Saturday, November 18, 2006

Minimum Wage comment

The usual suspects are being rounded up now that Democrats are in charge, one of which is the federal minimum wage. This is tiresome Very tiresome. Mostly because there is so much ignorance about business and markets in general, wages in particular.

One of my least favorite bosses (whom I liked a lot better when we became peers) put it succinctly: If you want more money, what you need is a higher paying job.

That summarizes everything you need to know about wages. Someone is going to work for the minimum wage, and some people will work for less. It is not widely known, but the federal wage and hour laws do not apply to businesses under a certain volume and with a certain number of employees. I don't know exactly what those numbers are but it doesn't matter. That is why ice cream stores and other places that employ kids can get away with paying less than the federal minimum wage. That is why they are franchised, not insure that as small operations (i.e. franchised, privately-owned and operated) they will not likely be under those regulations.

That is why baby sitters don't get minimum wage unless the person paying them wants to give it to them. Although technically they are not exempt from contributing to and withholding contributions to Social Security and Medicare. (Ask some of these high-profile big shots who have been in trouble for not taking care of their maids, nannies and Au pairs.)

There is as much ignorance, too, regarding tip wages. My first ever internet post was about this subject over six years ago when my company started paying former hourly-paid employees at tipped wages. After the great outcry from those affected and their allies, we discovered that (a) the wages of those affected were already so high with unreported tips that their main penalty was reporting that little bit that the law mandated to protect the company from having to bring their $2.13/hr up to the federal minimum. And (b) very few left their jobs and the level of dining room service improved in most locations to a much better level as the word got out that we had tipped jobs. We attracted a whole different population of service people with a very different notion about the relationship between performance and income. (They worked far better, knowing that they would not be getting some "minimum" fixed hourly wage.)

No one working for a company that is covered by the federal wage and hour regulations is working for $2.13. The least that the tipped employee will earn will be (currently) $5.15. If the tipped employee fails to earn the $3.02 needed to satisfy the federal minimum, then the employer is required to supply the difference. Read the mandatory posters and the details are plain.

Not all locations are alike, but in many cafeterias the waitstaff are the best paid people in the building. In some places the paychecks are passed out for the record on the stub only, with the amount being"$0.00/void" because the basic $2.13 is not enough to cover the taxes and other deductions to cover the tips reported. The jury is still out, but the result of tip wages is a marked improvement in dining room service,with underperforming employees requesting some other position in the operation that is not paid tip wage.

I just spent a lot of time putting together a comment at hilzoy's blog at the end of a long comment thread about the minimum wage. My views are lukewarm at best and, like my unconventional opinion about the draft, are not consistent with current Progressive dogma. Here is a link to the post. And here is what I wrote:


I don't know why I bother to leave a comment at the end of such a long thread, but this is a subject to which I have given a lot of thought, having worked my entire life as a food service manager. Despite my job, I started out and am still after thirty-five years an old-fashioned Liberal and for the most part buy the party line.

But in the case of the minimum wage I am not in lock-step with Progressive dogma. Two points:

First, there is a wide spread from one place to another regarding what it costs to "live." Even withing a single metro area (I live in Atlanta Metro) what is a good wage one place is utterly inadequate in another. The single most important variable in wages is simply land costs. Where land is expensive, everything in, on and around that land is correspondingly expensive. Conversely, where land is cheap the cost of living is correspondingly low. Problem is taking advantage of the higher wages that MUST be paid to workers in the expensive areas. (Offer a dishwasher or other hourly employee to work at $5.15 per hour in an upscale area and you will soon be out of business...or washing your own dishes.) That's why tip wages operate. Tips are a way to pay for services that only last for a brief period of time in cases where hourly wages are not feasible. A tipped employee can make the equivalent of $100 per hour during a peak period, so it is not a crazy idea to pay someone else by the hour to clean the floor or wash the windows. You ain't gonna get tipped employees to do that. Etc. Etc...

Second point, and this is much more important: The Federal Minimum Wage has very little to do with the reality of earning at the lower edge of hourly paid workers. However it has a lot to do with the wages of union workers whose contracts are linked to that official "minimum." I have to admit to having skimmed past both the post and previous comments without closely reading, but I did do a word search for "union" and got only one reference ("Francis" above) who raised that very pertinent question and received no answer.

A very smart local talk show host, Neal Boortz, pointed out on his show yesterday that if any proposed increase in the Federal Minimum Wage were passed with language that would prohibit its being a factor in union agreements the proposal would crash and burn. The man is an intolerable ass, but he takes pride in that role and often, as in this case, makes a valid point.

After working all my life with the "working poor" I have to say that the federal minimum wage is not really on their list of problems. Wages are set by the marketplace, not the law. Anyone who argues otherwise is simply uninformed. My Mexican employees told me what they needed to work, not the law. And if I failed to meet their rate I would not have a reliable dish room. The same dynamic applies wherever wages are an issue. Supply and demand determine wages the same as prices.

The Federal Wage and Hour laws are sound and proper. There must be oversight and followup from the feds to insure that unprincipled employers do not exploit workers. The minimum wage has not been changed for years, but that has not prevented various states from establishing their own minimums. This strikes me as a far better remedy because the geography of the nation, reflecting the widespread differences in state and local economies, makes any minimum in the poorest area a joke in the most expensive.

The real issue has to do with the impact of the Federal Minimum Wage on union and other wages. The cascading effect of the "minimum" needs to be considered with an eye toward inflationary pressures, and I think we all know how inflation effects poor people.

My humble suggestion is that we redirect political energy to something more helpful. More affordable health and dental care would be a good start. I have seen a lot of poor people misappropriate meager resources on gambling, drinking and other vices, but I have also seen them endure uncorrected orthopedic, dental, and chronic medical conditions because seeing a doctor was not even on their radar. Unless and until medical insurance premiums become as affordable as satellite TV, fashionable clothing and the interest paid on consumer debt the minimum wage will continue to be a smoke-screen for union interests.

(And am I anti-union? Nope. I am firmly persuaded that any company with a union richly deserves to have it. The way to prevent unions is nothing more than paying them a competitive market-based wage and treating them with fairness and dignity. But that is another discussion.)

(Wish they had spell check at comment windows. I found three or four misspellings when I pasted it here. Oh, well. If that's as bad as the day gets, I'm in for a good one.)

One final word regarding those "higher paying jobs." Please refer to the boldface line above.
If you want more money, what you need is a higher paying job.
That means that anyone who isn't making as much as he or she wants needs to be seeking better employment. It may not mean leaving the company, but it may mean working to have the next job up the flow chart or another one nearby. Transferring to a department or getting trained to do more valuable work is the place to begin. Good companies are always looking for good people, those with the ethics to do a good job, get along with other employees and those the company serves, are faithful to the schedule and flexible enough to pull hard with a team when the need arises, who fill in for others when they are in trouble knowing that they will be cared for in the same way when they are in trouble.
Getting a better job may mean moving. I long ago stopped being surprised when I would ask "Why did you leave such-and-such a job?" and the answer was "We moved." If that meant they were going to a place with more promise, that may have been a good thing. But it might meant they were escaping unpaid rent (or other bills) or some legal problem without coming to terms with them. For successful people there are a few good reasons to move or leave a job. A better job, the expectation of better upward mobility and to get prepared (training) for something better are high on the list.
And of course the other way to make more money is to get (are you ready for this?) another job. Most of the best part-time employees I have worked with have used the food business as a place to earn extra income to their primary source, their full-time employer. This simple reality is almost too obvious to list, but when I hear talk of a "living wage" I wonder how some one's life has been much time is claimed by children they cannot afford, payments they cannot meet or recreational pursuits that should not be in the budget.
Budget. Crap. Don't get me started.

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