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With President Obama’s State of the Union Address and its associated campaign prominently featuring increased minimum wage, tired arguments for raising the minimum wage are being once again retreaded. Unfortunately, they compound failures of logic, measurement and evidence.
It would stimulate the economy. If I pay $1 more than necessary to hire a worker, I get $1 less in services for my money. The increase in the workers’ consumption enabled by that $1 is a transfer from me to them, not a net gain.
It would increase others’ wages as well. Unfortunately, higher minimum wages reduce available jobs, and fewer alternatives don’t create higher wages. Unions and other competitors would see wage hikes, because alternatives become more costly, but other workers get fewer goods and services in exchange for their labor —i.e., decreased real wages.
It would make work more attractive, reducing government dependence. That would require additional jobs became available at a higher wage. However, fewer jobs will be available, so fewer people would be able to work their way out of dependence.
The minimum wage hasn’t “kept up” with inflation since the 1960s. This presumes without justification that the 1960’s minimum wage was economically justified. However, it was a Great Society aberration that coincided with a virtual stop in progress against poverty.
It also ignores that much of employers’ compensation goes to Social Security, Medicare, workmen’s compensation, new Obamacare mandates, etc., rather than as wages. As government- mandated employment costs ballon, the minimum wage substantially understates compensation.
The claim uses the CPI, widely known to overstate inflation, to calculate “real” wages. And the bias was even larger in the past. So going back to the 1960s for comparison mainly introduces a half century of compounded overstatements of inflation to dramatically understate real wage growth.
It would decrease the number of families in poverty. Unfortunately, as labor economist Mark Wilson put it, “evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.” One reason is that most minimum wage workers are secondary workers in non-poor households, while very few are heads of households.
Even important businesses endorse raising the minimum wage. Unionized businesses and those who already pay more than the federal minimum gain from raising it, by increasing rivals’ costs. That those employers who would gain at others’ expense endorse a higher minimum wage says nothing about the validity of arguments against it.
A higher minimum wage will pay for itself in higher productivity, lower turnover, employee morale, etc. Every employer who believed that to be true in their circumstances would pay more without needing any mandate. Are those businesses always accused of being too greedy not greedy enough? Further, why do those states with the highest state minimum wages have higher unemployment rates and lower economic growth rates?
Even if some lose their jobs, most low-wage workers will gain from a higher minimum wage. This assumes that other terms of work will remain unchanged, which is false. For those who keep their jobs, fringe benefits, on-the-job training, etc., will fall to offset additional mandated wages. And the increased wages may well be less valuable (as well as taxable) than what is given up, especially on-the-job training that helps people learn their way out of poverty. That is why labor force participation rates fall and quit rates rise when the minimum wage rises, in contrast to what would happen if those workers were made better off.
Supporters of a higher minimum wage claim altruism to help working families as their motive. But it actually harms most of those supposedly be helped, while benefitting supporters by raising costs facing competitors. They may claim, as did the Chairman of Ben & Jerry’s Board, “I support a living wage economically, morally and with deep conviction,” but it is really a self-interested infringement on freedom that is economically stupid and morally abusive.
Photo Credit: Kristina Hoeppner
The theme of both the robot-ization of the global workforce and the populist desire for a hike in the minimum wage have been popular and ongoing ones here at Zero Hedge. However, never has it been more clear just where the future lies than this chart from BofAML’s Michael Hartnett… As he says, “we are long robots, and short human beings.”
Of course – from Applebees to Jamba Juice and now fast-food restaurants, the robots are coming and cries of millions of minimum-wage-hike-demanding union workers will do nothing but encourage it… (oh and the Fed’s financial repression)
|Phnom Penh, Cambodia – As hundreds of heavily-armed military police began moving in to quell protesting garment workers Friday morning, Neang Davin looked on nervously.
“Last night I didn’t join anything, I was just driving my motorbike and stopped to watch. The police arrived, they didn’t ask anything, they just went in and began beating us,” said Davin, leaning on a bamboo stick for support. “Even though we ran into the market, we weren’t confronting them; they just went in and started beating us. They hit me on the back with a baton.”
Clashes between police and protesters that began after midnight Friday on the outskirts of Phnom Penh escalated Saturday morning leaving at least four shot dead and 23 seriously injured.
While the government lay the blame at the feet of protesters who pushed back security forces with rocks, Molotov cocktails and homemade weapons, none of those injured were police, admitted Military Police Spokesman Kheng Tito.
Instead, it was striking workers and bystanders who bore the brunt of an unusually harsh retaliation by police who appear to have grown weary of peacefully breaking up the protests that have roiled Phnom Penh for the past week.
Garment worker woes
On December 24, workers began striking en masse after the government announced it would be raising the minimum wage from $80 a month to $95 – an offer that fell far short of unions call for $160 a month. By the time the Ministry of Labour caved a week later and agreed to an extra $5 a month boost, the genie was out of the bottle. Years of chronic underpayment and poor working conditions had pushed at least half of the nation’s estimated 600,000 workers into the streets.
Separately, at the behest of the Garment Manufacturers Association in Cambodia, some 80 percent of factories voluntarily shut their gates fearing violence; a move that has sent a $5bn industry into a near standstill.
“The unions cannot control [the situation] at this moment,” said Khun Tharo, a programme officer with Solidarity Centre, an American labour rights group. “It’s going to affect the industry as a whole.”
Garments account for Cambodia’s largest export industry. Brands like H&M, Puma, Adidas, Nike, the Gap and Walmart source from Cambodia, which set up its garment industry in the late 1990s to employ a unique UN-monitoring system that was meant to ensure factories were unusually well-run.
Instead, conditions and real wages have plummeted over the past decade, leading to mounting desperation among workers for whom 72 hour work-weeks are not unusual. After elections in July saw the poorest showing yet for Cambodia’s strong-arm prime minister, garment workers have grown increasingly vocal in their call for higher wages.
“In terms of the general level of unrest, we haven’t seen anything like this in Cambodia for over 15 years, since anti-government protests in 1998. But the protests we are seeing now appear larger, and broader in terms of the issues of concern and those taking part,” said Amnesty International Cambodia researcher Rupert Abbott.
While those demonstrations for the most part have been nonviolent, increasing pushback by authorities has amped up protesters, said Thun Saray, president of local rights group Adhoc.
“When they started to organise demonstrations, they used nonviolent ways but the armed forces came and used violence against the protesters, that’s what made them angry,” he said.
On Thursday, soldiers from an elite battalion of the armed forces moved in on a demonstration that took place outside a factory from which the Gap, Old Navy, and Banana Republic sources. In addition to beating an unknown number of workers, they arrested 15 people – including five monks and the leader of the informal sector union. The monks were released, but ten were sent to court today and face charges of inciting violence, said Saray.
As night fell, said Saray, there were reports that police would be going in to clear the street – which had taken on the look of a battleground by mid-afternoon.
“They plan to continue to crack down tonight, try to clean up the street of Veng Sreng because the protesters may try to demonstrate on the street…that’s why we’re concerned about more violence.”
Ek Tha, a government spokesman, said escalating violence came only after authorities were “provoked.”
“Local authorities did their best to protect the interest of the private and public property. As far as I understand, there were some troublemakers who provoked the problems, so the authority need to take law and order in place to safeguard the private and public property,” he said.
But Abbott said the use of such force flew in the face of international rights standards.
“If an assembly turns violent, as appears to have been the case today in Cambodia, security forces should use only such force as is strictly necessary and to the extent required for the performance of their duty. They may use firearms only when less dangerous means are not practicable and only to the minimum extent necessary for defence against an imminent threat of death or serious injury.”
Among those injured was 23-year-old Kieng Sinak, who was being treated at a local hospital for a piece of shrapnel that had pierced his eye.
A doctor told family members his eye would not recover.
“We are so poor, I don’t know how we can spend the money for surgery,” said his brother-in-law Roeun Sayeth.
Like many garment workers, Sinak’s rice-farming family relies on his scanty wages to support a number of members.
“He sends money every month, he supports three of his siblings and his parents,” said Sayeth.
“I’m not sure he will recover enough after surgery to be able to return to work,” said his cousin Chor Sokley.
A few hundred metres away from Sinak’s room, family members of those shot dead gathered outside the hospital’s mortuary for news of their relatives.
Blinking back tears, the sister-in-law of deceased Yean Rithy said she was unsure how his wife and two-year-old child would fare.
Like many others, she was aghast at suggestions the protesters were to blame.
“The protesters just have empty hands. The police have guns. So how could they be at fault?”
“We’re an easy target for recruiters,” one homeless man explains. “We turn up here with all our bags, wheeling them around and we’re easy to spot. They say to us, are you looking for work? Are you hungry? And if we haven’t eaten, they offer to find us a job.” As Reuters exposes, 3 years after the earthquake and tsunami that caused the meltdown at Fukushima’s nuclear facility, Northern Japanese homeless are willing to accept minimum wage (from yakuza-based entities) for one of the most undesirable jobs in the industrialized world: working on the $35 billion, taxpayer-funded effort to clean up radioactive fallout across an area of northern Japan larger than Hong Kong.
Seiji Sasa hits the train station in this northern Japanese city before dawn most mornings to prowl for homeless men.
He isn’t a social worker. He’s a recruiter. The men in Sendai Station are potential laborers that Sasa can dispatch to contractors in Japan’s nuclear disaster zone for a bounty of $100a head.
“This is how labor recruiters like me come in every day,”
It’s also how Japan finds people willing to accept minimum wage for one of the most undesirable jobs in the industrialized world: working on the $35 billion, taxpayer-funded effort to clean up radioactive fallout across an area of northern Japan larger than Hong Kong.
In January, October and November, Japanese gangsters were arrested on charges of infiltrating construction giant Obayashi Corp’s network of decontamination subcontractorsand illegally sending workers to the government-funded project.
In the October case, homeless men were rounded up at Sendai’s train station by Sasa, then put to work clearing radioactive soil and debris in Fukushima City for less than minimum wage, according to police and accounts of those involved. The men reported up through a chain of three other companies to Obayashi, Japan’s second-largest construction company.
Obayashi, which is one of more than 20 major contractors involved in government-funded radiation removal projects, has not been accused of any wrongdoing. But the spate of arrests has shown that members of Japan’s three largest criminal syndicates – Yamaguchi-gumi, Sumiyoshi-kai and Inagawa-kai – had set up black-market recruiting agencies under Obayashi.
“We are taking it very seriously that these incidents keep happening one after another,” said Junichi Ichikawa, a spokesman for Obayashi. He said the company tightened its scrutiny of its lower-tier subcontractors in order to shut out gangsters, known as the yakuza. “There were elements of what we had been doing that did not go far enough.”
Reuters found 56 subcontractors listed on environment ministry contracts worth a total of $2.5 billion in the most radiated areas of Fukushima that would have been barred from traditional public works because they had not been vetted by the construction ministry.
“If you started looking at every single person, the project wouldn’t move forward. You wouldn’t get a tenth of the people you need,” said Yukio Suganuma, president of Aisogo Service, a construction company that was hired in 2012 to clean up radioactive fallout from streets in the town of Tamura.
“There are many unknown entities getting involved in decontamination projects,” said Igarashi, a former advisor to ex-Prime Minister Naoto Kan. “There needs to be a thorough check on what companies are working on what, and when. I think it’s probably completely lawless if the top contractors are not thoroughly checking.”
“I don’t ask questions; that’s not my job,” Sasa said in an interview with Reuters. “I just find people and send them to work. I send them and get money in exchange. That’s it. I don’t get involved in what happens after that.”
“The construction industry is 90 percent run by gangs.”
It would seem, perhaps, that France (and the US) need their own nuclear accident to unleash an employment boom…
While much has been said about the benefits of Bernanke’s wealth effect to the asset-owning “10%”, just as much has been said about the ever deteriorating plight of the remaining debt-owning 90%, who are forced to resort to labor to provide for their families, and more specifically how their living condition has deteriorated over not only the past five years, since the start of the Fed’s great experiment, but over the past several decades as well. However, in the case of America’s “servant” class, Al Jazeera finds that their plight is now worse than it has been at any time over the past century, going back all the way to 1910!
According to Al Jazeera, “at least one class of American workers is having a much harder time today than a decade ago, than during the Great Depression and than a century ago: servants. The reason for this, surprisingly enough, is outsourcing. Let me explain. Prosperous American families have adopted the same approach to wages for servants as big successful companies, hiring freelance outside contractors for all sorts of functions from child care and handyman chores to gardening and cleaning work to reduce costs. Instead of the live-in servants, who were common in the prosperous households of America before World War II, better off families now outsource the family cook, maid and nanny. It is part of a global problem in developed countries that is getting more attention worldwide than in the U.S.”
The reality is that the modern servant is also known as the minimum-wage burger flipper, whose recent weeks have been spent in valiant, if very much futile, strikes in an attempt to increase the minimum wage their are paid. Futile, because recall that in its first “national hiring day” McDonalds hired 62,000 workers…. and turned down 938,000! Such is the sad reality of the unskilled modern day worker at the bottom the labor pyramid.
Unfortunately, we anticipate many more strikes in the future of America’s disenfranchised poorest, especially once they realize that their conditions are worse even than compared to live in servants from the turn of the century.
Al Jazeera crunches the numbers:
Consider the family cook. Many family cooks now work at family restaurants and fast food joints. This means that instead of having to meet a weekly payroll, families can hire a cook only as needed.
A household cook typically earned $10 a week in 1910, century-old books on the etiquette of hiring servants show. That is $235 per week in today’s money, while the federal minimum wage for 40 hours now comes to $290 a week.
At first blush that looks like a real raise of $55 a week, or nearly a 25-percent increase in pay. But in fact, the 2013 minimum wage cook is much worse off than the 1910 cook. Here’s why:
- The 1910 cook earned tax-free pay, while 2013 cook pays 7.65 percent of his income in Social Security taxes as well as income taxes on more than a third of his pay, assuming full-time work every week of the year. For a single person, that’s about $29 of that $55 raise deducted for taxes.
- Unless he can walk to work, today’s outsourced family cook must cover commuting costs. A monthly transit pass costs $75 in Los Angeles, $95 in Atlanta and $122 in New York City, so bus fare alone runs $17 to $25 a week, eating up a third to almost half of the seeming increase in pay, making the apparent raise pretty much vanish.
- The 1910 cook got room and board, while the 2013 cook must provide his own living space and food.
More than half of fast food workers are on some form of welfare, labor economists at the University of California, Berkeley and the University of Illinois reported in October after analyzing government economic statistics.
Data on domestic workers is scant because Congress excludes them from both regular data gathering by the Bureau of Labor Statistics and laws giving workers rights to rest periods and collective bargaining.
Nevertheless, what we do know is troubling. These days 60 percent of domestic workers spend half of their income just on housing and a fifth run out of food some time each month.
A German study found that in New York City domestic workers pay ranges broadly, from an illegal $1.43 to $40 an hour, with a quarter of workers earning less than the legal minimum wage. The U.S. median pay for domestic servants was estimated at $10 an hour.
We are falling backwards in America, back to the Gilded Age conditions a century and more ago when a few fortunate souls grew fabulously rich while a quarter of families had to take in paying boarders to make ends meet. Only back then, elites gave their servants a better deal.
Thorstein Veblen, in his classic 1899 book “The Theory of the Leisure Class,” observed that “the need of vicarious leisure, or conspicuous consumption of service, is a dominant incentive to the keeping of servants.” Nowadays, servants are just as important to elites, except that they are conspicuous in their competition to avoid paying servants decent wages.
But… but… how is that possible if the stock market is at all time highs and the wealth is US households just rose by $1.9 trillion in one short quarter. Oh wait, what they meant is “some” households.
And, of course if all else fails, America’s “free” servants, stuck in miserable lives working minimum wage jobs for corporations where the only focus in on shareholder returns and cutting overhead, can volunteer to return to a state of “semi-slavery” (while keeping the iPhones and apps of course, both paid on credit) and become live-in servants for America’s financial oligarchy and the like. We hear the numerous apartments of Wall Street’s CEOs have quite spacious servants’ quarters.
Over the past year, unionized restaurant workers across numerous fast-food chains but mostly at McDonalds, expressed their dissatisfaction with compensation levels by striking at increasingly more frequent intervals – a sentiment that has been facilitated by the president himself and his ever more frequent appeals for a raise in the minimum wage. Unfortunately, as we have pointed out previously, in the context of corporations that have given up on growing the top line (as virtually all free cash goes into stock buybacks and dividends and none into growth capex), and in pursuit of a rising bottom line, employee wages are the one variable cost that corporations will touch last of all. But what’s worse, these same unionized employees have zero negotiating leverage.
Perhaps nowhere is this more visible than in the recent strategy of smoothie retailer Jamba Juice, which in order to battle a 4% drop in Q3 same store sales has decided to radically transform its entire retailing strategy by getting rid of labor, cheap, part-time or otherwise, altogether. Presenting the biggest threat to minimum-wage restaurant workers everywhere: the JambaGo self-serve machine that just made the vast majority of Jamba’s employees obsolete. Coming soon to a fast-food retailer near you.
Why did Jamba just make its retail sales force obsolete? Part of the problem is heightened competition: McDonald’s has entered the smoothie market, and others like Dairy Queen and Panera spent the summer promoting their rival drinks. Which means even less top-line growth potential. It also means that in order to push more of the top line straight to earnings, and bypass variable costs, a problem that will be faced by increasingly more corporations, Jamba’s corner office had no choice but to unleash JambaGo.
The smoothie chain is hoping to see improvement from something it calls “JambaGo,” a self-serve machine that can be installed in cafeterias, schools, and convenience stores. Jamba Juice makes money by selling the prepackaged, pre-blended smoothie ingredients to JambaGo vendors, like a soda maker selling syrup to the owner of a soda fountain. The advantages: Jamba doesn’t need to build a store and the labor costs are much lower compared with hiring staff to concoct made-to-order drinks.
The company expects this model to help expand its brand more quickly and cheaply. Last quarter, however, revenue from the JambaGo program amounted to just about $400,000. But having recently landed a deal with Target (TGT) to put JambaGo machines in 1,000 Target Cafés, the company will soon have installed more than 1,800 machines (up from only 404 at the start of 2013). By contrast, there are currently about 850 Jamba Juice stores.
Based on a goal of $2,000 in annual revenue per JambaGo, the rough math for 1,800 machines is $3.6 million—a decent boost for a company that took in $228.8 million in revenue last year. Another 1,000 are planned for 2014, which would bring in another $2 million in annual revenue.
Here’s what happens next: Jamba will do what every other company does to demonstrate that its radical strategy is successful – fudge the numbers and beat EPS for several quarters. This will happen even if JambaGo is ultimately yet another loss leader. However, its peers will watch closely and soon decide to roll out their own version of just this: a self-contained dispenser of a la carte prepared fast-food food, either liquid or solid, and in the process let go tens of thousands of their own minimum-wage employees, also known to shareholders as “costs.”
What happens after that should be clear to everyone: more unemployment, lower wages for the remaining employees, worse worker morale, but even higher profits to holders of capital. And so on. Because in a world in which technology makes the unqualified worker utterely irrelevant, this is what is known as “progress.”
- Minimum wage needs to be re-engineered: Olive (thestar.com)
- Canada’s inflation rate edges up in July amid gas price jump (business.financialpost.com)
- Canada’s inflation rate jumped 1.2% in June on gas and auto price rebound (business.financialpost.com)
- Inflation in Canada: Gas, food prices in check as rate edges up to 1.3% (ctvnews.ca)