WHEN WILL THE BLOW-BACK AGAINST THE MINIMUM WAGE HEAT-UP?

This past week, WalMart reported an earnings decline of seven percent during the first quarter of 2015, as compared to the same quarter last year.  Now, don’t get out the crying towels just yet, since Walmart still had profit of $3.54 billion during the quarter.  The world’s largest retailer suggested several reasons for the shortfall:  the strong dollar; a shift toward more on-line buying; shoppers pocketing tax-refunds (rather than spending them); consumers paying-down debt; unseasonably bad weather; the company’s recently reported increase in its minimum wage to $9.00; and expenses attributed to new marketing strategies.

Of all the potential reasons for the shortfall, and perhaps there are others, the media has been focusing on Walmart’s recent minimum wage, which will be further increased to $10.00 next year.  The Republican Party has constantly been predicting that higher minimum wages will result in job losses.  But, even at $10.00 per hour, and working a standard 50 weeks, at 40 hours per week, that would only provide an annual income of $20,000–hardly enough to live on.  Most employees who work for the minimum wage, by the way, do not earn any benefits or paid vacation–not even sick days.

Predictions of job losses due to a higher minimum wage, however, are not based on any reliable studies.  Unlike the wealthy, lower wage workers tend to spend their extra income.  Thus, increased consumer spending expands the economy and, due to the multiplier effect, can result in even more jobs–rather than less.  Higher earnings also add to the tax rolls.

Now, Walmart’s earnings report was just announced on Wednesday. I do not believe, however, that we have heard the last of blaming the increase in the minimum wage for the earnings decline.  In fact, the same politicians who have been predicting the resultant job losses are many of the same people who, when President Obama pushed a watered-down Stimulus Package through Congress soon after his first Inauguration, also predicted:  higher unemployment; a spike in inflation; skyrocketing debt; a bond rating downgrade and that no one would buy our Treasury bonds.  None of that has happened!  Rather, I believe that we will find predictions of job losses due to minimum wage increases to also be just another smokescreen from the “Right”!

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  1. #1 by Cre8tive Clyde on May 24, 2015 - 9:27 PM

    In Seattle, where the minimum wage is going to $15 in the next few years, a restaurant we go to has raised its minimum wage to $15 immediately and eliminated all tipping. And the prices reflect that change. Here is their announcement card that appears with their menu.

    “The City of Seattle’s new minimum wage law went into effect on April 1, and we have now changed the way we pay our employees, so tipping is no longer necessary.

    Rather than phase in the wage increase over time, we have taken all of our employees to a minimum of $15 an hour immediately. In addition, we have created a revenue sharing program for the entire hourly team. Menu pricing has been increased to be inclusive of service, and 100% of that increase is being distributed among the hourly staff, both front and back of the house.

    Thank you for your patronage, and we hope you enjoy your dining experience with us today!”

    Now for the unintended consequences: we asked our server what had changed for him under the new policy. He said he now averaged $17 per hour whereas before the change he averaged $20 per hour, so he experienced a pay cut. They are going to approach management when they have enough data to see what might be done. (Customers can tip if they wish.)

    The second consequence is more personal and is that two very fine meals now cost us $85, and that didn’t include drinks or dessert. (Used to be around $50-$55). So, we will not be able to enjoy a restaurant we have gone to for many years (40) as frequently as in the past (eight or ten times a year).

    What the American public has to come to understand is that “There Is No Free Lunch.” Just basic economics. I emotionally support better pay but will not be able to financially support it. So, we are pushed back and down (being on fixed incomes and retired).

    • #2 by cheekos on May 24, 2015 - 11:16 PM

      Creative Clyde, I sympathize with your inability to keep up with the price of dining out–at that particular restaurant. First, let me suggest that, above and beyond everything else, the idea of patrons paying for the delivery of meals to their table can be questioned. Also, how do you factor-in the differential between customers who might have tipped because they wanted to, versus those who did so because they felt obligated to? Did that particular employer properly adjust his/her compensation AND pricing mechanism?

      A 61.9% (using your average meal cost) increase in the average cost of meals, versus the 15% decline in server compensation, seems to be grossly out-of-whack. Personally, I believe that your statistics might be premature, when you consider: the lack of a reliable (large enough) “random sample”; the qualitative merits of a limited sample of just one server; and perhaps the rationale for the actual Law’s incremental implementation was more appropriate. To an extent, servers do need to consider the fact that the food and beverage industry, whether we/they like it or not, is moving toward using computer pads to place orders. That will–even when factoring in a customer familiarization period–downgrade servers to little more than bus boys.

      Surely the employers may very well mismanage the implementation of their pricing mechanisms. But think: what happened to buggy whip industry employees; movie theater ushers; assembly line painters in the auto industry; etc. Anytime an industry is in a flux, implementation can and will be mismanaged. Employers, employees and clients will make mistakes and not get it right. (See my recent labor evolution post.)

      I am regarded by my Wife and Daughter as being a cheap tipper. Truth be told, however, I have actually given more than 100%, and I have also given very little. But, hey, should we really feel an obligation to compensate for bad–truly awful–service? Doesn’t that merely keep bad servers in the business–those who apparently should’t be in it and, perhaps, don’t really like what they are doing? Servers can either add value to your meal, or they can ruin it! Should you pay equally for both? Hmm?

      • #3 by Cre8tive Clyde on May 25, 2015 - 5:29 AM

        You are correct, of course. One sample does not a data base make. I’m an Industrial Engineer in my working life so understand statistics quite well. We would have to have a random sample of at least 30 customers to begin to get anything statistically valid. However it may turn out, it has been priced out of our reach except for true special occasions. Such is life. And your observation about disruptive technology is spot on. It is going to continue and go faster. Here is a good read on the subject: “The Second Machine Age” by Brynjolfsson and McAfee.

      • #4 by cheekos on May 25, 2015 - 12:21 PM

        Creative Clyde, thanks very much for your Comments. Economist and Nobel Laureate Paul Krugman, wrote in his regular NY Times column today: http://www.nytimes.com/2015/05/25/opinion/paul-krugman-the-big-meh.html?ref=opinion. Professor Krugman provides a bit of a historical perspective to this topic, such as the industrial delays in figuring out how best to use electricity, rather than steam, in factories. Be sure to check the link to his prior column, also along these same lines. As an industrial engineer, you surely realize the divergence between Technology and Reality.

        Just consider the Moon Program, which President John F. Kennedy challenged us to accomplish–well, actually the technology folks. It took the creation and development of new tools, systems, technologies, etc, which were, in and of themselves, mere interim steps–in accomplishing the successful Moon Landing AND safe return to Earth.

        So, as the kids ask repeatedly at the beginning of “The Simpsons” animated TV show ask: “Are we there yet, are we there yet, are we there yet?” Well, maybe not quite. Or, perhaps we are there; but, we just haven’t realized it yet!

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