The minimum wage and teenagers

In another thread, JutGory writes:

What often gets left out of this discussion are the minimum wage workers who don’t need to pay for rent: unskilled teenagers with no work history. As some have suggested, there are people whose labor is not worth the minimum wage and I would contend that teenagers looking for an after-school job and some extra spending money make up a large percentage of that group.

The food and rent argument does not work for that group.

But, hiking the minimum wage may price them out of the labor market, as the unemployment rate for teenagers was reported to be close to 25% last summer (and was probably even higher for minorities).

First, let’s remember that teenagers are only about 16% of the workers who’d be directly effected by Obama’s proposed minimum wage increase. Natalie Sabadish and Doug Hall used Current Population Survey numbers to look at the demographics of workers earning between the current minimum wage and Obama’s proposed $9 an hour minimum.

It is a common misconception that the minimum wage workforce is comprised mostly of teenagers working part-time to make a little extra spending money. This is decidedly not the case; rather, the vast majority – 84.1 percent – of those benefitting from the proposed increase to $9.00 are at least 20 years old. This means that less than 16 percent of the workers impacted by the President’s proposal are teenagers. Additionally, about half (47.3 percent) of the 18 million affected workers are full-time employees, working at least 35 hours per week. Another 35.8 percent work between 20 and 34 hours per week, and only 16.9 percent work less than 20 hours a week. It is clear that the bulk of minimum wage workers are mid- or full-time adult employees, not teenagers or part-timers. […]

Nearly three-fifths (57.4 percent) of those affected by the President’s proposal would be women. The proposed minimum wage hike would also help workers across all races and ethnicities. Just over half (53.1 percent) of those impacted are white, non-Hispanic workers. A quarter (25.2 percent) are Hispanic, 14.8 percent are non-Hispanic African Americans, and 6.9 percent are Asian or another race.

A minimum wage increase to $9.00 would benefit mostly low- to middle-income families.

More importantly, the overwhelming majority of evidence shows that the minimum wage doesn’t increase teen unemployment.

Hristos Doucouliagos and T. D. Stanley (2009) conducted a meta-study of 64 minimum-wage studies published between 1972 and 2007 measuring the impact of minimum wages on teenage employment in the United States. When they graphed every employment estimate contained in these studies (over 1,000 in total), weighting each estimate by its statistical precision, they found that the most precise estimates were heavily clustered at or near zero employment effects.

As you can see, the overwhelming majority of results cluster around zero – that is, there is no measurable effect of the minimum wage on teenage unemployment rates. Those few that did find a noteworthy effect, are also the ones with the least statistical reliability.

So no, the minimum wage doesn’t increase unemployment among teens (or adults). And in any case, the large majority of workers who would be directly helped by a minimum wage increase are adults.

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21 Responses to The minimum wage and teenagers

  1. 1
    Doug S. says:

    And being a student is a full-time job anyway. If raising the minimum wage takes teenagers out of the labor force I have no objection.

  2. 2
    mythago says:

    As a first matter, there’s also the assumption that all teenagers are well-off enough that their only need for a job is as a source of completely optional spending money.

  3. 3
    Robert says:

    Can’t argue with your facts and figures, Amp, but I do wonder whether they reflect an environment where the driving-out of the teenage worker has already happened, so of course you don’t see any impact from new tendencies in that direction. (And there have been many, many factors in that process, and the minimum wage may not even be one of the significant ones.) I can pass an Amp Not Allowed In Colorado Springs Law, and supporters wishing to minimize its impact can point to the fact that there has been no reduction in our fair city’s Amplitude since its signing…but it’s still kind of a dick law. (Also, you have to admit that Amplitude is a wonderful name for the metric of how often you are in a place. Admit it!)

    Doug – On what planet? Show me someone for whom a standard American high school education is a full-time job, and I’ll show you someone with either a top-1% grind work ethic (good for them) or someone with a solid work ethic and severe cognitive deficits that make everything take ten times more time and work.

    And, other than your own kids, who gives a damn whether you think teenagers should have jobs? The world is choked to the brim with economic decisions that other people make for themselves, and “well I don’t think they should make that decision” is about the douchiest possible reason to offer for not caring about someone else’s decision being foreclosed. I don’t think they should make Twilight books and movies, but if someone shuts down Stephenie Meyers’ first amendment rights, I am on the barricades, brother. Holding my nose and throwing up in my mouth, and regularly losing my shit at the elemental stupidity of the fans up there with me, but on the barricades.

    As Mythago notes, there are teenagers – not as many as there used to be, perhaps, but still a whole lot of them, who NEED TO WORK. They don’t have mommy and daddy paying the rent, or a scholarship lined up for college; they have a baby and/or a rent payment and no better option at the present moment in time. I don’t think the minimum wage law is the devil keeping those kids from a better life, but I do think that their plight is one very worthy of concern from their fellow citizens. One of the reasons that I can reconcile myself pretty easily to the EITC is that it tends to go disproportionately to people like that – people struggling at the absolute bottom, but who work for a living. I find libertarian theoretical views about eeeeevil redistribution a little less compelling when the social program involves encouraging people to get a damn job.

  4. 4
    JutGory says:

    Interesting post, but it raises many questions:

    Robert:

    Can’t argue with your facts and figures, Amp, but I do wonder whether they reflect an environment where the driving-out of the teenage worker has already happened

    That is one difficulty. It is difficult to measure teen unemployment. Adult workers who NEED to make a living will keep looking for work; teenage workers who do not NEED to work may stop looking and do some other school related activity, perhaps. They do not necessarily fit within the standard definition of the “unemployed.”

    Secondly, it appears to me that the demographics may have changed. When I was growing up, almost every kid got some sort of job while in high school. Now, it seems that more children are kept so busy with other activities that many more will graduate from high school without ever having worked.

    It is a common misconception that the minimum wage workforce is comprised mostly of teenagers working part-time to make a little extra spending money.

    And, that is not what I was saying, for the record. When teenage years make up only about 11% (6 years from 14-20) out of a potential lifetime of work (14-70), one would expect them to be a small percentage of the work-force at any price. But, given that the minimum wage class of work is a sub-set of “all jobs,” you would expect teens to be a higher percentage of those workers, as they are here: 16% (whether that number is accurate, I don’t know, but won’t argue-it seems plausible). And, none of that takes into account that there is not an even distribution of people across the age ranges, which would affect the percentages further.

    However, what was not considered, is the flip-side of that: what percentage of the teenage work-force is minimum wage? There, I would expect the number to be much higher. Put another way, while teenagers make up a small percentage of the work-force, the majority of jobs available to that small percentage is predominantly minimum wage.

    From my own experience, IIRC, my first four jobs were all minimum wage jobs. You can all look at your own experience. What were you paid for your first job? I would bet that the majority of people on this blog would say “minimum wage.” We can’t all start out as big-shot graphic novelists, you know.

    And, the analysis brings up another point. In my first job, after a few weeks or so, I got a “raise,” because the minimum wage jumped 30 cents (?). It was a jump of less than 10%, I believe. The current hike contemplated by Obama is going to be 20% ($7.50 to $9.00? (I don’t know: my state is looking at different numbers right now, so the fed rate is a different conversation than the one I am paying attention to)).

    But, it seems completely implausible to say a “substantial” (whatever that means) raise in the cost of labor is NOT going to affect the consumption of labor. There must be an effect on unemployment (for both teens and adults), at some point. Otherwise, raise it to $20.00 an hour. You will have the same number of people working for more money. Of course, you will still have the same group of people who are unable to afford the items on McDonald’s newly unveiled $10.00 Menu.

    In any event, it seems to me that it would be beneficial either to allow a job to be classified as “entry-level” or “unskilled” so as to allow for an hourly wage less than the minimum wage (although I am loathe to trust politicians not to politicize what should be an economic issue), or allow a lower minimum wage for minors (despite the cries about a Little Sweatshop of Horrors). Because, otherwise, at some point, you are forcing employers to pay people more than what their labor is worth. Employers will change their behavior accordingly (hire fewer people; hire no unskilled people; raise prices; or hire over-qualified people, which is much easier to do in a bad economy).

    -Jut

  5. 5
    Ampersand says:

    JutGory:

    But, it seems completely implausible to say a “substantial” (whatever that means) raise in the cost of labor is NOT going to affect the consumption of labor. There must be an effect on unemployment (for both teens and adults), at some point. Otherwise, raise it to $20.00 an hour.

    Consider this similar argument: “But, it seems completely implausible to say a “substantial” (whatever that means) raise in the average height of humans is NOT going to affect the ability of humans to stand upright. There must be an effect on ability to stand at some point. Otherwise, people could be twenty feet tall. ”

    Of course, it is true that a twenty-foot tall person would be unable to stand. But it doesn’t follow from that that average human height couldn’t get a few inches higher than it is now, without imperiling our ability to stand upright.

    No one doubts that if the minimum wage was suddenly raised to (say) $100 an hour, that would increase unemployment. But that doesn’t tell us anything about what moderate increases in the minimum wage will do, any more than the inability of a twenty-foot person to stand tells us anything about the ability of a six-foot-six person to stand.

    The actual proposed increases in Congress have ranged from 9$ an hour to $11 an hour, iirc. The evidence is overwhelming that there is no measurable unemployment effect caused by a minimum wage that low.

    Of course, you will still have the same group of people who are unable to afford the items on McDonald’s newly unveiled $10.00 Menu.

    Currently, labor costs are about 25% of the costs of running a fast-food restaurant – or, in other words, of the dollar you pay them for a dollar burger, 25 cents goes to pay for wages. (Assuming zero margin for profit). If the minimum wage tripled from $7.25 to $21.75 (and if 100% of McDonalds employees are currently paid $7.25 an hour), then McDonalds would have to raise the cost of a dollar item to $1.50.

    Of course, in the real world McDonalds does have a profit margin, and many employees are paid more than $7.25 an hour. So actually, they’d have to raise the cost of a dollar item less than that.

    In any event, it seems to me that it would be beneficial either to allow a job to be classified as “entry-level” or “unskilled” so as to allow for an hourly wage less than the minimum wage (although I am loathe to trust politicians not to politicize what should be an economic issue), or allow a lower minimum wage for minors (despite the cries about a Little Sweatshop of Horrors). Because, otherwise, at some point, you are forcing employers to pay people more than what their labor is worth. Employers will change their behavior accordingly (hire fewer people; hire no unskilled people; raise prices; or hire over-qualified people, which is much easier to do in a bad economy).

    The evidence is overwhelming that this behavior is not caused to a reliably measurable degree by our current minimum wage level, or at the minimum wage levels currently used by any state.

    Therefore, there is no need for either “entry-level” or “unskilled” or “youth” alternative minimum wages.

    There are many reasons why this might be so. Perhaps employers are currently paying low-wage employees much less than they’re worth. Perhaps raising people’s wages causes them to increase productivity, by working harder, by being less likely to quit, and so on. Etc, etc. But at some point, you need to be willing to let your views be shaped by the facts, rather than refusing to acknowledge facts that don’t fit in with your theory.

  6. 6
    KellyK says:

    There are many reasons why this might be so. Perhaps employers are currently paying low-wage employees much less than they’re worth. Perhaps raising people’s wages causes them to increase productivity, by working harder, by being less likely to quit, and so on. Etc, etc. But at some point, you need to be willing to let your views be shaped by the facts, rather than refusing to acknowledge facts that don’t fit in with your theory.

    As one possibility, the closer you get to a decent wage, the more likely you are to be able to eat reasonably well and have a little extra money for something fun that relieves stress. For that matter, if you’re currently working 60 hours a week (stringing together multiple part-time jobs like a lo of people do), and you get a buck-fifty an hour raise, you might be able to cut back to 40 or 50 hours a week, which is going to do wonders for your overall health.

  7. 7
    Mandolin says:

    People may have made these points, but some teenagers really do need to support themselves or their families.

    There are those who live independently, from high school graduation or younger, who are not yet twenty.

    There are also those whose families do not make enough money that they can afford food and other necessities without the added wages of teenagers. In the high school where my mother taught, this was common. Where I went to high school, it was less common, but still one of my best friends worked at a grocery store so that she could not only bring in needed household income but also buy discounted food.

  8. 8
    Bunny says:

    Comment re-added following lovely email from Ampersand

    I don’t understand fully the US system of wages and the like, but, well…

    In the UK we have a staggered minimum wage. There’s the apprentice wage – designed to be a wage for teenagers living at home, who are taking on labour as a means of gaining skills and experience rather than for income. A job vacancy can only be advertised as apprentice-waged if it qualifies as an apprenticeship, has sufficient training and works towards real skilled labour that a person reasonably would benefit from a year of training for. Like carpentry. Then there’s the minimum wage for people under age 18 who are working to earn money, presumed to be living at home or likely to be at least part-time students. There’s another tier for 18-21, to encompass university students who need more of an income to cover living expenses, but are exempt from some taxes and presumed to be in receipt of either student loans or parental assistance, and the adult minimum wage kicks in at 21.

    Of course, there’s always the possibility of under-21s who for some reason are not living at home or students, and who therefore need an income that will pay the rent. We have a system of working tax credits and income-based benefits like housing benefit that people of any working age can apply for, to help top up their income. Someone working under 16 hours a week can register as unemployed and receive some benefits and assistance looking for full-time work while still receiving their part-time wage, and someone working full time but on a low income can apply for tax credits etc. It’s not a perfect system, but it helps.

    So, even if an increased minimum wage was a problem for teenagers (as your research shows, it’s not!), there’s STILL no reason to object to an increase. At most, it’s an argument to consider a tiered system.

  9. 9
    mythago says:

    There are those who live independently, from high school graduation or younger, who are not yet twenty.

    Also, “teenager” and “minor” are not synonyms. I understand JutGory very much wants this to be about optional movie money for high schoolers with comfortable lives, but it’s still sloppy.

  10. 10
    paul says:

    For those who see some kind of submininum wage for teens as a way out of this supposed conundrum, look at interns. Endless reports from interns doing unpaid clerical and scut work with zero or negligible educational component. In short, employers cheating so that they can bring in unpaid and subminimum-wage temporary workers to do jobs that would otherwise be done by workers subject to the minimum wage.

    So a “training wage” may increase teen temporary employment, but only at the cost of reducing adult employment. It’s outsourcing minus the inconvenience of sending work to another country.

  11. 11
    Robert says:

    Endless reports from interns doing unpaid clerical and scut work with zero or negligible educational component.

    If it doesn’t pay and it doesn’t teach, why are there so many people willing to do it that the reports are ‘endless’? In actuality, of course, it DOES teach – just not things that are readily reducible to line items on the transcript, and it DOES pay – just not in cash. It pays in experience, contacts, exposure to new ideas and possibilities, etc.

    In short, employers cheating so that they can bring in unpaid and subminimum-wage temporary workers to do jobs that would otherwise be done by workers subject to the minimum wage.

    Or not done. If I must pay $10 per hour for work that produces less than that amount of value to my enterprise, then I will not do the work. (If the work is somehow mandatory to my operations or to my existence, then its true value is some fraction of the enterprise’s potential profit from operations, not just its direct cash contribution.)

    So a “training wage” may increase teen temporary employment, but only at the cost of reducing adult employment.

    Probably not. As noted, if a job’s contribution to the enterprise won’t pay a grown-up’s wage, the grownup won’t be hired; a lot of those temporary teenage jobs will result in more work being done, work with lower return than will support a full-wage worker but suffices for someone getting paid less.

    Additionally, the job experience and socialization of learning to work in an enterprise at a young age are valuable contributors to the teenagers’ future employability as adults. To use me as an example, I worked in a pizza restaurant as a teenager. That job was a formative experience in my life; I learned an immense amount about functioning as an independent adult. (And to this day, I always have this kind of default orientation that, if all else fails, I can go get a job in a pizza restaurant to keep body and soul together. Admittedly, this backup scenario is helped immensely in its plausibility due to the fact that I have a sister who owns two successful pizza restaurants.)

    It’s outsourcing minus the inconvenience of sending work to another country.

    Not really. Most of the jobs that would be suitable for some kind of apprenticeship wage system are not jobs that could be outsourced to another country; they involve personal service or manipulation of tools in a local context. Maybe someone in India could run the pizza oven via telepresence, but the server and the busboy and the guy selling weed in the back parking lot all need to be there in person.

    Rather, an apprenticeship wage program would open up opportunities for young people to do work that isn’t important enough or lucrative enough to warrant hiring adults to do it. Young people need those opportunities; you have to start somewhere, within a context where mistakes are not fatally expensive and where skills and mindsets can be acquired that prepare one for greater responsibilities in future jobs.

  12. 12
    paul says:

    If you’ve been reading anything about inernships lately, Robert, you will know that they are (believed to be) a fee that one pays to an employer to improve the chance of getting a permanent job, and also serve as a filtering mechanism to reserve certain kinds of job for young people who can afford to spend months or a year working without pay. And that this implicit social contract is breaking down as internships fail to lead to advancement.

    The whole “employers pay what a job is worth, hence if it’s not worth enough they won’t hire someone for it” line, meanwhile, has been debunked repeatedly in good economic times, and has never even been assumed by economists to be true in times where job-seekers outnumber jobs by a substantial margin. Employers pay the minimum they have to pay to get a job done, regardless of what it’s actually worth to them. That spread, after all, goes directly to their bottom line.

  13. 13
    Robert says:

    For jobs that must be done, that is true. But there are obviously an infinite number of jobs that don’t need to be done; a substantial fraction of that infinite demand pool is stuff that is worthwhile, but low-margin. Jobs that are optional, we-could-do-this-if-want propositions, are (obviously) not all done regardless of cost; we’d have zero unemployment and be feverishly working on better robots if that were true.

    Core functions that an enterprise must do in order to survive will get done regardless of labor cost – IF there is still a market for the resulting product or service after the labor cost is factored in. We can raise food service wages from $7 to $10 an hour, and the price of a Big Mac from $2.50 to $3.25 to pay for it, because there is still a market for Big Macs at $3.25, even if its slightly smaller than the market at $2.50. We cannot raise food service wages to $100/hour (as most people understand perfectly well) because there is no market for Big Macs that cost $110, even in a world where a lot of people are suddenly making $100/hour.

    So your line of reasoning is not wrong as far as it goes; you are right that Microsoft won’t stop making software if suddenly the minimum wage for software developers goes from $30k to $60k. But there are a lot of jobs – millions or tens of millions, I would wager – that do not require high skill levels or great experience, just a willing set of hands. Minimum wage laws that are too optimistic about the economic value of the lowest skilled (teenagers, in this discussion) will tend to extinguish those jobs invisibly. We never see jobs that “might have been if only” – rational managers figure out that moving the rag pile from lot A to lot B would cost too much at a minimum wage level, so they don’t hire a bunch of high school kids to do the carting, and the rag pile stays where it is.

    What people believe to be true about internships may or may not be relevant to their own decision, but there is no long-term way to trick millions of people into working for genuinely no reward. Whether it is experience or dating opportunities or contacts or hopefully deluded optimism, people are getting *something* out of doing the work. I can get nothing for my time at will; I do not need to put on a suit and go to an office and file paperwork to get nothing, and I won’t. I do others the courtesy of assuming they have the same minimum intelligence.

  14. 14
    WeWantPie says:

    You know, every time this subject gets raised, somebody brings up this notion that a minimum wage set at any level at all, much less one set higher than it is now, will cause businesses to hire fewer people, thereby disproportionately harming low-skill/no-experience job seekers. And in the abstract, I get Robert’s point about some “jobs” having marginal utility and not being filled if the minimum wage is deemed too high for the value of the work.

    BUT – and forgive me if I’m just stupid or obtuse here – do rational business-owners EVER hire more people than they actually need to run their businesses? Even in flush times? Surely not in deep recessions. (Indeed, in my own experience, many a business will choose not to hire additional employees who are desperately needed, preferring to dump enormous extra workloads on current employees and threaten them with termination if they fail to manage.)

    So, let’s say I’m an entrepreneur opening up a new fast-food restaurant. If I’m any good at business, I’m going to do all the homework I can to find out exactly how many cashiers, burger-flippers, etc. I am going to need for my burger joint to succeed in that particular neighborhood. I will budget for, and hire, the bare minimum number of employees I need.

    If the minimum wage goes up $2.00, or $4.00, or disappears entirely, I will STILL hire exactly as many people, and not a single one more OR FEWER, as I need to run my business. After all, I’m not running a charity; even if some theoretical desperately poor undocumented teenager is willing to, I don’t know, fold all the napkins into origami swans for 75 cents an hour, 8 hours a day, 365 days a year, that kid is still going to cost my business almost $2200 a year that could have gone to profit. Why would I spend even that much on something that has nothing to do with running my business? (Well, maybe if my burger joint is located in a VERY twee neighborhood where origami swan napkins could bring in more business. . . naah, people in twee neighborhoods don’t generally patronize fast-food burger joints.)

    Anyhow, the point is, if my business can only function with at least X-many employees, I am going to hire X number of people. If the minimum wage rises high enough to cut too deeply into my profits, I will raise the price of my burgers – but unless I just want to take all my marbles, shut down the joint and go home (losing my business in the process) out of pique that those lesser people are making too much money, I will find a way to make it work. Isn’t that what American Can-Do Entrepreneurs are famous for?

  15. 15
    Robert says:

    No, rational business owners never hire more people than they need. Two holes, not in your logic, but in the formulation of the problem: one, they don’t always know how many they need, and finding out itself takes time and effort and person-hours (expensive person-hours). Two, “need” is usually a range. I can run a pizza restaurant with a cashier, an oven runner, and a pizza builder. Give me that crew on a Thursday afternoon, and we could probably skip the cashier and make the builder and runner take turns. Give me that crew on a Friday night at 9 pm, the line will be around the door, customers will be yelling angrily, and I’ll be sobbing in the manager’s office as I try to find enough Excedrin to go for a caffeine suicide.

    Staffing level ‘X’ produces a range of outcomes, in other words, depending on the demands on the business at the time.

    But broadly, you are correct and – as we have seen in the economic literature – modest wage increases don’t seem to fatally break these businesses. People do indeed just raise the cost of the pizza or the burger, or shift work from the charity cases they used to hire to a slightly smaller set of slightly more competent people, or automate to increase the real productivity of the folks in the stores.

    Yes, the entrepreneur can solve these kinds of problems. It’s a bit like the CAFE standards for automotive fuel economy – they work, but they also perhaps imbue the people support them with an unrealistic sense of how they work or what the limitations are. By making the CAFE standard go up bit by bit (slower than most enviros want, I imagine) it was possible for carmakers to innovate, find new materials, cut weight from vehicles, etc. If they had announced that starting tomorrow, CAFE is 200 mpg for all vehicles, it won’t spur Tony Stark to develop the new ARCcar in his lab over the weekend; he’ll say “fuck it then”, shut down Stark Automotive, and go get a kilo of cocaine and Pepper Potts and try for a cardiac infarction.

    The main danger for businesses in the minimum wage isn’t that they’ll stop operating (assuming we don’t get some genius saying ‘$20 an hour for everyone!’), it’s that the market outcome might shift to things that become more practical or more profitable with the new wage regime. This isn’t necessarily bad or good; it just isn’t the decision that consumers would have made themselves. The family has a certain amount of money for having fun this weekend; a minimum wage boost might make the heavily-staffed Putt-Putt cost $5 more to attend, while the adjoining 100% automated-projection theater that only has three kids on staff day in, day out, doesn’t raise its price at all. So the family goes to see a ‘Twilight’ movie instead of having healthful light exercise, and as a result little Billy never discovers his inner Tiger Woods and goes on to waste his life teaching children to read instead of having lots of sex with supermodels.

    But it’s really not the end of the world, if the boosts are modest and delivered with time to adjust. I think we’ll see much more economic dislocation, and already have, from expensive game-changers like the ACA.

  16. 16
    RonF says:

    The shape I’m in these days I wouldn’t need the kilo of coke, Pepper alone would finish me off.

    If the minimum wage goes up $2.00, or $4.00, or disappears entirely, I will STILL hire exactly as many people, and not a single one more OR FEWER, as I need to run my business. After all, I’m not running a charity; even if some theoretical desperately poor undocumented teenager is willing to, I don’t know, fold all the napkins into origami swans for 75 cents an hour, 8 hours a day, 365 days a year, that kid is still going to cost my business almost $2200 a year that could have gone to profit.

    But that analysis makes no allowance for making a profit off of the labor you spent the $2200 on and actually increasing the business’ overall profit.

    Brides like to see napkins folded into swans. Let’s say they’ll pay $0.02/napkin; if you try to charge more they say “forget it”. At $0.75/hr, you can make money off of the kid’s labor if he can fold, say, 45 napkins/hour. At $4.00/hr, he has to fold > 200 napkins/hr for you to make money off of his labor. He can’t. So you don’t offer the amenity and the kid has no job.

    Instead, you buy pre-folded paper napkins from China, where the workers are paid $0.00002/napkin and you can throw them away after they’re used.

  17. 17
    alex says:

    Or you get redistribution to labor from capital. (1) Business earns $15 for $8 wage, and this gets move to $10 and consumers won’t take a cost rise, then profit margins are squeezed. (2) Opportunity loss is what counts, not absolute loss. The money for pizza ovens, menus etc is already spent. If your loss making the right choice is to carry on and minimise this, not shut down and write off all the capital invested.

  18. 18
    Sebastian says:

    WeWantPie, you have no idea what you are talking about. I do not hire minimum wage people, but I see no reason why things would work in a way different from the way which they do at higher salary ranges.

    I have a small business, mostly writing complex CNC programs, but I can and will do anything related to CNCs, as long as I’ll get more out of it than what I need to put in. I used to have three people who worked outside the office, now I have only one, but I am thinking about hiring another.

    When my business became smaller, it was because small manufacturing shops died like flies 2008-2009. Now my business is growing again (i.e. I get more requests than I and Hoon can handle) not because there is a manufacturing boom in California, but because shops are trimming their setup staff to the bone, not being able to afford the higher paid people – those who can do more than install the right chuck and upload the right program two times out of three.

    The owners are firing people who have been working for them for twenty years, because they cannot afford their best people. Do you think they were idiots for having them in the first place? Do you think they are idiots for firing them now? No, they have less orders, and it’s cheaper for them to hire me to do the occasional tricky stuff, rather than to keep their own people. Am I going to do a better job than someone who has been doing a much more specific thing than me for twenty years? I would be an idiot to claim so. And of course, they will be losing business, because they will be refusing orders that need to be done quickly (and they have no one in house) or which do not bring enough profit (I have my own profit to think of)

    And some of the these orders will NOT get done. Because the customer will not be able to find anyone to write a program to mill or engrave a set of four or even just two wheels with whatever for the price he’s willing to pay. And that’s because a in-house decent designer/programmer is more expensive than the shop can afford.

    This is not a intellectual exercise I am running. This is something I see happening all the time. This is math small business owners run in their heads every day.

    It’s not ‘how many people minimum I need’. It’s ‘Can I do this for less than I’ll be paid for it?’

    All that said, I think that minimum wage is a good idea. Because it is absolutely unlikely to affect me negatively (I do not think that I have ever done anything for anyone who had a single minimum wage employee) and because it makes me feel better thinking that a bunch of people who must be struggling to make ends meet will get a raise.

    I do not feel I’m qualified to judge whether minimum wage destroys jobs, but I am absolutely positive that it could, theoretically, do so. Your argument, I’m sorry to say, rings completely hollow to me.

  19. 19
    gin-and-whiskey says:

    Anecdotally, I constantly get people who WANT to work for less than minimum. And frankly, they’d be better off if they could: it would allow me to “let” them spend 15 hours (and require 30 minutes of oversight) on learning the things that nobody knows how to do these days, like “write a business letter” or “do solid research” or “write a memo.”

    I’d be happy to hire a high school student or someone with limited education or someone who had never worked a white collar job, and give them a bit of training, and a bit of work, and pay them a few bucks an hour, just like I got when I was learning to do all the things I eventually made a career out of . Can’t do it anymore, though.

    But on a general level, I know lots and lots of people who have businesses. There is no question that there are plenty of jobs which don’t get done because they’re not worth enough money. (And don’t forget that the true cost of an employee is WAY over their minimum wage!!)

    Also, it seems very strange to simultaneously maintain that the increase in minimum wage is going to have a material effect on employees and also to maintain that the minimum wage isn’t going to have a materail effect on employers. It just doesn’t match.

    An interesting thought experiment: What if it were tied to employer size and time? IOW:

    Imagine THREE classes of minimum wage: $5/hour, $8/hour, and $10/hour. You can’t hire someone at $5/hour without permission as below–and if you do, you can only hire them for a year before you hire someone else or start paying them more. You can keep the $8/hour people for two years. You can pay $10/hour as long as you want. For the purposes of unemployment and gov’t benefits, everyone is treated as if they make $10/hour.

    If you’re a business with no more than one employee you get one at $5. (In theory you can always pay $5 but you have to keep changing every year.)

    2-5 employees you get one at $5 and the rest starting at $8.
    6-10 you get one at $5, two at $8, the rest at $10.
    11-50 you get one at $5, three at $8, the rest at $10
    51+ you get 5% (rounded down) at $5, 10% at $8, and the rest at $10.

    That allows for a small # of very low paid jobs to encourage some sort of training–people can’t stay at the $5/hour jobs even if they wanted to. And it allows for the very small businesses to work with people on some sort of apprentice or intern basis. And it does the thing which folks seems to want w/r/t the larger employers (who have to pay the full $10/hour for at least 85% of their employees.)

  20. 20
    WeWantPie says:

    Wow, I am truly impressed with the knowledge and thoroughness of the folks who responded to my post. As I said, I didn’t know whether or not what I was thinking was stupid/obtuse or not; I guess the consensus so far is, yep, it mostly was. (Forgive me – I’ve worked minimum-wage jobs, and I’ve been self-employed, but I’ve never run a business that hired other people, so I don’t have much of a basis for knowledge.)

    Sebastian, I do have some followup observations for you. First of all, you are quite right that I don’t know what I’m talking about – see above for my complete lack of experience running a small business that employs anybody other than myself. But how do you get from my post, the idea that nothing ever changes? You ask, when the market for your services contracts and people in your business have to fire some of their best employees, do I think they were “idiots” to hire them twenty years ago? Of course not, and what in my post would suggest that I did? Obviously, conditions and circumstances change over time, sometimes very dramatically.

    Also, although my abysmal ignorance of your particular business exceeds by orders of magnitude my already-demonstrated cluelessness about small businesses in general, I completely get (and thank you for explaining) the idea that the main question is not “What’s the minimum number of employees I need to do X?” but rather “Can I do X for less than the customer’s willing to pay for it?” That is very clear and straightforward.

    Gin-And-Whiskey, you raise a really interesting, provocative point that I think well-worth pursuing further. With strict regulation such as you suggest, I think two or three “tiers” of minimum wages could open up new possibilities for many unemployed young people frustrated by the “credentialism” that closes off opportunity, in this era where most employers won’t consider hiring anyone who (A) doesn’t have recent experience doing precisely, identically the Very Same Job they are applying for, and (B) doesn’t have a very specific academic background exquisitely tailored to the employer’s immediate need (real or imagined).

    Again, thanks for the informative and knowledgeable input! I learned a lot here.

  21. 21
    RonF says:

    alex:

    Or you get redistribution to labor from capital. (1) Business earns $15 for $8 wage, and this gets move to $10 and consumers won’t take a cost rise, then profit margins are squeezed.

    If that’s where you start out, you can do that. But if you’re at earning $10 for a $8 wage and the minimum wage rises to $10, you don’ t have any margin and the worker is fired. If the majority of your workers are like that you close the business.

    Also – capital is necessary. You have to put up the building, buy the equipment, etc. And you have to pay the owners/investors, or they pull their money out and put it somewhere they can earn more, closing your business in the meantime.