Monthly Archives: September 2013

Minimum Wage

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…and costs to the consumer as well as the worker….

California is about to raise its minimum wage to $10/hr.  Washington (the state, not the capital, so far), has a current minimum wage of $9.19/hr, and that’s tied to inflation.

However, neither labor nor the wage paid for it occur in a vacuum.  Labor is required to produce the good or service being sold, and the wage paid the laborer—whether CxO or line worker—has a direct impact on the minimum price the producer must charge for that good or service in order to stay in business.

Labor costs amount to about 10% of the cost of a car sold to you at the dealership.  Not many cars are produced in California—or Washington—though, so minimum wage increases in these two states won’t impact the prices Californians or Washingtonians must pay for their cars.  Labor costs in the restaurant industry, though, run to 25%-30% of the cost of the meals sold, with the high end coming in sit-down restaurants, the low end in fast food restaurants.

Labor costs as a per cent of the cost of the the end product or service being sold vary widely across industries (vis., auto vs restaurant); I’m going to focus on the restaurant industry for illustration.

California’s rise in its minimum wage, a 25% increase over its existing $8/hr minimum, will have a commensurate impact on the cost of meals bought in these places.  In a sit-down restaurant, that increase in cost can amount to meal price increase of 7.5%.  Factoring in the impact on the business’ payroll taxes for Social Security and Medicare/Medicaid (and eliding the payroll tax that California charges), we get an additional labor cost increase through those taxes (7.65%) of 1.9%, for a total labor cost increase in the price of a meal of 9.4%.  That’s what consumers can look forward to in the inflation of their price for a relaxing dinner out.

Here’s where the tie to inflation comes in: Washington’s tying minimum wage increases to its inflation guarantees that that state’s inflation will be higher than it otherwise would: by that state’s labor cost impact on the prices of goods and services sold there.  This feeds back into its mandated inflation-driven rising minimum wage.  And the vicious circle is up and running.

Of course there are other ways California restaurants can deal with a 25% increase in labor costs.  In order to hold down the total cost of their labor force and thereby keep their meal price increase down to something more marketable, they can either eschew hiring the additional labor with whom they were considering expanding (and not expand), or they can lay off existing workers, or both.  Either way, the restaurants end up using fewer workers to do the same amount of, or more, work.

It’s important to note at this point that food service companies can function very well with low-skill—minimum wage—labor, while other industries (vis., auto assembly) need skilled labor, pay commensurately higher wages, and so are little impacted by minimum wage requirements.  It’s the low-skill, low-wage worker that’s hurt by minimum wage laws, yet it’s these guys who need to get that first job so they can start accruing the experience and training and skills necessary to get better jobs.  Or that need this second job so they can save a little, put a little by for their kids’ college, and so on.

Government-mandated minimum wage increases are job killers.  And they kill the jobs with the greatest marginal value for a nation’s economy and for the individual worker: the low-skilled worker on the cusp of having a job at all.

Be More Like Europe, Again

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Maybe this Obama meme isn’t so far off the mark, after all.  Here’s another example worth looking hard at.  The UK is privatizing its heretofore government-run Royal Mail service, selling a majority stake to the private market.

Royal Mail’s history dates back to 1516 when King Henry VIII ordered the creation of the first national post service.  In recent years, however, the company has battled with the rise of the Internet and email, leading to losses in five of the last 12 years and the loss of more than 50,000 jobs.  It now handles about 58 million letters and parcels per day, down from 84 million five years ago.

Business Secretary Vince Cable said the privatization would allow the Royal Mail to continue operating for six days a week, with a “one-price-goes-anywhere” service.

Does any of that sound familiar?

The UK isn’t alone in this, either.

Austria, Germany, and the Netherlands have all privatized their postal services in part or fully.  In June, Belgium’s postal service Bpost raised €2.9 billion ($3.7 billion) in an IPO.  By contrast, the US Postal Service is still government-owned.

And the USPS still is losing money hand over fist.

Be More Like Europe

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Maybe we should, at least in one area.

The Strasbourg-based European Parliament passed an amendment to limit the amount of transport fuel, such as gasoline and diesel, that can be obtained from food and energy crops to 6% of total energy consumed for transport by 2020, from 10% previously. … The new limit is meant to ease concerns about the amount of agricultural land that is turned over to growing crops for biofuel use….

There shouldn’t be any requirement, but this is certainly a step in the right direction.

Corinne Lepage, the lawmaker driving the legislation [says] “Taking indirect land-use change into account is important for the integrity of the EU climate-change policy.”

Because, among other concerns, “food prices could rise if crops are diverted from the dinner plate to the fuel tank.”  Our…environmentalists…need to understand this.  It diverts, here in the US, actual food crops—like corn—from the mouths of our poor to the gas tanks of “environmentalists'” cars.  And it jacks up the costs of food crops that substitute for corn.  And it jacks up the price of food that eats corn—like cows, pigs, and chickens.

Be like Europe.  At least in this.

There’s Hope, Again

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Both Colorado State Senators, including the President of the State Senate, facing recall over their gun control legislation lost those recalls Tuesday.  These were solid defeats, too, nothing cliff-hanger-ish about them: State Senator John Morse (D), the Senate President, lost 51%-49%, and his colleague, State Senator Angela Giron (D), lost 56%-44%.

Moreover, these were not California-style recalls, where the firing occurs in one election and a separate election is held later (in which the just-fired incumbent could be a candidate).  These Colorado recalls were elections themselves, and on losing the recall, Morse and Giron were replaced by their opponents—Republicans Bernie Herpin and George Rivera.

The State Senate remains in Democrat hands, and it remains to be seen whether Herpin and Rivera will be any more responsive to their bosses, the citizens of their districts, but this is a clear step in the right direction: those who try to limit our individual liberties—in this case, try to foist onto honest citizens restrictions on 2nd Amendment rights—can expect to be fired forthwith.

Chuckleheads, Again

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The House chuckleheads are at it again, acting like two-year-olds, throwing tantrums and blocking progress because they can’t get all of their way, and they can’t get it immediately.  They’ve lost sight of, or they’re wilfully ignoring, the legislative version of the Buckley Rule.

House Speaker John Boehner had a strategy that would have, in this run-up to the 2014 elections, forced Senate Democrats, especially those in vulnerable states, choose between voting to defund Obamacare or being responsible for shutting down the government for lack of funding past the current fiscal year.

The plan essentially called for the House to vote on defunding ObamaCare and the temporary spending bill, then send the package to the Democrat-controlled Senate, which almost certainly would have jettisoned the defund part and allowed the chambers to negotiate on a “clean” funding bill.

But

“The Ruling Elite is up to it again,” the Tea Party Patriots group said Wednesday.  “They want you to think they have voted for defunding ObamaCare.  But it’s another shell game.”

And the chuckleheads in the supposedly conservative caucus acceded to the TPP’s demands and forced the Boehner Plan to be withdrawn, at least for now.  How do these politicians propose to defund Obamacare without the votes to do so?  At least this, as I said, would have put Democrat Senators on record as voting for the Obamacare that their constituents do not want.

And they should ask themselves how much of a tax cut their “Tax cut, or nothing” stubbornness got them last year.

These guys’ hearts are in the right place, but their heads…are not.