Unhappiness is spreading with minimum wage hikes.
Those on the job for a few years complain to deaf ears that they deserve more than new hires who don’t know the ropes.
Some think this is an unforeseen consequence. I see at as a planned consequence.
The Wall Street Journal reports Push for $15 Raises Pay—and Tensions.
The growing push to raise the minimum wage to as much as $15 an hour is creating new issues in the workplace: While some of America’s lowest-paid workers will get fatter paychecks, their veteran colleagues may feel underpaid.
At Gap Inc. and Wal-Mart Stores Inc., which recently increased wages, store managers have had to address employee questions about fairness and pay. Some companies have raised pay for veteran workers, and others plan to offer extra fringe benefits, fearing that valuable workers might otherwise jump ship.
In Seattle, where city laws require many large employers to phase in a $15 minimum wage by 2017, Mud Bay store employees now earn at least $12 an hour, with 50-cent hourly pay hikes planned for September and January 2017.
“I’d love to be able to pay you a dollar more but there are costs,” Ms. Knowles told store employees, adding, “we’re still in business to make money.”
Some economists say minimum wage increases could boost productivity, curb worker turnover and prompt stronger spending from low-income families. Detractors warn wage hikes could come with higher prices for consumers and weigh employers down with hefty costs.
Rising Tide
Rising Wages and Productivity
Apparently a rising tide does not lift all boats, at least yet.
Whoever dreamt up the notion that rising wages increase productivity is an economic fool.
Generally speaking it’s the opposite.
Rising productivity supports higher wages. However, there are global pressures and robotic pressures that influence that decision.
If anything, higher wages appear to have made more people unhappy than the happy new hires.
Meanwhile the debate is on. Was this a planned occurrence by those pushing for higher minimum wages or was it an unforeseen consequence.
Debate is Moot
I vote for the former, but it really does not matter.
Either way, store expansion will slow. Businesses that are profitable at $7.25 may not be at all profitable at $15.
It is idiotic to dispute that simple truth but many do so.
Mike “Mish” Shedlock
Hanlon’s Razor – Never attribute to malice that which is adequately explained by stupidity.
Corollary one: The appearance of stupidity is not proof of the absence of malice.
In this case, we know that minimum wages were created specifically to keep minorities out of jobs. Therefore, even though many who support them may be stupid, there is malice in the movement.
Welcome to the politician’s NEW PLANTATION!
I’m taking the minority opinion on this topic. I have no problem with a high minimum wage. I still wouldn’t care it it were made even more ridiculously high. Or higher yet. Make it $100/hr. I don’t care.
1) If there were no minimum wage, the living standard as a whole would be much lower and the wealth of the 1% would be LOWER than now, not higher. The old saying ‘A rising tide lifts all boats’ applies with the minimum wage as much as in other ways. By improving the living standard of the lower levels, more spending is available and all will benefit from the increased spending. Plain, simple greed at the level of the 1% is a driving force against a higher minimum wage. They want free labor and all $$ for themselves.
2) The industries that can’t succeed with high wages for the lower levels will either die or industrialize and substitute capital for labor. This substitution will ADD JOBS at levels that require skill and education, i.e. above minimum wage level work. If the jobs and companies die, they die. Something else will take their place. Think creative destruction.
3) Think of it as applied helicopter money. Yes, helicopter money has been around for decades in the form of minimum wage legislation. Cash is being directly injected into the bottom levels by legislative fiat. It is spent and all levels benefit from this spending, including those who have to pay a higher minimum wage. Yes, now they will have new and more customers who can now afford to patronize the places they work.
4) To some extent, it could be credibly argued that QE should have been accompanied by a higher minimum wage in order to actually improve the economy. QE, by contrast, is deflationary and is actually causing pressure towards economic contraction … just the opposite if what it was intended to so. But the 1% love QE because it is a gift to them and nobody else.
5) I find it amusing that so many argue in favor subsidizing their ‘oppressors’. By that I mean arguing how much they need to live a lowered level lifestyle just so that those with lots of money can continue to earn large bonuses by keeping costs lower. I imagine you look ‘cute’ and ‘amusing’ to them.
6) Yes, some business owners are just on the edge and raising costs will put them over it. Of course, they can raise prices since everyone else will be raising them to cover higher costs. Also, in many, but not all industries, the cost of labor is a small part of the cost or production. Finally, if things are that bad and the business fails, they would be MUCH better off with a brand new minimum wage job for themselves. Again, think Creative Destruction, not subsidizing the rich and / or inefficient or those who are afraid of change it it makes them have to think a little harder.
7) Paying wages below the cost of living is welfare for the rich. Government will provide services to to support the shortfall. This will cost higher taxes (not really since everyone expects free stuff now) or these higher government costs will be paid for with borrowed money, possibly monetized by the Fed. The optimal minimum wage is one that is high enough to NOT NEED government subsidization for lower level people, at least at the subsistence level. By saying the minimum wage should be kept below the cost of living, you are also stating that you support government welfare for the rich by demanding government pay a part of their ‘wages’.
8) So, Bubba or Rhonda are angry because the crap job they slaved at for so many years is now equivalent in pay to even crappier jobs and they expect somebody to make it better for them. Why don’t they make it better for themselves and get some training for something better in all respects, or do nothing and get used to it, or quit and drink all day in the gutter. It’s not the job of government to pick winners and losers, although it seems to do so with regularity if the 1% can profit from it. A good strategy to scare politicians would be to create conflict among members of the lowest classes and claim bad regulation is the cause … please take it back and continue subsidizing the upper castes with welfare payments that make up the deficit from wages that are too low. Arguments (bad ones) based on selective use of theories from econ 101 is the way to stir things up.
“2) The industries that can’t succeed with high wages for the lower levels will either die or industrialize and substitute capital for labor. This substitution will ADD JOBS at levels that require skill and education, i.e. above minimum wage level work. If the jobs and companies die, they die. Something else will take their place. Think creative destruction.”
94 million Americans are not working. Something else did take their place. More and more, AI and robotics will take away even jobs that require skill.
“The optimal minimum wage is one that is high enough to NOT NEED government subsidization for lower level people, at least at the subsistence level.”
Optimal is not a reality. Optimally, Everyone should be a millionaire.
The federal minimum wage was $1.35 in 1963. With today’s federal minimum wage, everyone should be doing well- except the cost of living has gone up.
Nothing occurs in a vacuum. Government can mandate a $15 an hour minimum wage, but costs will go up, not just wages. That is the big monkey wrench thrown into the gears. You wind up right back where you started.
Ron J – Somebody has to build the robots, or the robots that will build the other robots.
People will invent new jobs that nobody can even imagine today. A higher minimum wage will be the ‘helicopter money’ needed to do it. I care even less about sad unemployed robots than I care about giving Bubba or Rhonda or Daddy Warbucks something new to fret about.
Ron J- So you are FOR government welfare for the rich, meaning government will subsidize the income and services needed to make up for the amount not covered by low wages? Or, are you for dystopian slums? O do you prefer Fed money printing to make up the difference? Or do you wish for wage and price controls?
“3) Think of it as applied helicopter money. Yes, helicopter money has been around for decades in the form of minimum wage legislation. Cash is being directly injected into the bottom levels by legislative fiat. It is spent and all levels benefit from this spending, including those who have to pay a higher minimum wage.”
It isn’t helicopter money. It comes out of somebody’s pocket. If Bob losses his minimum wage job, so a few other minimum wage workers can get a raise in their minimum wage, the redistribution is from the poor to the poor. If prices go up, it comes out of the consumer’s pocket. They become poorer.
Everyone in Zimbabwe became a billionaire in the local currency, yet most everyone was left impoverished.
“Ron J – Somebody has to build the robots, or the robots that will build the other robots.”
Not when the robots do it all.
“Ron J- So you are FOR government welfare for the rich, meaning government will subsidize the income and services needed to make up for the amount not covered by low wages? ”
Who pays most of the income taxes? The rich. So who is subsidizing who?
YOU’RE ALL NASCENT SOCIAL CREDITERS!
The $100/hr concept is interesting. It’s about $200k per year. The big question is: If the least skilled workers in the country make $200k per year, what are the unintended consequences?
First, about 15% of the population live in poverty, no matter what. It is attractive but not realistic to believe in Utopia.
If the lowest paid get $200k, then retirees making $50k or $60k, with now way to increase income, that much will also enter poverty.
That will mean about 30% of the population will then be in poverty, at least until retirees also benefitted from high wages.
Also, how will a massive increase in wages affect exports, about 13% of GDP? In the past 20+ years we lost millions of jobs to Asia. Was it not because of lower wages there?
Our export industry will be totally gone.
Fast food restaurants may have 30 or so workers, probably all part time. If they each make the new minimum, I would bet that will hasten the emergence of robotic fast food. A few already exist. So, maybe they now only need 6 better trained workers.
Also, there are about 1.5 million truckers. If wages go up that much. They are gone faster.
This looks pretty dismal to me so far.
What effect will the new minimum have on more skilled jobs?
What will we have to pay teachers, nurses, construction workers?
How much will it cost to build a house at that point? Boy, the bankers, are going to love it when everyone comes in looking for a $2million loan to buy a starter house.
I don’t see how this hurts the 1%. Personally, I don’t want to hurt the 1% I would like to hurt the .01% that control our gov’t.
The problems we have now are already due to manipulating the economy.
Bureaucrats are idiots. The free-markets are brilliant. We have just gone so long without actual free markets that we are starting to think manipulation is the only solution.
I think crisis will end up being the only solution.
At $200 per hour, either US exports would collapse to zero or the dollar itself would collapse
There are all kinds of potential ramifications so it is impossible to say precisely how this would play out but it would not be good
Mish
mishgea – OK, I concede $100 or $200 for a minimum wage is not a good idea, but not for your reasons. Wages that high would be inflationary, either by cost-push from high demand caused by wealthy consumers and too few goods and services available to supply them. Or via money printing from some bizarre Fed socialism not yet introduced. Imports would be off the charts. The world would prosper although how wages this high would be covered by actual customers who buy things is a bit of a mystery.
That being said, just about all arguments against a decent minimum wage are fails and are based on selective econ 101 concepts which are misunderstood in the process.
Nobody, ever, looks at the system, just the sales point. The system requires you and others to explain who pays for the cost of living not covered by a subsistence wage. Uncle Sam, meaning the taxpayer (or really the Fed or whoever buys US debt) covers the cost of services required to subsidize an artificially low minimum wage. Hence, a low minimum wage is welfare for the rich.
“That being said, just about all arguments against a decent minimum wage are fails and are based on selective econ 101 concepts which are misunderstood in the process.”
Unemployed due to a so called decent minimum wage, is a fail. Nothing occurs in a vacuum, as you would like to pretend. For each action there is an equal and opposite reaction. Pricing ones self out of the labor market will not result in employment.
Inflation and deflation complete a cycle. An economic depression occurs at the end of every long term cycle. There is no getting around the math. Economic depressions are when economies collapse. Boom always ends in bust.
Empires rise and fall. The Roman Empire does not exist any more. They had their day of bread and circuses, then came the collapse. The same can be seen now, in the U.S.
Bernanke said he was going to prevent deflation from happening here. But we are still talking about deflation and that in particular, NIRP is deflationary, which is allegedly where things are heading. Math is bigger than any central banker and any government. The laws of math never change. Bernanke never had any power to change them. He just created an illusion that he did.
Evidently Hanlon was unfamiliar with the political expedient of “plausible deniability”.
That would make him stupid by his own razor.
The Fed will simply devalue the dollar by 50% over the phase in, rendering $15 equal to the old $7.25.
Minimum wages – and their stillborn low-wage jobs – together with the vast panoply of meddling income support, housing subsidy & sundry other government social programs only serve to protect the overpaid jobs of the technician/engineer, middle management, government & supervisory employees from lower wage competition.
I’ve seen this experiment in action before. Paying someone who is only worth $10 an hour $15 does not make them more productive or a better employee. There will be a few people who are worth $15 that were under pricing themselves before, but they are few and far between.
And a lot of stores will be closing. Only the stores with the highest sales and traffic will be able to afford this. The marginal ones (and there are A LOT OF THESE) will be forced to close.
If you think low income or rural areas are store poor, you ain’t seen nothing yet. This is an unintended consequence.
Next time you go to a store and see few or no customers and employees milling around with nothing to do — that one will be gone.
I don’t understand. As we are ALL socialist now, I thought we were supposed to embrace the whole notion of equality of result, regardless of contribution. This must be terribly disappointing for Bernie.
Just when we had the livestock eating 100% sawdust, they all up and die. Who could have seen THAT coming!?
Jamba Juice Corporation is moving from $15/hour Emeryville, CA to $7.25/hour Texas.
Which reminds me, under which provision in the Constitutional powers of the congress is the authority to mandate labor contract provisions between employers and employees.
Commerce clause of US Constitution, unfortunately
Commerce clause
They are moving their HQ to Texas. I don’t think the HQ would have many minimum wage jobs.
It is idiotic to expect businesses to shoulder the costs of an already inherently cost inflationary economic system. That is the responsibility of the central bank/national credit authority which could costlessly increase everyone’s income with a direct dividend to the individual. Just more inflation you say? Nope, not with a macro-economic mechanism like a rebated discount to retail prices funded by the same institution. With those two policies that correct the flaw in the current system you’d have a roaring profit making economy, immanent individual economic freedom and the wet dream of Austrians, namely price deflation, to boot. A = A. Check your premises.
It’s likely more robots, dispensing machines, and drone tech will replace employees. Compare Japan.
https://youtu.be/7iGyQh2X8e0
Robo-Advisors: they’re a-comin’ for YOU!
http://www.wsj.com/articles/can-robo-advisers-replace-human-financial-advisers-1456715553
See you soon on the breakfast shift @ the Crystal Lake McDonald’s.
Fifteen dollars an hour only means you will hire more people as those already on the gov handouts want less hours. Who could imagine that, but that is what is going on at my bakery. I had to actually put out a memo at people either work the assigned hour or quit. I had four people quit because they would not work but a set amount of hours so they did not lose their handouts.
California will lose about 2 million jobs
From my experience, any new hire makes one of the old hires work less because they spend so much time training and or supervising the new. most jobs I worked the old hire got about 1/2 done till the new was up to speed. High employee turn over will bring the whole group down. I guess the last person I hired seem great on the interview, but was very surprised when he was expected to work. I never forget his comment: “but I showed up!”
I suppose AliExpress.com is cheering the $15 wage. It will only drive more consumers online. Stick in Americas retail it’s over cooked.v
“It is idiotic to dispute that simple truth but many do so.”
Easy to spot the person who has run a business in the room … as opposed to the ivory tower / pundit / government types….
We used to have schools that taught science, math, history and literacy. Today we focus on theory and abandon everything else that would challenge these theories.
Our country is now run by theoreticians who promote illusion over fact….because lies ALWAYS sell better than truth.
They want us to believe we can have high wages…prosperity, without work, with infinite debt, with infinite money printing, with unlimited purchase of imports, with open borders to infinite low cost labor supply and a complete divorce with reality that ignores ALL risk in the hope that its abandonment will ensure a NEW reality.
WHAT COULD POSSIBLY GO WRONG???
Sadly, even when they taught Math and Science, the schools never taught economics, which is why so many are duped by the idea that this is a good thing.
Higher wages will lead to increases in prices, and also higher tax brackets, which I think is the real push. I think people will be worse off than they were before, in relative terms.
$15.00 makes robots and and automation relatively more affordable for employers.
Look for less selection as those products and services that cannot be automated will be dropped. After the machines are bought they will be utilized to do ever increasing amounts of the limited items they can do.
Mish, the economic definition of productivity is:
“Productivity is commonly defined as a ratio between the output volume and the volume of inputs. In other words, it measures how efficiently production inputs, such as labour and capital, are being used in an economy to produce a given level of output.”
I would argue that in a twisted way, the WSJ is correct. Employers will just layoff workers and make the remaining workers produce the same level of output by working harder. By definition this will be an increase in productivity. I would argue it isn’t a positive thing, unless of course the workers let go weren’t needed to begin with, which can often be the case. Either way, the WSJ is technically correct.
Often you argue that there isn’t inflation because of the economic definition of inflation, which isn’t things costing more. To me, this is the same type of argument. Productivity will likely increase with the increase of the minimum wage, but this isn’t necessarily a good thing.
So you work a skilled job in California for $15 per hour. All of a sudden it is only minimum wage. You go to your boss and tell him you could flip burgers for this money and ask for a raise to $20 per hour.
I can fix all of this. Quit eating fast food for starters. Who needs the new $10 Whopper after price increases,
“Meanwhile the debate is on. Was this a planned occurrence by those pushing for higher minimum wages or was it an unforeseen consequence.”
As Jonathan Gruber said, the American voter is stupid.
There is nothing new under the sun. It is a planned occurrence.
Also
Does not a rise in wages just drive costs up.and then prices follow. So it’s a.death spiral, right? Unless the hiring company flat out automates, which drives wages to zero for a sector. I wish this country just had better work and useful work
This is Phase4 to create inflation to redistribute more of the retirement savings of the trapped baby boomer savers to the rest of the economy. Eliminating the wall between banks and high risk “investment” firms – Phase 1. Increased hidden management fees and 0% interest – Phase 2. Movement of 401K/IRA money market funds into Treasury debt by Oct 2016 through the new SEC regulations – Phase 3.
“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” John Maynard Keynes
“This progressive deterioration in the value of money through history is not an accident, and has had behind it two great driving forces – the impecuniosity of Governments and the superior political influence of the debtor class.” John Maynard Keynes
Correct. So why aren’t slaying both individual income scarcity and inflation with the policies of Social Credit?
Answer: A combination of orthodoxy, ignorance and misplaced puritanism.
Welcome to The Kingdom Of Moltz
OK so rising min. wage increases unhappiness by causing veteran workers to be paid the same as new workers? Except all the wage hikes listed in the chart, except 3, are scheduled for the future so where are these unhappy workers?
The only evidence offered is Gap and Walmart which raised wages on their own and…what…some people who didn’t get raises weren’t happy? In other news, it may snow in Alaska this year…
The disgruntled veteran worker now has an easier go of it if he/she decides to leave. Starting over with a new employer means at least getting the newly elevated min wage. Besides, switching companies provides for faster upward mobility.
The so called “quit rate” is the most significant metric of the labor market.
Mish, off topic but this is a must see video. (Short, not an add) showing how the EU tyranny plans to get far more extreme.
https://tallbloke.wordpress.com/2016/05/04/esm-new-eu-treaty-in-the-works-will-bankrupt-nations/
None of the Emeryville politicians who made the decision to increase min wage have run their own businesses. Zero. Here in California you can quickly tell who is of this mind set, mostly native Californians who look no further than it puts more money in the employee pocket. They do not think of all the downstream effects, including the business closing. maybe to pay for the increase cost of wages a new tax would be levied on those public employees who game the system for lofty pensions handouts, perhaps those Emeryville politicians are a few of them.
This is an interesting development. The primary beneficiaries of higher minimum wages have always been above-minimum wage workers. Why? Because they keep their jobs, and they get raises. Now it appears the minimum is being pushed so high the second part is no longer true.
As for the question, can a higher minimum wage increase productivity? Absolutely. Say there are two shops across the street from each other. As the minimum wage goes higher, one closes. The remaining shop continues to have the same number of employees, but has more volume, so the productivity is higher.
To generalize my point, any time minimum wages rises significantly, prices must also rise. Any time prices rise, volume will fall To remain viable, a business must reduce labor faster than volume falls, meaning productivity rises. One example, I gave above – some shops closing in retail or service industries. Another example would be in manufacturing, where a shop replaces humans with automation. Employment falls faster than volume, so productivity rises.
Unable to read the Comments. Link goes to next article. They must be hilarious.
“I’m unhappy because I got a raise to $15! Oh woe is me. I think I’ll quit my job and move to where my skills pay less.”
“I hope this Unhappiness does not spread.”
“God Bless the Wall Street Journal.”
Mish,
If you were a Manager at the Gap or Walmart making $9.95/hr and got bumped to $15.00/hr how upset would you be?
Ed
________________________________
The question is poorly placed as it does not consider the lost jobs and overall affect on employment and prices. If you are one no longer employed by one of the smaller WalMart’s closing, or ten small rural stores close and the planned to be build Walmart is never built, or you are one of the dozens of producers of small Walmart products, now laid off, because your product sales now drop 10 percent. BTW, mangers at Walmart make more then $9.95 per hour.
Uh, they are free to find new jobs if they are so unhappy. I mean that is how professional people do it without this huge sense of entitlement & arrogance that these minimal wage minimally skilled employees (mostly especially in retail) have.
I’ve often thought that we shold abolish the minimum wage and impose a maximum wage instead.. If companies retained more profit from high paying execs, then they would have an incentive to expand and hire more low skilled people. Minimum wage is simply low skill discrimination.
Besides, it’s not possible that Larry Ellison was THAT valuable to Oracle.
I expect that some people won’t have any problems in rebutting with basic economics in replies…