Note: This is a remix & blend of two earlier posts on minimum wage.
I have mixed feelings about the current minimum wage discussion. On one hand I don’t have a problem with raising it, on the other I’m not sure if $15/hour is realistic and I definitely think a lot of the arguments people are making aren’t grounded in hard data. Simply put: if you’re going to tell businesses they can easily afford to pay a certain amount in wages, you should at the very least have their balance sheets in front of you.
Locally where this conversation really started to peak my interest was when I saw memes going around discussing the fact that Washington State leads the nation in job growth AND has the highest minimum wage in the country. It’s a great story; unfortunately it’s more than a little intellectually dishonest at worse or a case of confusing cause and effect at best.
Looking at this map of Washington State’s unemployment rates tells you the real story: King and Snohomish Counties (Seattle area) have low unemployment rates, and the rest of the state has significantly higher ones. Furthermore, if you dig into area (and county) data you see rising unemployment outside of Seattle.
One has to only drive around Eastern Washington, the Olympic Peninsula, or really 60-90 minutes in any direction outside of Seattle to understand that economically there are two Washingtons. A highly affluent one, and another that straddles the worlds of barely middle class and low income.
On one of future wifey’s and I’s “Wilderness Trips” around the state, we found ourselves in a town that had more bail bondsmen than restaurants that were still in business. It’s worth noting that we were only about an hour away from Seattle by Ferry.
Job growth in WA is really a story about the growth of the tech industry in Seattle, as the metro area has seen a 12% growth in tech jobs over the past two years (#1 in the country), and 43% in tech employment from 2001-2011. All of those high paying jobs and the requisite spending on cars, real estate, groceries, restaurants, etc., is what is driving Seattle’s job growth.
It’s worth noting that over the 2001-2011 time period tech employment grew by 43%, and the median income of the Seattle area rose by 33%. Meanwhile during that same period of time, median household income was dropping in the country overall.
Job growth in the Seattle area isn’t a story about the success of a higher minimum wage; it’s a story about Microsoft, Amazon and a high-income city driving economic growth across the board. A city whose residents can absorb the price increases.
A $15/hour minimum wage would probably work in Seattle, but how is that going to play in cities where people don’t earn as much?
Can we really talk about a $15/hour minimum wage in Seattle and Milwaukee as if the impact, and ability of local businesses to pay and the market to support it are the same?
Again, Seattle’s median income is about double the median income in many midwestern and southern cities, AND Seattle has multiple close in suburbs/small cities with populations approaching 100k & median incomes in the $85-$100k range.
This isn’t about politics, ideology or being “for the worker” per se, it just comes down to the financial realities of making minimum wage less than 1/2 the median in one city ($15/hour = $31,200) and +/- 10-15% of the current median in another.
I.e. you can’t argue a mathematical situation with ideology, nor can you compare past minimum wage increases of 10-20% to an increase that it’s in the 40-90% range (raising current minimums to $15/hour) due to the vast difference in magnitude.
Nothing happens in a vacuum, and perhaps that’s the biggest issue I have with this discussion: many of the proponents of the $15/hour seem to think there is a magical pot of money available to cover the wage increases, you don’t have to consider the differences in local labor markets and there will be NO negative impacts.
Again, I’m not advocating against raising minimum wage in general or that doing so will destroy jobs, instead, I’m questioning the wisdom of uniformly fighting for $15/hour without considering the mathematical realities of the local markets first.
Instead I think we need mathematical and market driven approach to the minimum wage situation:
We set a new national wage floor that’s in the $9-$10 range.
For areas deemed high income (like Seattle) we have a formula that would set the minimum wage at say 40-50% of the median income of that area, up to a certain cap. I’m proposing the cap because otherwise the minimum wage in some small cities outside of Seattle (and other affluent cities) would be in the $20-$22+ range, and it’s just not realistic that markets and businesses can sustain paying people in the mid 40s to work at many small businesses that pay minimum wage.
Remember, in most cases it’s not the 1% paying minimum wage, it’s a small local business owner who earns a middle to upper middle income from his or her business, and while these businesses can absorb wage increases in the 10-20% range, but it’s a totally different story when we start talking about doubling wage costs.
Either way, until both sides of this debate come together and have a realistic conversation based on the financial reality many businesses operate under, the situation seems ripe for either failure or fairly significant unintended consequences. “You have plenty of money, pay it and if you say no you’re greedy”, isn’t exactly a valid mathematical argument, which is exactly what this discussion needs.
The McDonald’s situation is a perfect case in point:
As I noted before, a McDonald’s franchise is a local small business. The financials of the Franchisor (McDonald’s Corp) are totally separate from your local franchise. Just because McDonald’s could absorb higher costs at its corporate owned stores, doesn’t mean that Joe local franchisee can. Case in point: the typical wage costs at a franchise run at about 24% of that location’s revenue and the franchise owner is making about $0.05 on the dollar. Meanwhile the salary of the CEO of McDonald’s Corp is 0.011% of total revenue.
In other words: $0.24 of every dollar you spend at McDonald’s goes to the salaries of the people in the restaurant, $0.05 goes to a small local businesses owner and you have to spend $100.00 to contribute a penny to the CEO’s salary.
E.g. the situation with McDonald’s franchises* is more a concern around avoiding price increases that could hurt sales than it is one around greed or a business owner refusing to dip into his/her profits to pay workers.
Said fears may or may not be legit depending on the market, but when you factor in wage increases, employer’s taxes, business taxes, etc., the cost of certain meals (especially for a family) would see a marked increase. Dinner at McDonald’s going from $26 - $33 might be a big deal for some people.
Progressives fighting for income equality need to stop shooting themselves in the foot via shoddy analysis, misunderstanding cause and effect and comparing apples and oranges. It’s not helping the situation, it’s making things worse.
Being a business owner doesn’t make one magically able to pay any wage demanded by activists, and until activists, workers and business owners all sit at the table, discuss their individual realities, the realities of the markets they operate under and come up with a realistic mathematically driven decision, I suspect we’ll either see A) minimal progress B) Or a forced solution that will be rife with unforeseen consequences.
On the flip side conservatives need to stop acting like ANY minimum wage increase will destroy small business because that’s isn’t true either. People do need to be paid more, the question offered is: what is a sustainable and realistic amount?
As I noted before, a common sense, market and mathematically driven solution is what’s needed here, and while the wage increases it would produce won’t be what many activists want, it WOULD produce something sustainable and realistic.
In the end, isn’t that what everyone wants?
*To be sure you could get rid of a lot of these issues if McDonald’s were to dump the franchise model (a lot of high paying fast food chains aren’t franchises, e.g. Dick’s in Seattle), but that would come with a lot of costs and thousands of small business owners would lose their livelihoods.
Nothing happens in a vacuum.