Tag Archives: minimum wage

Profits Without Prosperity

If there’s just one item which ought to be remembered from Vice President Biden’s recent  speech in Las Vegas it’s this – If the minimum wage were to be raised to $10.10 per hour this would add $19 billion into the national economy.  For 256,000 minimum income earners in Nevada that would pay for 19 months of groceries and three months worth of rent.  [LA-AP] So, if we really are “pro-business” then this information should be well received?

Once yet again to the point of unmentionable redundancy, here’s how we measure the growth in our national economy:

GDP formula

Consumer spending + business spending + government spending + the difference between imports and exports = the GDP.  So, why all the gnashing of teeth and tearing of hair over spending?  Why not promote that which will increase consumer spending? And why the inordinate attention to national spending?   Because the tail is wagging the dog.

The titans of finance – the banking sector – are wary of inflation.  That which puts more money into the hands of middle and working class families may cause inflation – the banker’s big bug-bear.  However, they’ve not mentioned the other side of the ledger; if income levels are dropping or if they remain stagnant those same bankers might be looking at deflation.  “The opposite of inflation, deflation has the side effect of increased unemployment since there is a lower level of demand in the economy, which can lead to an economic depression. Central banks attempt to stop severe deflation, along with severe inflation, in an attempt to keep the excessive drop in prices to a minimum.”

In other words, for average families the income will be spent.  Increasing the minimum wage would put more money into local businesses – furniture, appliances, groceries, clothing, entertainment, food service, hardware and home improvement, and so on.  However, for the top .01% whose income is primarily derived from investment earnings, increasing the minimum wage is of relatively little interest.  They are more interested in The Market (read Stock Market) than in the grocery market, the furniture market, the home improvement market, or the clothing market.

Not sure how this works?  Witness the plans for Hewlett-Packard to split up:

A close follower of the company’s stock price, Ms. Whitman may have also decided that the two separate companies would be worth more on Wall Street. Since Ms. Whitman became chief in September 2011, HP shares have risen about 50 percent. [NYT

HP also confirmed the split will result in the loss of another 5,000 jobs, in addition to the 45,000-50,000 layoffs announced with the company’s second quarterly earnings report for 2014 back in May. HP plans to invest the money saved in research and development, and projects full year non-GAAP (Generally accepted accounting principles) earnings of $3.83-$4.03 per share in 2015, not including one-time tax costs of the split. The companies will each have more than $57 billion in annual revenue.” [SDTimes]

There are structural reasons for the split, but the bottom line is that investors have decided the corporation would be more profitable split into at least two entities. And those 5,000 jobs lost?  The layoffs announced in May 2014?  The Market won’t be bothered by those at all; the value of the stock will increase whether or not the former employees are able to find new jobs, or have money to spend on housing, food, clothing, entertainment, furniture, etc.   The value of the stock is the pinnacle of success in the “Shareholder Value” construct of modern American capitalism.  There’s really nothing dramatically new about this – when share value for the sake of share value becomes the primary force in management then other considerations are necessarily secondary.

Hewlett-Packard’s focus on shareholder value isn’t unique either. Remember how the old Trickle Down Hoax was supposed to work? Corporations were supposed to have more revenue to invest on research and development, more to spend on expansion and hiring, more to spend on marketing and product sales?  Not. So. Much.

“Instead of investing in new plants, equipment and products, instead of paying their taxes and giving a long-overdue raise to their employees, big corporations are spending their record profits — plus gobs of newly borrowed money — to buy back their own shares and those of other companies.” [WaPo May 2014]

And we’re not speaking of just a few corporations, and the arithmetic is fairly simple:

“Meanwhile, the corporations of the Standard & Poor’s 500-stock index spent $477 billion last year (2013)  buying back their own shares, a 29 percent increase over 2012 and the most since the peak year of 2007. The idea behind buybacks is that they are a tax-advantaged way to return profits to shareholders by boosting the market price of their shares. Since the stock market tends to value companies by multiplying the profits per share times the number of shares, reducing the number of outstanding shares has the arithmetic effect of boosting the stock price. [WaPo May 2014]

During 2013 this “tax advantaged way to return profits to shareholders” was applied by 80% of the companies on the S&P 500.  This is precisely how Wall Street and the Corner Offices can see profits without prosperity. What we need to observe is the interplay between value creation and value extraction.  The Harvard Business Review explains:

“For three decades I’ve been studying how the resource allocation decisions of major U.S. corporations influence the relationship between value creation and value extraction, and how that relationship affects the U.S. economy. From the end of World War II until the late 1970s, a retain-and-reinvest approach to resource allocation prevailed at major U.S. corporations. They retained earnings and reinvested them in increasing their capabilities, first and foremost in the employees who helped make firms more competitive. They provided workers with higher incomes and greater job security, thus contributing to equitable, stable economic growth—what I call “sustainable prosperity.”

This pattern began to break down in the late 1970s, giving way to a downsize-and-distribute regime of reducing costs and then distributing the freed-up cash to financial interests, particularly shareholders. By favoring value extraction over value creation, this approach has contributed to employment instability and income inequality.”

Does that last sentence sound familiar?  So, we know that stock buybacks were popular as of 2013, how about 2014 – it’s now reported (Bloomberg) that 95% of the S&P 500 have engaged in the activity – of value extraction rather than value creation.   The Economist chimes in on the subject:

“Over the past 12 months American firms have bought more than $500 billion of their own shares, close to a record amount. From Apple to Walmart, the most profitable and prominent companies have big buy-back schemes (see article). IBM spends twice as much on share repurchases as on research and development. Exxon has spent over $200 billion buying back its shares, enough to buy its arch-rival BP. The phenomenon is less extreme in other countries, but is becoming popular even in conservative corporate cultures. Led by firms such as Toyota and Mitsubishi, Japanese companies are buying back record amounts of their own shares.”

Yes, stock buybacks can artificially elevate share prices, and give quick bucks to the short term investors.    Someone needs to flash on a yellow caution light.

“In 2013, 38% of firms paid more in buy-backs than their cashflows could support, an unsustainable position. Some American multinationals with apparently healthy global balance sheets are, in fact, dangerously lopsided. They are borrowing heavily at home to pay for buy-backs while keeping cash abroad to avoid America’s high corporate tax rate.” [Economist]

Yet when we have a corporate compensation system which rewards share value why would the CEO of Hewlett-Packard, or IBM, or any other major corporation NOT focus on share prices? Even if they are in peril of having lopsided ledgers. Even if they are extracting more value than they are creating?  Even while they are avoiding America’s corporate taxes? The GAO calculates the actual tax rate paid by these corporations at 12.6%. [CNN]

So, instead of creating value (building new plants, new equipment, new products, paying taxes, or raising wages and salaries) the companies are busy trying to extract value at the risk of making themselves uncompetitive. The financialists, focused as they are, on short term investments, in debt incrusted corporations, are far more interested in value extraction than in value creation, and that’s how we get profitability without prosperity.

Capitalism requires value creation, a balance of consumers and producers, and the accumulation of assets. Financialism is focused on value extraction, feeds on the notion that one firm’s debt is another M&A firm’s asset, and demands that “costs” whether for plant upgrades, employee wages, or research and development not impinge on the “tax advantaged ways to return profits to shareholders.”   The Economist closes the argument: “shareholder capitalism is about growth and creation, not just dividing the spoils.”

The creation of value means investing in more products, better products, more goods, better goods, more services, better services – and now we’re back to the point at which we need to restart the conversation about how to increase aggregate demand for these goods and services – by increasing the minimum wage.

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Filed under Economy, financial regulation

One man’s expense is another man’s revenue

It’s difficult to fault them for their effort, but the right wing think tank, NPRI, toes the Friedman Line on minimum wage theory and embraced it wholeheartedly in 2010. [NPRI]

“Nevada voters don’t escape responsibility, either. They put a thoroughly destructive minimum-wage law in the state constitution by a voter initiative in 2006. Thus on July 1 of this year the state minimum wage increased to $8.25 an hour for laborers without health insurance.

Siding with demagogues and ignoring wiser counsel, voters no doubt believed they were helping low-income workers earn a higher wage. But in reality, minimum-wage laws mandate fewer job opportunities for low-skilled workers. Nobel Prize-winning economist Milton Friedman nailed it when he called the minimum wage “a law that is most properly described as: employers must discriminate against people with low skills.” [NPRI]

Unfortunately, there’s no There here.  Leaving the loaded language (demagogues) aside, this has been the corporate complaint since June 25, 1938 when the Fair Labor Standards Act was signed by Franklin D. Roosevelt.  In 1973 Friedman gave an interview with Playboy magazine (the one all the guys bought for the articles) in which he opined “I’ve often said the minimum-wage rate is the most anti-Negro law on the books.” [HuffPo]  Huh? Worse than the Fugitive Slave Act of 1850?   However, herein we have the origins of the mythology so ardently adopted by the radical right.

The mantra, to be recited ad nauseam, is “Minimum wage laws damage the prospects of young, minority, and unskilled workers.” That there is no substantial evidence to support this contention is dismissed because at some ethereal theoretical level the assertion is held to be “common sense.”

Yes, minimum wage level workers tend to be young, under 25, but as noted previously, they certainly aren’t all teens.  A 2012 EPI report debunks this but of ideology concisely:

“One common misconception about minimum-wage workers is that they are mostly teenagers, working part time. In fact, of the roughly 1.4 million low-wage workers who will benefit from Jan. 1 minimum wage increases in eight states, roughly 80 percent are at least 20 years old and 78 percent work at least 20 hours per week. The percentage of affected workers who fit the false stereotype of teenage, part-time workers is a mere 12 percent.”

The second fly in the ideological ointment is that somehow the labor “market” is the best determinant of the value of an employee, without any guidance from government.   At worst, this is a call to return to those wonderful old days when a carpenter in New York could expect to earn $3.49 per day or a machinist in Maryland might expect to average between $2.32 and $2.55 per day. [NBER pdf]

Most of us have a memory of our first, usually minimum wage, job and the attitude of our initial employer — who would have paid us less, but surrendered to the mandate of having to pay us at least the minimum.  Chris Rock spoke for all of us: “I used to work at McDonald’s making minimum wage. You know what that means when someone pays you minimum wage? You know what your boos was trying to say? “Hey if I could pay you less, I would, but it’s against the law.” [GoodReads]

Lost in the rhetoric of the minimum wage dispute is the upward pressure on wage levels by having set a floor beneath which wages cannot be legally justified. Cut through the weeping and clothes rending of those decrying the employment state of minorities and teens, and we’d see the corporate agenda, one in which there is less pressure for higher wages for more experienced or better educated workers because there would be no minimum below which an employer could not retreat.

Further down the drain hole, the loss of a minimum wage level ultimately means that labor is solely an input into the calculation of product or service cost.  Pious speeches about the dignity of labor, the edification of work, or the ‘value’ of our employees are reduced to the simple insertion of an expense in a spread sheet.

Speaking of ad nauseum, how many times has this blog offered the First Law of Personnel Management?  There is NO reason to hire anyone unless the staffing level is such that the demand for goods or services cannot be met with an acceptable level of customer service.  The reduction of an employee to an expense on a spread sheet demonstrates a focus on only one side of the tally.  We could as easily argue that one man’s expense provides another man’s revenue.

The continuation of that thought is simple — and does make demonstrable sense — there can be little or no economic growth without consideration given to the Demand side of the equation.  That which depresses demand decreases the level of growth.  And, what decreases demand? Poverty.

Federal Poverty Guidelines 2014Now, let’s see what this means for some workers in Nevada.  The minimum wage in Nevada is $8.25 per hour, or $7.25 per hour if the employer provides, and the employee receives, health insurance benefits. [BL]

A fast food cook in Nevada, working in our accommodation and food service sector, has a median hourly wage of $9.27.  The median annual wage for this job is $19,280.  A glance at the chart above shows that the wage earner can’t support a family of three — he or she is below the official poverty line.  The average monthly rental lease for an apartment in Las Vegas now stands at $781 per month, or $9,372 or 48% of a fast food cook’s annual median wage.

A department store security guard position has an annual median wage of $24,950, or $12.00/per hour.  This level puts the wage earner on the cusp of the poverty line for a family of four.  A person working as a home health care aide can expect median wages of $12.33 per hour, or about $25,640, insufficient to escape poverty if there are three children to support.  Running the dishwasher in a retail operation? That will yield a median wage of $12.49 for some hot sweaty work, or approximately $25,990 per year. Again, the wage earner can barely support a family of four, and five sinks the ship.

Notice that none of these examples are necessarily of minimum wage paying jobs — the nature of the median being what it is — some are earning above the level reported, and the other half below.  Now, imagine a setting in which there was no floor beneath the wage levels for these common jobs.  If the median annual earnings of a salesperson in a Nevada clothing store stands at $22.430, or about $10.78 per hour — what happens if there is no minimum below which the “labor cost” cannot go?  Our “median salesperson” cannot support a family of four, and is on the edge for a family of three.  Basic utilities in Las Vegas will average $151.21 per month [Numbeo] add that to the average apartment/housing expense and there’s precious little to expend on groceries, transportation, medical, and other household budget items.

A person would have to be singularly obsessed with the expense side of the ledger not to notice that our median salespersons, dish washers, security guards, and fast food cooks, aren’t contributing as fully to the “one man’s expense is another man’s revenue” formula as much as they could were their wages increased.

Not only is the argument that minimum wages “hurt” workers regressive and foolish, but it’s also counter-productive in terms of overall economic growth.

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Filed under Economy, Politics

Heller and the ALEC by the back door minimum wage issue

Heller 2Yesterday’s post concerned Senator Dean Heller’s (R-NV) decision to support the Republican filibuster of an increase in the federal minimum wage, focusing primarily on the economic effects and the number of Nevada workers who might be immediately affected.  However, there was a second element to Senator Heller’s objection to the measure — that the states should be the ones to raise the minimum wage levels in their jurisdictions.   As if they would?

What might prevent a state from opting to increase the minimum wage?  ALEC.

The American Legislative Exchange Council is actively working toward the goal of enacting legislation reducing minimum wages and overtime pay, or stopping localities from doing the same:

“Since 2011, politicians backed by the American Legislative Exchange Council, which has hit the headlines for previous campaigns on voting rights and gun laws, have introduced 67 different laws in 25 different states on the issue.

The proposed laws are generally aimed at reducing minimum wage levels, weakening overtime protection or stopping the local creation of minimum wage laws in cities or states. Using language similar to “model bill” templates drafted by Alec, they were put forward by local politicians who are almost always Republican and affiliated with the powerful conservative group.” [TRS] (emphasis added)

Eleven of those bits of “model legislation” eventually became law, including in New Hampshire, Arizona, and Idaho.  For state legislators not inclined to do their own drafting, ALEC has conveniently provided a piece of fill-in-the-blank model legislation (pdf) for them.  In fact, according to the National Employment Law Project, ALEC is steadfastly opposed to  (1) minimum wage laws, (2) living wage legislation, (3) minimum wage laws for starting workers, (4) increases in overtime pay.  There is model legislation to preempt state efforts in all these areas. [NELP pdf]

However Jeffersonian Senator Heller may wish to sound about “state’s rights,” the design should be reasonably clear — conservative forces backed by deep pocketed corporate sponsors want to eliminate minimum wage legislation, prevent living wage bills, and preempt state and local efforts to enact protections for working people.  So, from the bully pulpit inside the Beltway, Senator Heller is free to pontificate about the desirability of state leadership in this economic realm BUT the practical effect is to toss the issue back into the state legislatures wherein ALEC can work its magic.

Nothing would please the Austerians more than to play the divide and conquer game — happily believing that lower labor costs will entice enterprises into low wage regions.   If, for example, Nevada were to eliminate its minimum wage, then in combination with other states with such draconian statutes, that would create pressure on other states to do likewise in order to be ‘competitive.’  We know this to be a pie in the sky solution because factors like transportation, infrastructure, work force experience and training, and resource availability are essential in the business location formula.  However, it does create the mixture necessary for a race to the bottom in wages and benefits. Just the sort of thing to make corporate revenues whistle and sing to the analysts.

The second problem with this plan is that while labor costs may be a major factor in manufacturing, they are not as crucial in other economic sectors.  We’ve looked at two types of retail operations before (restaurant and grocery); the important element for these small businesses is speed of service.  Long waits and long lines do not profitability make.   The more labor intensive the enterprise the more labor costs will be a factor, and this is illustrated by looking at the labor costs as a percentage of revenue for sole proprietorships, those little businesses the GOP purports to champion.)

The percentage for food service and bars is 36.74%, for agriculture 37.60%, for construction 53.64%, for health care 77.74%, for manufacturing 38.15%, for retailing 19.40%.  [BizStats]  We can drill down into the retail sector and find that the percentages are 20.43% for clothing stores, 13.66% for food and beverage establishments, and 6.48% for gas stations.   Indeed, for all those little sole proprietorship Mom and Pop stores to whom the Republicans appeal for support — the highest percentage never goes above 35%. [BizStats]

If we draw back and look at a large picture of productivity and worker compensation there’s not much to support Senator Heller’s apparent inclination to race to the bottom there either.

Labor productivity, as defined by output per hour, increased in 63% of the 52 service related and mining industries according to a BLS Study (pdf) using 2011 figures.  “Unit labor costs fell in 11 of 47 service providing industries Unit labor costs declined more frequently in industries where productivity rose, as productivity gains offset movements in hourly compensation.” [BLS pdf]

If productivity is increasing and unit labor costs are decreasing, then why would Senator Heller and his allies in ALEC want to eliminate minimum wage laws and prevent living wage legislation?

Let’s hazard the guess that the impetus to get even more productivity (more work per hour) at even less cost has everything in the world to do with Wall Street and not a heck of a lot to do with Main Street.

Nothing so delights the financial markets as the prospect of creating more “shareholder value” by reducing the inputs — reduced costs for materials, reduced costs for fixed assets, reduced costs for depreciation, reduced costs for employee (read: worker not CEO) compensation.  As the lady once said of the turtles:  It’s earnings reports, earnings reports, earnings reports, all the way down to the bottom.  [CarnegieScience]

And there we have it. It’s workers — racing all the way to the bottom, with no federal minimum wage to underpin their economic security — it’s American workers being told that if their counterparts in China are willing to work for $1.74 per hour then they are being “overpaid” here.  And — with Senator Heller’s state’s rights excuse greasing the downward ramp.

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Filed under Economy, Heller, Politics

Heller: 0.01% trumps Nevada’s 15%

Heller 2As of 2012 there were some 161,317 workers in the state of Nevada who would be directly affected by an increase in the minimum wage, out of a total workforce of approximately 1.068,842.  Of the 161,317 directly affected 139,064 were aged 20 or above.  [EPI pdf] A bit of punching on the plastic brains (read calculator) shows that 15.1% of Nevada’s workforce would be directly affected, and that 86.2% of these workers were NOT teenagers.

So, why would Senator Dean Heller (R-NV) vote to sustain the Republican filibuster of the minimum wage increase bill in the U.S. Senate? [Senate]

Senator Heller offered two explanations: (1) “Heller’s vote was rooted in his belief the minimum wage should be determined by individual states and not the federal government, “and this particular legislation is no exception,” according to his spokeswoman Chandler Smith.” [LVRJ] (2) “Smith added Heller was persuaded by a Congressional Budget Office estimate that the legislation “could cost our economy 500,000 jobs.” [LVRJ]

Let’s take the second part first — Senator Heller seems to have read one half of the report, or one half of the CBO’s conclusions.  The conclusions created a “mixed message:”  A popular Democratic proposal to raise the minimum wage to $10.10 an hour, championed by President Obama, could reduce total employment by 500,000 workers by the second half of 2016. But it would also lift 900,000 families out of poverty and increase the incomes of 16.5 million low-wage workers in an average week.” [NYT]

Evidently, it doesn’t take too much precision to convince Senator Heller to embrace half a report.  He missed the part wherein there were two options ($9.00 and $10.10) and he obviously missed this portion of the text:

In CBO’s assessment, there is a two-thirds chance that the effect of the $9.00 option would be in the range between a very slight increase in the number of jobs and a loss of 200,000 jobs. If employment increased under either option, in CBO’s judgment, it would probably be because increased demand for goods and services (resulting from the shift of income from higher-income to lower-income people) had boosted economic activity and generated more jobs than were lost as a direct result of the increase in the cost of hiring low-wage workers. [CBO pdf]

There’s our old friend “aggregate demand” again, if more workers have more money there will be more demand for goods and services and hence more employment.  Unfortunately, Senator Heller is still locked into his mantra “less regulation, more tax cuts (especially for the 0.01%), “rein in government spending” (unless that means loopholes for corporations), and supporting comprehensive energy policies (read: support the oil and gas giants and the Canadian XL Pipeline).” [Heller]  None of this is substantiated by the conclusion reached in the February 18, 2014 version of the report issued by the CBO. Nor is the conclusion all that solid.

“Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.”

With all due respect to those who toil diligently at the CBO to provide economic analysis, a conclusion that there is a 66% chance of a range of employment displacement from “very slight” to 1 million isn’t all that robust.   However, this seems sufficient to support Senator Heller’s proclivity for hugging his favorite talking points.

At the risk of over-simplifying his position, the core of it is essentially Trickle Down Hoaxsterism with Austerity for All and Prosperity for A Few.   Somehow we are to believe that cutting taxes (especially for the 0.01%) and deregulating Wall Street will “create jobs” … sometime…somewhere.  Meanwhile, social safety net programs are subsidizing the poverty level wages being paid by major corporations. [HuffPo]

Meanwhile back in the real world, and in the state of Nevada — of those 161,317 workers directly affected by an increase in the minimum wage increase 68,247 are non-Hispanic whites, another 54,572 are Hispanic, and 12,957 are African American.  [EPI pdf]

As to the argument that minimum wage jobs tend to be part time, the EPI statistics don’t support that myth either — 81,115 are full time employees.  56,971 are mid-time employment, i.e. from 20 to 34 hours per week, and only 23,230 are actually part time jobs with 20 hours per week or less.    Nor are the people working a minimum wage jobs necessarily “drop outs” — 64,606 are high school graduates, 40,187 have some college or post secondary education, 5,824 have an associate’s degree, 12,051 have bachelor-level degrees; leaving 38,639 with less than a high school diploma or its equivalent.  [EPI pdf]

The notion that when speaking of minimum wage workers we’re talking about teens, females, and drop outs isn’t sustained by the actual numbers, in fact, while there are more Nevada women holding down minimum wage jobs (83,079) there are 78,238 men trying to maintain life on the minimum wage in Nevada. [EPI pdf]

We might summarize by concluding that Senator Heller would far rather support further tax cuts for the 0.01%, and more deregulation of the Wall Street Casino, and yet more “austerity” for those who work for corporations paying below living wages, than he would care to support legislation to support at least 15% of Nevada’s working men and women.

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Filed under Economy, Heller, Politics

Work Pay Live?

Want to see what a “recovery” looks like in terms of job openings? Here’s the FRED graph:

Jobs by category 2014 Note the increasing line for total non-farm jobs, and the almost parallel line for total private sector job openings.  What can we tell from the two lines at the bottom — that government employment and jobs in education and health services have not seen the increases indicated in the total job market or in the private sector job market.

What makes the greenish line (education and health care services) line so disturbing is that two health care related sectors — health care support and health care practitioners/technical — are projected to grow by 28% and 22% respectively by 2022.  [BLS]  Education, library/media, and training positions show a projected 11% increase in this decade. [BLS]

As we might expect given a aging population, personal care assistance jobs are projected to increase to 580,800 by 2022, and home health aide positions are projected to increase to 424,200 in the same period. [BLS]  That’s the good news for job seekers, the less exciting news is that personal care aides earn an average of $19,910 per year, while home health aides earn an average of $20,820. [BLS]

The third highest projection for new jobs comes in the retail sales category, 434,700 but with average earnings of $21,110.  The only high projection category which would put an employee in ‘middle class’ territory is that of registered nurses, with a projected need for 526,800 in the next few years and estimated average earnings of $65,470 annually. [BLS]

Federal Poverty Guidelines 2014Unfortunately, what we have here is a situation in which three areas of projected high job growth over the next 18 years (personal aides, retail sales, and home health care) are jobs which would not support a family of four on a single income above the federal poverty guidelines.  The estimated $19,910 a personal care aide is estimated to earn annually would barely keep a three person family at the poverty line.

If we extrapolate the numbers, by 2022 we will have an increased number of home health aides, each earning approximately $20,820.  That’s about $10.00 per hour, or a total contribution of $8,831,844,000 to the national economy.  This sounds nice until we get out MIT’s Living Wage Calculator.

A living wage for a adult + one child in Reno, Nevada is currently calculated at $20.39 per hour. For a family of four it’s about $19.22.  [MIT]  The current estimated wage for home health aides ($10.01/yr) doesn’t come close to either living wage calculation.

How about our retail sales person?  Nationally, we’re projected to need about 434,700 more of them by 2022. The 2012 median wage in retail sales is $21,410 or about $10.29 per hour.  How does this compare to the Living Wage Calculation for Las Vegas, Nevada?  One adult + one child would need an hourly wage of $20.67 and two adults and two children would need earnings of $19.50/hr. The $10.29 isn’t close — again.

There are at least three elements to consider in all these numbers. (1) Those jobs which are now identified as high growth tend to be in low wage positions; (2) Low wage positions don’t meet the Living Wage standards; and (3) If we continue to pay relatively low wages for high growth area jobs then we can reasonably expect to have more families qualify for public assistance.

Oh, but if we raise minimum wages for employees what of the KIDS?  For starters, most minimum wage workers aren’t children. Yes, most young people start out earning minimum wages, however this group only constitutes 19.8% of all minimum wage earners. [BLS table 1]  80.2% of all minimum wage workers are over 25.

If we drill down into the table we find that those “kids” aged 16-19 comprise about 5.4% of the minimum wage workforce, and men over 25 constitute 39.4% of the minimum wage workforce, while women over 25 are 40.8% of that total.   In short, it doesn’t do for us to hide behind the kid’s jeans during any attempt to argue that raising the minimum wage will be “bad for them.”

Well, there’s always that old canard that increasing the minimum wage reduces job growth.  For all the numbers tossed into the speculative pool — the FACTS of the matter don’t match the mythology.

Once more from the MIT economic study:

“Dube’s research looks at the effects of minimum wage differentials across state borders where the minimum wage is higher on one side of the border than the other. His research looks at the service industry, which he said employs the majority of minimum wage workers. According to his findings, both the short and long term effects of the increased wage on unemployment were negligible.”

What does raising the minimum wage do?  The Dube Study looked in that corner as well:

“Finally he added that work done by economists at the Federal Reserve showed minimum wage increase led to significant increases in purchases of durable goods. “From a perspective of stimulating demand, minimum wages will tend to increase demand by increasing the purchasing power of those workers.”

So, on one hand we have negligible impact on employment levels versus significant increases in the purchases of durable goods — which one sounds like a better common sense option?

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Filed under Economy

Very Basic Business

First Law Personnel Management

For those who’ve been reading this blog for more than a week or so, the admonition above is redundant.  For this I apologize, however since the discussion is trending toward increasing the federal minimum wage level it’s time for yet another repetition.

Forget for a moment all the blather that passes for Business News in the broadcast media.  What the High Flyers are doing on Wall Street makes precious little difference to most of the businesses in these United States.   The Census Bureau tells us that as of 2008 there were 22,614,000 non-farm sole proprietorship businesses in this country, along with 3,146,000 partnerships; compared to 5,847,000 corporations.   Granted that the big money is gathered toward the big corporations, but in terms of sheer numbers of enterprises, 81.5% of the companies doing business in this country are sole proprietorships or partnerships.  [Census 745]

These are precisely the kinds of enterprises which are acutely tuned to DEMAND.   What do most people cut back when times get tight?  If the business in question is a restaurant or movie theater — expect times to get more restrictive, because one of the first things slashed are entertainment expenses.  When wages aren’t keeping up with inflation the economic fall out can be witnessed in a wide range of small business operations from accounting and tax preparation to dog grooming, to dry cleaning, and on to window replacement and home contracting services.

Focusing down on the restaurant business, the profit margins are exceedingly tight.   Low tab operations can expect a margin of about 3%, mid-range tabs yield about 3.5%, but the high end establishments may be functioning on as little as 1.8%.  Those restaurants classified as “limited” service may make as much as 6%.  [HoustonChron]

The Complaint Department

It’s entirely too simplistic to argue that because the profit margin of the hypothetical Pandemic Pizzeria is a tenuous 2% that it cannot “afford” to pay its employees a higher minimum wage.  This complaint works IF and only IF no one else’s wages are increasing at the same time.  After all, it’s the wages of the other people which create the demand for the pizza, no restaurant would ever make a profit selling only to its own staff.

Another overly simplistic complaint is that raising the minimum wage will “cost jobs.”  Stop and think for a moment — don’t most firms, especially small businesses, already follow the first law of personnel management?  I’ve yet to eat in a family owned restaurant in which I didn’t have to be patient for a few minutes before the wait staff could get to me.   The most common expression I’ve heard is, ” Be with you in just a second.”  Thus, I’d conclude that there is no one working there who isn’t engaged in cooking or delivering the food; meaning there are no extraneous staff members.   Now think, what do we do when the wait time isn’t a matter of a few minutes of menu reading — when the wait time is more than 30 minutes?

The prized “speed of service” goal in our hypothetical casual pizzeria is 10 minutes. [FSW] The “sos” time will be longer in a full service establishment, and shorter in a “smoothie shop.”  Slower service (usually a function of being short staffed) cuts two ways: There is a higher probability of lost repeat customers; and, slower table turnover — cutting further into the profit margin.   This concept applies to other kinds of firms as well:

“It might seem obvious to people that raising wages will cause companies to hire fewer people. But not when you think it through. Well-run companies employ the right number of people to handle the demand for the goods or services they produce. They don’t just have extra people sitting around reading the newspaper, who they will lay off if they have to pay a couple of dollars more an hour.

Picture a store with only one cashier and 20 people in line. Pretty soon people get impatient and leave. A sensible manager is going to put the right number of cashiers at the checkout lanes to handle the number of customers in the store.”  [Alternet]

In short, what these examples are attempting to illustrate is the obvious:  Those companies which have hired the right number of people to staff their operations determine the correctness of that number in terms of customer or client service — the foundation of creating a demand for their products and services.  Bottom Line: A well run firm will hire the number of people it needs to meet customer demand at an acceptable level of customer service.

Therefore, we ought to be extremely cautious when reading “studies” of the reactions of business owners who quickly proclaim that increasing the minimum wage would “cause them to not hire people.”  If I ask the question: Do you think you would cut back on hiring if the minimum wage were increased?”  Don’t we all believe that the instant answer would be “Yes?”

However, there’s a difference between the Instant Impression Answer and the hard reality of running a small business, and the difference is — how does the business owner manage customer service?

If the small grocery owner decides its acceptable for customers to be lined up 10 deep at the registers, what happens to his or her trade?  If a restaurant owner presumes that people will sit 30 minutes before an order is taken, what happens to his or her traffic?  If one small contractor can get a bathroom renovated in one week while another with fewer employees can only guess the job will require two weeks or more, who gets the contract?

These aren’t questions which are answered by looking at the wages and benefits of the employees, they can only be addressed as functions of how much demand can the firm create and sustain.

Class dismissed.

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Marching Down The Aisle With Capitalism

The Nevada Progressive nails it in Marco’s Masquerade.  We should have seen this coming, the Republican answer to poverty in America is (drum roll please) Marriage.  Not necessarily marriage for members of the LBGT community, but that good old fashioned march to the altar for the right people.

The Numbers Don’t Add Up

First, if we buy into the Republican stereotypical person in poverty the individual in question would be a single mother and member of an ethnic minority community, which goes absolutely nowhere toward explaining that of the 20% of Nevadan adults who have earnings below the poverty line the gender categories are almost identical. [Kaiser FF] There’s 1% difference.

Secondly, 22% of Nevada citizens living in poverty do not have children, while 17% do.   There is something to the ethnic minority figures.  Of the people in Nevada living with below poverty line earnings 15% are white, 34% are African American, and 29% are Hispanic. [KFF]  However, a better correlation might be established if we were to consider educational attainment levels.   The unemployment rate for those with less than a high school diploma stands at 12.4%,  High School diploma 8.5%, and a professional degree at 2.1%. [BLS]

And the unwed mother mythology?  In 1990, unmarried white women accounted for 57.5% of the births to unmarried women, and unmarried African American women accounted for 39.1%.  By 2008 the numbers had changed with the rate for white women increasing to 67.7% and the number for African American women dropping to 27.9%.  [Census pdf]

Finally, when we look at the numbers, a hard cold fact sets in.  “There are more married parents with incomes below the poverty line than there are never-married ones, and more food-insecure adults live in households with children headed by married couples than in ones headed by just a man or woman.” [CPER]

In short it is more common for adults caring for children on incomes below the poverty line to be married (43% married, 6% separated) than in the homes of 40% of adults earning poverty level wages who have never been married.

Married PovertyNoticing the Obvious — the major cause of poverty is not having enough money.

Yes, young people do tend to be well represented among those paid minimum wages.  Those under 25 years of age make up about 20% of our workforce, but constitute about 50% of those earning minimum wages.  However, that information is only 50% of the story.

49.4% of our hourly wage earners over the age of 25 are working for minimum wages. [BLS]  15% of men over 25 years of age are working for minimum wages, compared to 30% of women in the same age group.  [BLS Table 1]

The cherished myth is that people who start out earning minimum wages in their teens go on by dint of Horatio Alger-like effort (remembering, of course, that he married the boss’s daughter) to Do Great Things.   This is such a good story one hates to diminish it, however reality kicks in all too quickly.  The Council of Economic Advisers (pdf) cautions:

“While the United States is often seen as the land of economic opportunity, only about half of low- income Americans make it out of the lowest income distribution quintile over a 20-year period. About 40 percent of the differences in parents’ income are reflected in children’s income as they become adults, pointing to strong lingering effects from growing up in poverty.”

Capitalism Works, and We Should Let It

The corporate think tanks and their media cohorts are fond of repeating the mantra that raising the minimum wage would be a Disaster, A Disaster I Say, for American capitalism.  Employment will decline! [Forbes]  Except for one nitpicky litte detail — there’s no hard evidence this happens.    The Forbes article cited above goes to great length to offer gloom and doom predicated on the assumption that the corporation must recoup any and all losses to its bottom line (read profitability) by adjustments in productivity.  Interestingly enough nowhere in the article does its author mention the bloated executive compensation packages which somehow do not need to be adjusted to improve corporate profitability.

Forbes opines: ” The Law of Demand always works:  the higher the price of anything, the less that will be taken, and this includes labor.”  Yes, it does. However, a person should be careful here to differentiate between micro and macro economics.   If our hypothetical worker, and that seems to be the main form workers take in financialist-land, works for the Acme Widget Company, and the “cost of her labor increases,” Acme may have to adjust, but Acme isn’t where she shops for groceries.  Or, where she purchases her car. Or, where she buys clothing and furniture.   The increased wages (or, increased labor costs) become part of our old friend Aggregate Demand.

Firms cannot pay a worker more than the value the worker brings to the firm.  Raising the minimum denies more low skilled workers the opportunity to get a job and receive “on the job” training.” [Forbes]  Yes they can, and they do.   One of the prime reasons employers are anxious NOT to have high levels of employee turnover is that training is relatively expensive.   No worker, from the bottom to the top, is worth on day 365 what he was worth on day 1.  If the firm is managed rationally, then it is assumed that experienced personnel are more valuable than the rookies, and therefore more valuable — and they all started out as rookies.   Interesting, this “worker value” argument never seems to emerge when Wall Streeters speak of executive retention bonuses?

If it did, we might hear some business pundit say the unimaginable, “We can’t give more executive retention bonuses because this will deny less experienced or skilled people the opportunity to receive on the job training.” I’m not holding my breath waiting to hear that one on some business cable channel.

Capitalism could work very nicely.  If we’d let it.

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