The Unintended Consequences Of Minimum Wage Increases

Tyler Durden's picture

As politicians and businesses trip over each other to see who can raise the minimum wage the fastest and to what extent, the typical "totally unforeseen" consequences of central planning are being felt.

 

From a human resource perspective, workplace tension is on the rise.

Employees are increasingly expressing to managers that they're unhappy with the fact that new employees are starting at a base similar to what they are now earning, after months or years of hard work. Just as we stated a long time ago, raising the bottom tier pay will now make more senior workers feel underpaid. "They felt that they weren't able to get compensated for what they learned." said Catherine Knowles, a district manager for Mud Bay Inc. "As you're raising that bottom, it's affecting everybody." Knowles added.

Knowles went on to say that the only response that she can give the disgruntled employees at the moment,  is ironically "I'd love to be able to pay you a dollar more but there are costs. We're still in the business to make money."

Which brings us to the economic consequences. With the increase in baseline costs, businesses are now forced to decide whether or not take an additional hit to the bottom line and increase the pay of their more experienced, more skilled workers, knowing that if they don't they will look for work elsewhere. Also, if businesses do raise the pay for those in higher level roles, where are companies going to drive cost out in order to at least try and protect profit; Said otherwise, how many layoffs must occur in order to play this minimum wage game. At her three Tropical Smoothie Cafe locations, Laura Jankowski raised entry level pay for employees in order to comply with New York State law, which now mandates a $9.75 an hour minimum wage. Jankowski then had to increase the wages of the cafe's shift leaders to $10.75 an hour so they were at least compensated a bit more than a new employee. "I can't punish them" Jankowski said.

Tropical Smoothie shift leader Danny Zambito said that he'd likely leave the job if a shift leader got paid the same as an entry level position. "I personally would feel a little frustrated, we are putting in that extra work." Zambito said.

Not everyone is handling the issue like Laura Jankowski of course, as we've detailed extensively (here and here), companies such as Wal-Mart are laying off workers in droves after the decision was made to arbitrarily raise the minimum wage for all employees.

As the knee-jerk reactions regarding how to handle protestors yelling for an increased living wage while spilling their lattes and checking their iPhone's continue, these unintended consequences are going to become more and more intense. Layoffs will continue, higher prices (of labor) will be passed on to customers, and human resources will have to be bolstered in order to deal with increased employee complaints. All of which do not bode well for an economy already struggling to keep any semblance of growth alive.

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buzzsaw99's picture

i'd feel better if zh spent a tenth the time bashing exec pay as they do beating up on the poorest in this country.

gramps's picture

Well I think they've spent a lot of time bashing the crony system that has led to that pay but don't let basic economics get in the way of your retarded argument.

Lost My Shorts's picture

The argument is not retarded.  ZH always assumes the consequences of the minimum wage increase are "inintended" but how do you know that?  Perhaps it's a deliberate effort to eliminate all business models that depend on low-wage work.  Perhaps they know it will kill a lot of existing jobs and that's fine.  The jobs being eliminated don't pay enough to get the worker off the taxpayer's tab.  Good riddance.

Kissy Ass's picture

I went to hire a Mexican this morning to help me with some concrete work(a simple pad and sidewalk). 5 yards, home made not reddi-mix.

All of the fuckers in that parking lot demanded $120 for 8 hours. I ended up doing it all. I'm not paying those little fuckers $120. Not even $100. I'll give the fucks $70 for 10hrs. That's it! No more.

Wild E Coyote's picture

I live in Indonesia and pay $15 for one days work (8 hours). Why don't you move over here. 

Backin2006's picture

What, and become your slave?

IRC162's picture

Raisng the bar for minimum wage is tantamount to socialism and works hand in hand with the Fed's aspirations to inflate away the national debt. 

On wages and socialism,  rhe wage argument presented by McEmployee class is that increased wages will increase their own purchasing power. They ignore the necessary product price increases that will fund their wage increase.  In application, when minimum wage is raised, it now requires more dollars of labor to procure the same hour of labor of minimally skilled production.  Now prices of products increase, and in a free economy, prices would settle with roughly the same purchasing power that the McEmployees had before the rate hike.  However, every other purchaser in the market who did not have a wage increase, anyone who was making more than minimum wage before the wage increase, will see their purchasing power reduced.  There was no purchasing power gained by the group demanding more, and everybody but minimum wage earners suffer economic loss.

One must get ahead of the group to make any gains in life relative to that group

 

Lorca's Novena's picture

You ever have one of em jump in the bed of your truck while you were leaving the 'depot' ? I have.

Or better yet, someone did this, pick up as many you fit in the truck, say youll pay em 100 bucks for 5 hours, then drive right to the immigration department parking lot....  who was it on here that did that? lmfao

armageddon addahere's picture

'I went to hire a Mexican this morning to help me with some concrete work(a simple pad and sidewalk). 5 yards, home made not reddi-mix.

All of the fuckers in that parking lot demanded $120 for 8 hours. I ended up doing it all. I'm not paying those little fuckers $120. Not even $100. I'll give the fucks $70 for 10hrs. That's it! No more.'

 

Next time drive a rusty pickup truck instead of a brand new BMW.

Stuck on Zero's picture

If you talk to most of the small business people around here they only earn minimum wage themselves. By raising the minimum wage they will earn less, fire an employee or two and work harder, or try to raise rates. I'm talking a dry cleaner, shoe repair shop, used sports gear shop, and restaurant.

daveO's picture

It's a Democrat voter recruitment tool. Permanent unemployed = permanent Democrat. The Corporations clean up on the outsourcing and donate a portion their profits to any politician touting 'Free' trade.

True Blue's picture

Soooo.... better to have these people supported %100 by the tax-sheeple?

And when the inflation this causes has turned the buying power of $15 into what now only takes $7...

Its called minimum wage for a reason; it is a Starting wage -want more, make yourself Worth more...

TrustbutVerify's picture

How about basketball, football and baseball players salaries.  Would you like to see ZH bash those, too?  How about government workers, at all levels, whose jobs, in so many instances, are needed at all?  

While you pretend to be an advocate of the poor, tell us if any article of clothing you have was made in the USA?  Do you make ANY effort, other than the leisurely posting knee-jerk comments here, to actually make a difference?  

chunga's picture

Yes, I find it hard to believe that one of our biggest problems is that those making the least actually make too much.

LetThemEatRand's picture

The problem is very simple.  If you legislate minimum wage, you put many (mostly small) businesses out of business.  Large corporations will outsource what they can, "hire" robots for what they can't, and pay the few remaining humans the minimum.  Collective bargaining is a much better solution, because it involves contractual negotiation.  But in order to make it effective, you need to eliminate outsourcing.  Robots are here to stay and there's not shit anyone can do about that.

chunga's picture

I don't want to mandate anything but I'm a lot more sympathetic to those at the bottom of the economic food chain. These large corporations use their money to leverage everyhting but them down and have plenty of money to get fat buying their own stocks and bribing eager politicians to get what they want.

These big companies fight tooth and nail against collective bargaining, but that's what they're doing with this TPP trade deal.

LetThemEatRand's picture

I could not agree more.  But the minimum wage debate is the equivalent of asking a slave whether he wants to pick cotton or bail hay.  The problem is so much deeper.

GeezerGeek's picture

From my perspective, "bribing eager politicians to get what they want" is indicative of the root of the problem. Politicians - government at all levels - should not have the power to give anyone anything. Any time government has the power to choose winners and losers then the marketplace is distorted. But of course the governments in the USSA are all about control, rewards and punishment of constituents, etc. The "law" in the USSA is corrupt, perverted. Return it to the bounds suggested by Bastiat: "The law is the organization of the natural right of lawful defense;..." as pertains to "persons, liberties and properties." Once it surpasses those limits it indulges in plunder.

I suggest that, should we remove the ability of government to plunder individuals, many of the other problems - including the BS about minimum and maximum wages - would fade into relative insignificance. 

TrustbutVerify's picture

My argument has to do with balance in regard to who is predominantly blamed for these challenges/problems.  The popular wisdom suggests that if only CEOs, etc., got less salary all the regular employees would be A-OK.  If my memory serves me, a Wall Street Journal article from a few years ago showed math that if a CEO's salary was cut in half regular employees might end up with 2-3 cents more per hour.  Its a cloudy memory but if this is correct the 'let's lynch 'em' rhetoric is just simple overboard foolishness.  But its easy and hip to have a scapegoat so this mindset has gone wild.  

No one ever questions the individual and their choices.  How many people, young and old, now feel the necessity to pay monthly charges, recurring charges to stay connected with their (un)smartphones.  And there are other recurring charges that consitently rob from long term savings - cable TV, other internet costs.  Remember when a family had only one phone and you walked to school until maybe when you could afford it yourself you bought a used car, at age 18 or older?  How many billions of dollars are wasted for these modern day monthly drain on income?  

How many people do you know that make real effort to buy something their fellow citizen has made?  Shoes, shirts, belts, pants? You name it. Go into a store and check anything there available for purchase.  Got to have that latest foreign-made television (even though the one you have works just fine) to watch more tripe on TV!!  

And, no, in this respect times have not changed.  Just like a families or businesses budget must work - you can't fool the books. Since the 1960s we've been buidling debt - government and individual.  Its ever so easy to feel like progress is being made or that prosperity abounds as long as the borrowing of money is easy.  After a while you forget that you're borrowing.  Even as the debt balloons you fool yourself into the idea that prosperity abounds.  But someday it all has to be paid back - one way or another.  Someday what you think as the security blanket - Uncle Sam/Sugar - won't even be able to continue the Ponzi.   

Here's the news...if the progress and prosperity is based on debt ITS FAKE.  So, individuals better start thinking (perhaps for the first time in his or her adult life) for themselves...because our 'progress and prosperity' is based on debt...and its fake.  

Katos's picture

The idea originally over the minimum wage,  was the minimum that could be made and live a comfortable life. My first job,  was $2.25 an hour. The minimum wage at that time. I made enough to afford an apartment,  I had a used car, and I had money for food, clothes, and my other necessities . No I wasn't living high on the hog, but I could live on that minimumwage.  That was 50+ years ago, and the minimum wage has gone up 5.00? There's no way anyone can live on $7.25 AN hour. Even $15.00 an hour is an unliveable wage. The averageb1 bedroom apartment in America today is $1,000.00. The problem we have is greed at the top. Those that do nothing to add to the product or service, the CEOS, COOS, CORPORATE DIRECTORS, all raking in million dollar pay and bonuses, while complaining about having to pay a living wage to those who produce the results. Greed and avarice!

chunga's picture

That's why a lot of people are very angry and 94 million have dropped out.

robobbob's picture

executive pay in some cases can be disproportionate, unwarranted, absurd, and even unfair, but rarely does it rise to the level of existential for a business
this law hits small businesses right between the legs, you know, the ones that traditionally provide most job growth and economic upward mobility

aldousd's picture

The number of executives in the world is so low compared to the number of other workers that if you took all of the executives and divided their pay evenly among the 'poor' everyone gets a few dollars. And that's it. On the other hand, executives have the responsibility of running a company that ensures all of the rest of the workers have a job, and any decision they make can affect the availability of 100% of all of the other woker's salaries/wages so they had better damned well do it right... so tell me again, which one is worth more to the average worker? One that can put them out of a job, or one that can pay them $1/hour more until the company goes out of business?

847328_3527's picture

First layoff notice at UC Berkeley spurs rally, criticism of chancellor

Overall, the campus has said it expects to cut about 500 non-faculty jobs in the coming years -- about 6 percent of the workforce -- through attrition, retirements and layoffs.

http://www.mercurynews.com/education/ci_29856294/first-layoff-notice-at-...

The rest of the nation has been experiencing this for quite awhile. So they better get used to it as the Robust Recovery of their liberal leader ripples wider and deeper thru America.

Never One Roach's picture

However, Berkley people should make very intelligent barristas! they can chat with customers as they serve Mocha Decaf Frappaccinos w/ Non-Fat Milk about how great Socialism is.

Normalcy Bias's picture

Minimum Wage increases are a Win-Win for the statist politicians.

They can throw a bone to the 'gimme' vote and grow the govt dependency roles at the same time.

 

Charming Anarchist's picture

While killing off mom and pop shops at the same time!

 

 

Oh, I get it! 

The consequences of minimum wages increases are unintended! 

True Blue's picture

"Minimum" wage doubles every few years*; always lagging behind the cost of living; yet the Fed somehow keeps 'missing' its 'inflation target'... its a conundrum I tells ya.

* The only question is; is inflation a geometrical expansion or following a Fibonacci sequence...

Harry Paranockus's picture

The pre-tax equivalent of welfare in California is $37,160 or $17,87 per hour. How does $15.00 get anybody to work?

Sith1122's picture

I mentioned that in a previous post. It was used in the context that they are trying to work for a living, rather than go on the government dole. I got eaten alive for defending them.

Mini-Me's picture

Come on, progressives.  If you don't think increasing the minimum wage will not adversely affect employment, why are you phasing in the increases?  And what's so magical about $15?  Make it $150 per hour!  We'll all be stinking rich!

Never One Roach's picture

Come on! I feel kinda sorry for them. No education, can't speak English, bad service, shitty counter attitude, pimply face and sneezes into the food...and they only get paid $15/hour?

 

Seems those gems should be worth moar?

Quus Ant's picture

I demand my abiotic shit fare shoveled with smile, style and aplomb.   Aides in digestion.

MrBoompi's picture

The minimum wage needs to be uniform throughout the country otherwise the businesses in low wage states will have an advantage in the marketplace.  This is why we've lost so many jobs to other countries over the last 40 years too.  And if we want these jobs to come back we need a long-term plan to rebuild the manufacturing sector and increase tariffs on foreign-manufactured goods where appropriate.  It's either this or be willing to accept Chinese, Indian, or Vietnamese level wages and benefits.  I know this is the opposite of "free trade" as we know it but if we want to put America first there are few other ways to do it.  

Omni Consumer Product's picture

"Minimum wage needs to be uniform..."

Yeah?  Do you plan on making cost of living uniform too?  Should it cost the same to live in coastal Los Angeles as it does in Des Moines?

And how many goons with badges and guns will be needed to enforce your wage and price controls?  Will they report to a Politburo?

dchang0's picture

Tariffs and trade protectionism don't work. Just go to countries like Vietnam where it costs 50% of the price of a "luxury car" in tariffs. What that means is that only the super-rich can buy a Lexus or BMW and the rest of the country is stuck buying domestic crap.

It doesn't raise the wages of Vietnamese auto workers or improve the quality of Vietnamese-made cars. It just cuts off the availability of sometimes superior foreign goods to the middle class.

 

http://www.vietnam-briefing.com/news/vietnam-automobile-industry-enjoy-t...

 

Note this quote:

"Vietnam’s Ministry of Industry and Trade (MoIT) has announced support for the tax on imported automobiles remaining at 50 percent until then end of 2017, and has proposed a range of incentives to stimulate the country’s domestic auto industry."

Obviously, having a high tariff all these years did not stimulate the domestic auto industry in Vietnam.

 

http://asia.nikkei.com/Business/Trends/Vietnam-car-sales-boom-but-foreig...

Note this quote:

""To move from a motorbike to a car, to get the family out of the rain and dirt, is a dream that many people share in Vietnam," said Horst Herdtle, chief executive of Euro Auto, a BMW importer owned by the German carmaker."

 So, obviously, having that high tariff for years didn't make it easier for lower-middle-class families to buy cars.

 

LetThemEatRand's picture

Every single public corporation has a statement in their public filings to the effect that their executive compensation policy is designed to "attract and retain the best talent."  Of course no one in government, or elsewhere, talks about why this is bullshit.  Instead of the minimum wage, the country should legislate a maximum wage for anyone helming an entity that 1) is protected by law from personal liability of the executives (e.g., all corporations), and 2) is publicly traded.  No maximum wage for any entity that does not seek the protection of the law from personal liability of executives/shareholders, e.g., that takes personal responsibility for their actions.

christiangustafson's picture

OTTO
Asbestos worker. City of industry.

KEVIN
Yep Yep!

OTTO
French fry maker Agoura. Ha Ha that's
absurd.

KEVIN
Yeah? Well you think it's funny huh?
There's fucking (lots of) room to move
as a fry cook, man. You know I could
be manager in two years? King! God!
(egad!)

OTTO
You know Kevin, I had this wild fucking
(flippin) dream the other night.

KEVIN
I bet.

OTTO
It was with you and me and we were working
in this sleazy shithole (shabby) motel
down in Miami, Florida. And we were
bellhops and we were sixty-five years
old. It was so real it was really real,
realistic.

Krungle's picture

These articles always seem to analyze the minimum wage increase in some sort of weird vacuum, as if everything was working fine until these pesky activists started demanding more money. 

We should always start any of these discussions with inflation and the debasement of the currency. Anything else is disengenous. Someone who shows up to work 40 hours a week and does their job well should be able to earn enough to provide a roof over their heads, food and some minimal creature comforts. This is necessary for social stability and cohesion. Ignoring that is just another example of businesses externalizing costs onto the greater public. That it has to be called a "living wage" is an example of how warped our thinking has become. I don't think anyone should get rich off of flipping burgers or being a WalMart greeter or serving cappucinos. People should always be incentivized to work to better their lot. But for some fraction of people without the will to rise, nor the brains or talent to do anything else, yeah, they should be able to afford a minimum living standard. Your option is to stick everyone on the government dime. Again, externalizing costs--total bullshit. You ruin civilization, you pay for it.

Part of this is by design, as some of the more astute have aluded to. Small businesses can't afford this. So you squeeze them to death with regulations, onerous health care penalties, and rising wages. No more competition, big business wins. Wins what, I'm not sure since no one will be employed to buy anything (so, not merely externalizing social costs, but shooting your own foot off while you're at it). Of course megacorps can afford this--but they won't. They'll cut jobs so that those at the top can keep feeding. 

I also found the notion that businesses were worried that long tenured staff would leave because new people were getting more. They have nowhere to go. And new people are not getting more. They're getting the same in 2016 dollars. Or something along those lines. And that is the other issue....these articles should tell you what minimum wage got you 10, 20, 30 years ago and compare it to today. I mean I think I got more bang for my buck three decadess ago when I was working minimum wage in high school. But we'd have to address currency devaluation if we admitted that $5/hour 20 years ago had the same purchasing power as $15 today. And then we'd have to point the finger at the banks for causing this situation. And the banks, of course, cannot be blamed.

The bottom line is that we need many, many, many more good paying jobs or many, many, many less people. Or rethink how we operate civilization (that would probably be the best option, because this version blows). I think we know what TPTB is going to choose....

honestann's picture

#####  FLAT OUT WRONG  #####

-----

Why MUST an 8 year old kid (or some 20~25 year old spoiled brat) [who probably lives at home] receive $15 per hour to babysit, or mow lawns, or flip burgers or anything else?

As many others have said, by setting a minimum wage, you make it impossible for skill-free individuals from getting a start, learning what "work" means, developing skills and advancing forward.

If anyone is underpaid, THEY CAN WORK FOR THEMSELVES.

Wild E Coyote's picture

You just flushed out so much, I dont know where to begin.

Have you mowed lawn or flipped burgers?

I can also say, looking at numbers and making decisions to buy or sell something which results in random success or failure is also "skill free" to borrow your words. 

Don't be fucking arrogant. If you cannot take care of your baby and need someone to do so, is the person not worth $15 an hour? Just because you are cheap does not make their salary too high. 

Let me rephrase your last statement. If you cannot pay for the babysitter, take care of your baby yourselves. 

 

honestann's picture

Yes, when I was young (single digits) I used to babysit, mow lawns in summer (with manual mower), shovel snow (with big shovel), etc.

I never did flip burgers though.

And I got MUCH less than the equivalent of $15 per hour.

Let me ask you.  If you cannot take care of your baby and need someone to do so, is the person not worth $150 per hour?

And what does worth mean, anyway?

What if three equally talented people will do a job for me, one wants $150 per hour, another wants $15 per hour, and the other wants $1.50 per hour.  Which should I choose?  Pay $150 per hour because that will make their life easier and better?

Has it occurred to your that the person who asks for $1.50 per hour has already decided that $1.50 per hour for their help is worth more TO THEM than the free time they could otherwise spend (or anything else they could do for that matter)?

Who are you to tell them how much their time and effort is worth?

If you can tell them they are worth more than they ask, I guess you can also tell them they are worth less than they ask, right?

Who the hell are you to tell others what their time is worth?

Who the hell are you to tell others they cannot accept paid work when they want to accept paid work?

Oh, and how about my life?  If I pay someone more than the job is worth to them, what about my loss of time and quality of life?

What if the minimum wage is $1500 per hour?  How many people can produce goods or goodies worth $1500 per hour to justify their pay?  Because hiring people to do work less valuable than their pay IS DESTRUCTION.

And like I said, if people aren't being paid what they're worth, they should produce and sell goods and goodies on their own, and live the high life.

HOWEVER, I do agree that on average people receive less than half of what they're worth on average.  But that's because their employers have massive overhead due to government fees, taxes, requirements and regulations... AND... half of whatever their employees receive is stolen by government.

So you are correct to say people should have more money to spend, but for the OPPOSITE reason you think (government theft and manipulation).

richinSpirit's picture

Hoping you can consider also that there is both goernment, governance, and societal "pressure". Even stillperhaps, in all of society vs government, government can still loose...

 

...after all, government is only part of society, right?

Doesn't change that the real minimum wage is $0.

Well, maybe $189.14 if you are willing to show up in some places 'under' certain particular circumstances and talk about those a bit while writing down a few things, of course.

honestann's picture

Note that "government", "authority", "society", "nation", "state", "law" and related terms don't and can't exist.

They are pure fiction.

richinSpirit's picture

The plan is a bit more than that, but does include 'reimagining' how we interact as a people and as groups of individuals.

The 'End of The World' is an end of forms of interaction that will not respect and agree, in faith, to only interact in the 'gold-paved', incorruptable and approved ways. That is not wholesale devastation, after all The Earth is the inherritance of the meek.

Don't worry, the actions and intent (in combination) of much of "TPTB" will, unavoidably, lead them to howl in their own torment based on an unwillingness to turn from the un-allowed methods that steal and rape - willing, free, interpersonal, and compassionate interchange.

There are big things fighting at their side, or at least appearing to from our perspective, but the shit show can't not eat it's own output in a promised lake of fire. Forgiveness of some shit is available, but not forever and some things simply have results...

It would also seem carefull observation of the operation of all that has been created can even lead some to an apparent belief in a 'karma' mechanism.

Possibly because there are also:

mechan ics

mechan ists

and some kind of eternal recovery program for being involved in all that, too. ;)

Village-idiot's picture

Your post makes absolutely no sense to me.

Why don't you translate it so we can understand what you're trying to say? Into English perhaps?

richinSpirit's picture

Well, here is a suggestion for the future, and even in a bit of relevant context :)

http://www.lmgtfy.com/?q=richinSpirit+%2F2014+site%3Azerohedge.com

https://lmddgtfy.net/?q=richinSpirit%20%2F2014%20site%3Azerohedge.com

1st off, hope you are 'approved' to see that information by your google search history or whatever...

2nd off, hope what is there is the same as I wrote back to 2014, based on the 'things' recovering, editing, and returning the newspapers in some kind of cube farm...

3rd of all...

(this space intentionally left blank)

...what physically, spiritually, and in all other ways is actually what is.

 Let me know how that goes here on the boards, if you like. I may check the report I get and we could compare 'notes' online.

Excuse me, I need to spend some time laughing for a bit. ;)

JoeSoMD's picture

Sorry Krungle, I absolutely reject your argument that 40 hours of work should put a roof over your head.  I think this is a trap that many fall into, and it happened to both me and my sister.  We both had the expection that we should be able to live independently the day we left the nest.  Got us both into debt trouble at a young age.  What we forgot were the stories our parents told us of their struggle to start their lives.  Working multiple crap jobs until they got their college degrees by going to school at night.  Sharing apartments with others in nightmare neighborhoods in the Bronx so they could save money to relocate out to the Island.  (New Yorker's know what I'm saying here).  By middle age they had a house and a car.  They busted their butts for that.  There should be no expectation that if you have no skills or if you jump over a fence to get to the US you are entitled to have a roof over your head for 40 hours of low skill work a week.  The young Mexican dudes in our area, who work really hard and waaaay more than 40 hours a week, live at least 10 to a rental house (I've heard up to 30 but can't confirm that) so they can send money home.  They split for the Christian holidays around New Years for a couple of months to visit family back home.  But where this expectation came from that 40 hours should put a roof over your head I don't know.  For disclosure though - I favor a minimum wage because I am not a corporatist - but I do not believe that the minimum wage should put a roof over your head for 40 hours of work a week.  Peace brother.

malek's picture

They forgot San Francisco and Oakland on that list. $15 until 2020 if I remember correctly.