Jan 082014
 
 January 8, 2014  Posted by on January 8, 2014 Pure Politics, US Domestic Policy, US Fiscal Policy  Add comments

Arguments over a minimum wage and a “living wage” are cyclical, and we are seeing them on the rise since The Great Divider”, Barack Obama, was elected.  His message of racial and economic divisiveness has given a foundation for the race whores like Al Sharpton and the pro-labor union folks to use to shout their heresy, including the call for a so-called “living wage” of $15.00/hr as a Dollar Sign strechedminimum wage.

As usual, their favorite targets are McDondalds and Wal Mart.

Here is what happens when you force Wal Mart to pay a minimum wage of $15.00 an hour.

  • Wal Mart employees about 2,000,000 people worldwide or 1,500,000 in the United States.
  • That is about 1% of the country’s entire workforce.
  • The average Wal Mart employee makes $8.81 an hour.
  • A forced $15.00 per hour wage would be a raise of $6.19 per hour for the average employee.
  • $6.19 per hour raise for 1.5 million people is a raise of $9,285.00 per hour for the company.
  • …or $74,428.00 per 8 hour work day…
  • …or $26,963,400 (that’s 26 BILLION…) per  year.
  • Wal Mart’s profit last year was $16,800,800.00.
  • A $15.00 per hour “living wage” would cause a loss of about TEN BILLION DOLLARS.
  • Wal Mart would go out of business, and…

Unemployment rolls would go up by 1.5 million people nationwide, raising the unemployment rate by about 2.5%.

 

Semi-retired North Georgia writer, blogger, boiled peanut salesman, fisherman, politician – baiter…and the best damn cook you know who doesn’t make a living at it.

Which do I enjoy the most? It’s a toss up between fishin’ and baiting politicians.

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  3 Responses to “Why a “living wage” would destroy jobs”

Comments (3)
  1.  

    Yes, I have questions. While I advocate a free market economy, there are some very questionable assumptions behind such reasoning. In the main, the back of the envelope math assumes that every worker is earning near minimum wage and working full time. I don’t see how this could possibly be true. It ignores Walmart’s basic strategy, which is to pay near minimum wage to offer lower prices to consumers. Walmart undoubtedly has retail pricing elasticity.

    Walmart has itself destroyed businesses (which admittedly couldn’t compete on price), and replaced those businesses with low paying jobs. Were Walmart to suddenly go out of business, other retailers would expand and new businesses would be created to replace it since the demand Walmart supplies will not vanish. There would be economic friction in the meantime, but I have to question whether jobs would really be lost. And I would imagine, especially among young workers, that there is a significant fraction of underemployed people working at Walmart and all kinds of other low paying jobs. It simply doesn’t follow that if you are working for minimum wage that you lack the skills and training to work at a higher paying job.

    In broader terms, the whole of the economy has been affected. Income inequality (though I disagree with the President that it is the “defining issue of our time”) is growing, and in professions as well. There is sufficient research on this point, but for example, the range among the lowest and highest paid employees in various professions is now 1:4, whereas 30 years ago, it was more typically 1:3. The causes of this are complex, and will likely *not* be solved with minimum wage legislation, but with a growing economy, and with reasonable regulation. I should add here that income equality is not a goal that should be sought at all. Experienced workers near the end of their careers should be paid higher wages than novices.

    This furor on the web seems to arise from the 50th anniversary of Johnson’s “War on Poverty.” I note that this has largely been successful in that the rate of poverty has declined and in that the poor are much better off than they were 50 years ago. However, I’d tend to think that current programs are largely transfer payments. This has the effect of perpetuating dependence on welfare, which does no good.

    And I might note that Boeing’s recent contract takes away substantial benefits from highly skilled workers to increase profit that will be used to buy back shares to increase share prices. Managers are compensated with stock in part. This is not true for Boeing’s factory workers. These trends worry me, and cause me to wonder if we are becoming a nation whose standard of living will decline overall to enrich a few.

    And, I completely support the notion that people should prepare themselves for responsible adulthood. Young people should prepare themselves to be productive and responsible members of society. Yet, at the same time, we are a nation. We should be united in purpose. We should adopt policies that encourage businesses to be started and people to be responsible employees. And, we should, as a nation, help those who cannot defend their own interests by all appropriate means. The specifics can be debated, of course, and that is part of the American tradition.

    •  

      Whew! First, a well thought out comment, regardless of how much (or how little) I disagree with it, is very much appreciated here Paul. Thanks!

      Paul, you bring up a number of points worth discussing, but first I want to speak directly to two items I disagree with…vehemently.

      Walmart has itself destroyed businesses…

      This is a pet peeve of mine, and I hear it over and over and it is dead wrong. Walmart buys a piece of land, builds a very large building (whose construction provides a lot of jobs, by the way), installs a bunch of shelving, puts a lot of stock on those shelves, hires a lot of people to sell that stock (over 300 employees at my local, small footprint Walmart), does a bit of local advertising, opens their doors, and waits.

      And that’s all they do. People are not taken at gunpoint to the local Walmart and made to spend their money there rather than at the small local businesses. No one is forced to abandon downtown shops and shop at Walmart…they do that on their own. Local businesses are destroyed by the local shoppers who have no loyalty and abandon those businesses that are owned by their neighbors, their childrens’ schoolmates’ parents, the people who they sit beside in church…for the sake of a couple of bucks. To reiterate…Walmart does not destroy businesses…local shoppers do.

      The second point I strongly disagree with is your contention regarding Johnson’s “war on poverty”.

      I note that this has largely been successful in that the rate of poverty has declined and in that the poor are much better off than they were 50 years ago.

      There are two problems with this. First is that Johnson’s “war on poverty” had little to do with any decline in the poverty rate…and it wasn’t intended to improve poverty. The poverty rate had been declining for well over 10 years at a pretty impressive rate before LBJ’s Great Society, and the rate neither improved no worsened with the start of the war on poverty. Johnson’s Great Society continued what had already been happening since right after WWII, the REAL cause of the lowering of the poverty rate…post war industry coming back to life.

      Nor was the war on poverty ever intended to help the poor. Its purpose was stated by LBJ in an unguarded moment in the Oval Office after signing the bill starting the war:

      There! That will keep those niggers voting Democrat for another 200 years!

      That is harsh, denigrating language, but it is what it is. Johnson’s Great Society” was designed to be nothing more than taking care of blacks, keeping them fed and clothed on the Democratic Party Plantation in return for their vote.

      Now that we’ve dispelled those two fairy tales, lets look at the rest of your comment…LOL!

      First, the timeline in the post of what happens if Walmart is forced to pay $15.00/hr is way overly simplistic, I agree. Obviously if Walmart went bust many of the jobs would be replaced by other stores opening up. The hit to the unemployment line wouldn’t be as great as indicated in the post. Point to you.

      But to the central question of the post…the $15.00 wage…those replacement jobs wouldn’t pay a “living wage” either. Take the electronics department, for example. A local mom and pop store would open and sell TV’s, basic computers, peripherals, etc, like the local Jasper TV and Electronics here where I live. The people who work there are the owner and his family…no “public jobs” there…and a couple of high school kids who unload delivery trucks, keep the shelves stocked, etc…and who would be paid minimum wage, less than the $8.00+ average pay at Walmart, and they would be part time.

      With no benefits, including no health insurance.

      Across the board in a Walmart store’s departments it would be the same…local small businesses opening to serve customers’ needs for particular types of products, having owners, not “employees”, except for part time young people. Look at any of the remaining small, local businesses, or look back to your youth…small businesses have owners and a few poorly paid staff. Unfortunately that is how retail works. With rare exception retail has never been considered a “career choice” type of job. If anything, Walmart has improved on retail pay because the stores are so big, with so many departments.

      In the case of the small mom-and-pop stores that Walmart allegedly destroyed, there was never any room for advancement. There was mom, and there was pop… That was the management team. Everybody else was basically an entry-level employee, sometimes full-time and sometimes part-time but rarely with benefits.

      Walmart, on the other hand, does have room to grow in your job because of the size of the stores. Walmart stores have anywhere from 20 to 50 employees that are considered a part of the management team, getting full-time hours plus benefits.

      Here’s a little known fact about Walmart: of all the companies in the United States the company that has created the most millionaires is Microsoft. Guess what company has created the second most millionaires?

      Walmart.

      Except by the sheer volume of the number of workers, retail has never been an economic driver. Ever since the United States ceased being an agrarian country the prime economic driver has been manufacturing, not retail, which brings us to the portion of your comment about Boeing.

      First I would like to point out what seems to be a contradiction in your comment. About midway through your comment you said:

      I should add here that income equality is not a goal that should be sought at all. Experienced workers near the end of their careers should be paid higher wages than novices.

      In your next-to-last paragraph however, using the benefits of the unions, saying:

      And I might note that Boeing’s recent contract takes away substantial benefits from highly skilled workers to increase profit that will be used to buy back shares to increase their prices.

      Those two sentences diametrically opposed each other. In the first, you acknowledge that experienced workers should be paid higher wages than novices, yet in the second you seem to support unions, which would imply that you also support pay equality, which would pay the novice the same money as the man with 20 years experience if they had the same job description. With unions, a Rivet driver is a Rivet driver is a Rivet driver, without regard for time on the job, quality of work, or quality of work habits. If you do your job well enough to avoid being fired (which is easily done in a union shop) your pay the day you start is the same as another Rivet driver that’s been driving rivets for 20 years.

      As for addressing that second sentence in a standalone manner… So what? Simply knowing that they are losing benefits does not give us enough information to know if that is right or wrong. What if they were way overpaid to start with? What if their benefits far exceeded what should be given to somebody doing their job? As an extreme example, what if you were being paid $1000 an hour to do what you do, and that your next job performance review that was reduced to $250 an hour?

      Would your employer be wrong to have done that? If you are in a job where average pay was $60 an hour and your pay was reduced from $1000 an hour to $250 an hour, you would still be way overpaid, right?

      I’m not saying the Boeing workers were way overpaid to start with and are still way overpaid… I am saying that simply the fact that their contract was reduced does not give us enough information to make a decision about the fairness of the reduction.

      You seem to have a problem with what was done with the money that was saved by the contract reduction, pointing out that it “… Will be used to buy back shares to increase share prices.”

      I have to ask again… So what?

      Boeing does not exist to build airplanes. Nor does Boeing exist to provide jobs for the workers that build those airplanes. Like every corporation in America Boeing exists for one reason… To make money. To return a profit to their shareholders. Actually, that is exactly what Boeing is legally obligated to do as a publicly held corporation… To make as much money for it shareholders that it legally can.

      In this back-and-forth we sort of gotten away from the point of the post. You get back to that in the last paragraph of your comment. People should be prepared to be responsible adults when they become adults with adult privileges. A privilege of adulthood is to marry and make babies. A responsibility that goes along with that however, is to have prepared yourself to be in a position to responsibly take care of that family you create. It’s not about income inequality or a living wage versus a minimum wage.

      Earlier in these comments we talked about avoiding poverty. I read recently about a study that shows that there are only three things necessary to avoid living in poverty, that doing these three things will give you an 80% chance of avoiding poverty.

      First, finish high school. Getting your high school diploma, without any additional formal education, gives you a huge leg up in avoiding a life of poverty.

      Second, don’t make babies until you are married. Outside of any other considerations a nuclear family is far less likely to experience poverty.

      Third, get a job. If you can’t find a job that fits your education, take a job that doesn’t, and keep looking for the “right job” while you’re working the one you have.

      A recent study shows that if you will do those three things you already have an 80% chance of avoiding poverty. Anything else you do… Improving your education, limiting the number of children you have until you can afford more, working a second job… Anything else you do improves your chances even more.

      I would actually add a fourth thing that you should do. Avoid the modern imperative that you must go to college.

      If you know specifically what you want to do with your life, and if the career you are looking toward requires a college degree, then college is fine. However, it is complete insanity to burden yourself with debt in order to spend four years drinking and partying and getting a degree that is absolutely useless just for the sake of having a degree. A degree in art history or archaeology or political science is generally little more than a waste of money, and it is stupid to start your adult life with 80 or hundred thousand dollars of debt just so you can say you have a degree while you are serving tables or flipping hamburgers.

      All of those people with jobs that do require degree have automobiles that need fixing, leaks in their plumbing that need repairing, lawnmowers and string trimmers that don’t work, additions on their homes that need to be built and wired, and a myriad of other things that require skilled labor.

      Also, right now, in the middle of this employment slump, there are 3 million jobs available in the United States, begging for skilled labor, and sometimes for unskilled labor that has a high school diploma and is willing to learn. Caterpillar alone has a few thousand jobs that start at about $20 an hour for a totally inexperienced worker… A job that five or six years down the road, after getting some skill and experience in building heavy equipment, pays up to $60 an hour… $60 an hour plus those benefits that Walmart is slammed for not paying.

      Income inequality is not the problem, and it never has been. I’ve never cared what you or Joe over there or Susan standing beside you or George who is in the back room have made, even though Joe and Susie are upper management and make boatloads of money. I don’t care how my income compares to them… I care about whether my income pays me what I’m worth to do a job that needs doing and it supports my family.

      And I did not get where I can earn that living by demanding a “living wage” when I was making $.50 an hour sweeping a motel parking lot for my first job. A first job shouldn’t pay a minimum wage or a living wage… It should pay a learning wage. A wage so you can make a little bit of money while you learn skills, work ethic, and responsibility.

      That is what will get you a living wage on down the road.

  2.  

    The math is also sloppy. You cannot increase wages by $6.19 an hour for 1.5 million people and have it cost a little over $9,000 an hour. The correct figures are $9 million an hour, and $27 million per 8 hour day. The $27 billion figure is only correct if each worker has a 362 day work year. A worker working 40 hours a week for 52 weeks would work 2080 hours, and not the 2896 implied by the math.

    The model is obviously not supported by a sound analysis of Walmart’s business. Walmart would (as it does now) spread fixed costs over a larger wage base, and incur addition payroll taxes (Social Security, for one). All of this would affect the profitability analysis.

    I suspect the same is true of the unemployment analysis, notwithstanding my earlier statement that the overall retail demand would soon generate additional jobs with other employers (were Walmart to shutter its doors), I could ignore the realities of the unemployment rate calculation and say that if adding 74,000 jobs lower the unemployment rate 0.3%, then losing 1.5 million would raise the rate by 6.1%. It’s just not that simple.

    I’m still left wondering at this post, and find myself asking, “How do you know that?”

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