDonalds already has ordering kiosks in some of it's stores, and grocery stores started self checkout lanes years ago. Humans aren't needed for every job, and all these demands for higher wages are going to make those same people clamoring for those wage increases obsolete. Talk about talking yourself out of a job.
sara at April 12, 2016 7:02 AM
Sara is absolutely right.
Sure, my labor costs go up only a relative portion.
My distributors who bring me my raw materials) labor costs go up, so that gets passed on to me, which will be reflected in my prices. Which puts pressure on my customers, who will come in less often, which means that I'll make less money, which means that I'll probably close some stores, and those jobs go away.
Or I'll switch to a kiosk ordering system and eliminate some positions in the front of the house, and maybe add an automated burger making machine and eliminate some of the back of the house. If there's any chain that could make do with a simple automated burger maker, it'll be White Castle. There's nothing fancy there.
Remember, the actual minimum wage is $0.00. There is no getting around that. $15/hour sounds really great, presuming you can actually get a job.
I R A Darth Aggie at April 12, 2016 7:13 AM
How much of White Castle's vendors' costs are New
York labor?
I' guessing that most of their vendors are NYState vendors, and thus their labor charges will be up.
Remember: "Buy local!"
Another point: those who are making more than minimum wage will want to continue making more than minimum wage. So, someone making $15/hour will not be happy to remain there.
And people making more than $15/hour will want to see their wages go up as well, since they're not going to be happy to see their standard of living eroded.
Gee, if only someone could have predicted these things. Which leads me to ask this question:
If $15/hour is good, why not $100/hour?
Discuss.
I R A Darth Aggie at April 12, 2016 7:41 AM
Companies like Walmart can absorb minimum wage increases better than companies like Kroger or McDonalds.
In Walmart, the low profit margins on food can be offset with the higher profit margins on t-shirts and hard goods. That's why Walmart Neighborhood Market and Super Walmart stores can sell food at a lower price than Kroger. Walmart can sell food at or near cost at NM and Super Walmart stores and let the company-wide non-food profits make up the difference.
For companies like Kroger or McDonalds, who don't sell t-shirts and hard goods, the profit margin on food is all they have. When that's eroded to nothing, there are no more jobs.
What are the low-skill workers going to do when Kroger and other grocery stores are fully automated or driven out of business? Walmart can only hire so many - and they'll automate as much as they can in their stores.
Watch for legislation making automated checkouts illegal. Oregon has already outlawed self-serve gas stations. California has outlawed alcohol sales at self-checkouts.
Like I mentioned earlier, most union contracts are indexed to minimum wage. Raise the minimum wage and the union base rate goes up.
Conan the Grammarian at April 12, 2016 7:53 AM
Maybe White Castle can make up the lost margins with weddings.
Conan the Grammarian at April 12, 2016 7:57 AM
"Like I mentioned earlier, most union contracts are indexed to minimum wage. Raise the minimum wage and the union base rate goes up."
They are taking a new tactic in California. You can see what is happening: union members will, in the short term, work for under minimum wage in order to capture small businesses. Once contracts are locked in and non-union labor has gone elsewhere to look for work, the unions lower the boom. They either demand big raises, or they strike and put the small businesses under.
Cousin Dave at April 12, 2016 9:21 AM
Those who push this raise believe 2 absurd things:
1) The companies make obscene profits. But if they really believe this,why don't they start a business themselves? Most businesses have a small profit margin much smaller than the increased costs this raise would cause.
2) The evil employers force people to work for them via some sort of conspiracy of wage fixing. But people are only stuck to the extent that another job is hard to find.
Craig Loehle at April 12, 2016 9:50 AM
Maybe White Castle can make up the lost margins with weddings.
Who is your caterer?
Oh, we went with White Castle! sliders all around!
Ummm...geee, look at the time, I have fungal infection and really need to get that taken care of.
I R A Darth Aggie at April 12, 2016 12:18 PM
You forgot the most important one: companies owe people jobs. I took an older, pro minimum wage relative to Home Depot yesterday and he commented when we were searching for an employee, "I don't know why they can't hire more people."
Conan the Grammarian at April 12, 2016 1:05 PM
Totally besides the point but I sometimes wish In n' Out would raise their price beyond the reach of the 72 high school kids in line in front of me.
smurfy at April 12, 2016 2:56 PM
Things like Obamacare and minimum wage laws hurt economies in other more subtle ways too. I live in Houston but the cost of janitorial services has increased so much, that my volunteer organization can no longer meet in our usual spot. They just can't afford to let us come in monthly for the price we were paying and we can't afford more. What makes it really difficult is that we have 200 plus women that we need to have chairs and space for. It's been hard and will get harder. I expect that next year we will have to increase our dues to cover the higher cost. Thanks Obama!
Sheep Mom at April 12, 2016 6:45 PM
Remember taxation is not adjusted. So likely the state will get more $...not from the minimum wage works but the people that are bumped up above them.
My google fu is failing me. I fairly recently heard/read some former state official (e.g. the ex-treasurer or something like that) say that if that state adopted $15 minimum wage it would drive state salary costs a minimum of 30% because of the way contracts are setup. If employee type A was making $10/hr and type b $15 then after A would have to make $15, B would have to make at least $20...but maybe it might even 22.50 (A got a 50% so B does too).
And yeah, if eating out and groceries cost more, you know people like me are also going to get paid more (and if we don't we won't eat as much) which means the stuff I work on will go up in cost.
The Former Banker at April 12, 2016 8:41 PM
You know to me this is macroeconomics 101, but I'm no econ major, and it's been a long while since I was in school. But my question is what are the real economic geniuses telling these politicians? Because the ones really having absolute benefit from increased minimum wage are the fat cats signing this into law.
gooseegg at April 12, 2016 9:41 PM
Most of you are repeating what I said in the link, but don't miss this: the cost of government services will go up, too. Even if you don't have a job or a job tied to an hourly wage, you will be paying ME more for the exact same tasks at the Federal facility I monitor, through your taxes.
Thank you! {/sarc}
This economy is being engineered to produce wealth for a ruling class operating independently of the lay citizen, who is a cash cow. Look for that in the election shenanigans.
Radwaste at April 13, 2016 2:41 AM
You know who else loses? Me. I get an effective 20% pay cut, if this happens in TX, and a bit of a cut even if it doesn't, through prices driven up from businesses who do business in new York and Cali.
I worked 7 days a week for years, and hubby worked 2 jobs, while I was going to school WHILE we had 4 young kids. But, yeah, let's lower MY standard of living to mandate more money to people with no ambition or skills.
Fuck them. The only thing people "deserve" in life is the right to try for what they want. They don't "deserve" a "living wage" or "healthcare" or anything else the progressives have decided to give people simply for virtue of turning O2 into CO2.
momof4 at April 13, 2016 6:00 AM
Gooseegg,
Economics is a business. Politicians find and support economists who give them the answers they already wanted. No one goes back and checks if the economists got it right or wrong later.
As for the funding, this is feel good stuff. Politicians claim your boss will have to give you a raise. That feels good to some people so they vote for that politician. That they lose their job later is irrelevant. The politician got the only thing he cared about, that vote.
Ben at April 13, 2016 6:41 AM
Yeah, there are three things that drive politicians to support stuff like this:
1. Pandering (obvious)
2. Cronyism (higher labor costs force upstart competitors out of the market)
And the one that is not sufficiently appreciated:
3. Tribal membership signaling. You get to be regarded by the glitterati as one of the kewl kidz. Today's politicians in general are "joiners"; they have a high need to receive praise and affirmation from others, and to be regarded as part of the team, fighting the good fight. (An irony: the people who are very opposed to the existence of a military will often describe their own efforts using military imagery: the War on Poverty, the War on Drugs, the Battle for Hearts and Minds, etc.)
Cousin Dave at April 13, 2016 7:24 AM
One of the problems in debating and analyzing the effects of increasing the minimum wage is the economy itself. When the minimum wage is raised, but not past the prevailing wage rate, there is no harmful effect on jobs overall. When it is raised beyond the prevailing wage rate, it costs jobs in the short and intermediate term - until prevailing wage rates catch up.
That is, if the average employer in the city is paying $12 an hour and the minimum wage is raised to $12, no widespread job shedding will be seen. If, in that same market, it is raised to $18, businesses will automate to cut costs.
Businesses will always seek to minimize labor costs - which is why a San Francisco company (with a minimum wage of $12) will open a call center in Phoenix (with a minimum wage of $7.25) instead of San Francisco.
The debate is also harmed by the use of overall employment statistics versus those most affected by the minimum wage rate.
The differences described above haunts the minimum wage job loss statistics. Proponents point to the overall rate and say raising the minimum wage has little-to-no effect on overall employment. Opponents point to the above-prevailing increases and minimum wage jobless rate and predict massive job losses overall for any increase. Figures don't lie, but liars do figure. Even the federal government (Department of Labor) is guilty of using misleading statistics to justify a position on a minimum wage increase.
Another trick used in the debate is to count minimum wage workers and say they aren't raising families because they're teenagers. They leave out those making near-minimum wages.
The truth is (and logic dictates) that raising the required wage above the prevailing market wage will cost jobs for those who are don't have the advanced skills to command higher wages.
According to Pew:
The secret to getting more money for those who don't have skills to command higher wages is to get better skills for those workers. How to do that?
Unions representing near-minimum wage level employees, like UFCW or SEIU, could sponsor classes or offer a voucher for classes at a local community college. However, that would take away from the pool of money they use to influence politicians.
Government unemployment offices, like California's EDD, could offer or sponsor real skills classes instead of just job-hunting classes.
High schools could spend more time and money on providing vocational and skills classes than on politically-correct administrative work or worrying about eliminating dodgeball.
Conan the Grammarian at April 13, 2016 7:30 AM
" But my question is what are the real economic geniuses telling these politicians?"
Economics isn't a real science, they are closer to religions, with a hundred built in excuses as to why the predictions didn't work
Officially that there are no downsides to it. Unofficially that it will cause inflation. Which some see as a good thing.
Short term, some jobs will be lost low wage earners will get a raise. Prices of goods heavily using low wage workers (food) will go up. Union contracts go up.
Mid term, some low wage earners leave area or work off the books. Others find other jobs.
Prices of other goods go up. Non-low wage workers demand higher wages. If Bob the guy sweeping the floor is pulling in 30K, Will, the accountant wants more than his old 32K. Inflation/money devaluation starts. Set incomes go up. (Social Security/welfare etc.)
Long term, Inflation changes the value of money so that most prices and salaries are back to the buying power they used to have. Debts/savings however, lessen.
Inflation is generally considered a good thing for those with debts, and a bad thing for savers/investors. If you owe 100K or 3 yrs salary, then inflation hits, doubling everything. you still owe 100K but now it is 1.5 yrs salary.
Likewise if you had 300K saved for retirement, assuming it will last 10 years. inflation hits and it will only last 5 years.
Gov't is hugely in debt,inflation helps them, by making that debt less.
Joe J at April 13, 2016 10:31 AM
We are following in the footsteps of every country in South America in the 20th century. First you raise taxes well above the hump on the Laffer curve, thus exhausting everybody's ability to pay. Second, you overregulate most businesses to death. And third, you engage in runaway deficit spending, and keep it up until your country's banking system has no more to lend.
Results: the printing press becomes the only way to fund the national budget, so you get inflation in the hundreds or thousands of percent. And since no business can afford all the permits and taxes to operate legally, all jobs are off the books, and corruption becomes universal. Everyone must constantly bribe police and bureaucrats just to be (usually) left alone.
All these effects are permanent, until and unless the country is lucky enough to have a dictator like Pinochet come in and restore some semblance of a market economy. In which case, lots of people "vanish", and you then have the tough job of getting the dictator out while keeping some of his reforms.
We need to start teaching the public this history. Because everyone on the Left seems hell bent on making us repeat it here.
jdgalt at April 16, 2016 5:54 PM
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