California’s New Minimum Wage and the Fear Based Freak Out (Part 2)

So I wrote a post yesterday regarding the complaints I’ve been seeing about California’s new minimum wage increase.  I’ll admit that that post was largely a knee-jerk, irritation, based write-up, so today I’ll attempt to correct that by calmly addressing some of the more common arguments against raising the minimum wage.  

1) Inflation:  One of the most common arguments I’ve seen against raising the minimum wage is that it will cause rapid inflation.  Let’s ignore the fact that inflation happens regardless of a minimum wage increase, and pretend for now that it doesn’t.  While much higher prices would most certainly happen in an environment where a business is the only provider for a specific product, it ignores the fact that competition will not cease to exist simply because the minimum wage is increased.  Sure, prices may go up, but because competition still exists, they won’t go up so drastically that it will cause serious problems.  To use an example a friend of mine gave, if McDonald’s decides to raise the prices of their hamburgers from $5.00 to $12.00 overnight… Well, guess what?  People will go and buy a Whopper from Burger King instead.  

A more likely scenario than businesses jacking their prices up by exorbitant amounts is that the wage increase will come out of their profits.  And let’s get real here… When McDonald’s is making profits of $1.31 billion (that is billion, not million…)  while at the same time advising their employees to apply for Food Stamps, is that really such a bad thing? Besides that, the average pay for a Costco employee is $21 an hour and their prices aren’t substantially higher than Wal-Mart’s, who pays minimum wage.  It seems logical to assume that if raising the minimum wage to $15 an hour will cause rapid inflation, then surely Costco’s already high wages would show the same effect on their prices, right?  Strangely, however, Costco only marks up their prices by 15% while other retailers typically mark them up by 25%.  So not only does Costco pay their employees more, they also have lower prices.  Funny how that works isn’t it?

As with my last post, I would argue that increasing the minimum wage would increase the spending power of the general public.  Increasing the spending power of the general public would lead to increased business.  Increased business would lead to lower prices, not higher prices.  While there may be an initial system shock of slightly higher prices (if the wage were increased to $15 overnight), in time, the increase in the spending power of the general public would only help the economy and businesses at large, not harm them.  

(Thank you Jesse Marlin for bringing the competition point to my attention.)

2) Unemployment: The next most common argument is that unemployment will lead to mass layoffs and high unemployment rates.  But again… This doesn’t hold up to the historical or current effects of minimum wage increases here, or in other states.  In fact, the Economic Policy Institute had the following to say on this subject:

In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market. Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.”  

In addition, as I pointed out in part 1, Seattle recently raised their minimum wage and they haven’t seen an increase in unemployment as the naysayers predict.  In fact, they’ve seen the exact opposite effect.

3) Automation:  One of the more strange arguments I’ve been seeing is that increasing the minimum wage will cause employers to replace their human employees with machines.  An idea that seems to be perpetuated by the following meme (and many like it):

15-minimum-wage-replacement

What these memes seem to ignore is the fact that these machines already exist and businesses like McDonald’s began using them before any increase in the minimum wage occurred.  The invention of automated kiosks had nothing to do with the minimum wage.  It’s just the nature of technology.  If humans can, they will come up with ways to make life easier, and that includes inventing machines that can accomplish menial tasks for us.  Kiosks like this have existed for years now in a variety of different businesses.  At movie theaters and airports they have automated ticket kiosks, at grocery stores and department stores they have self-checkout lines.  At my own job, the airlines are more and more often using a system called CPDLC which allows them to send messages to air traffic control via text, without the involvement of a radio operator like myself.  Heck, the planes even have autopilot.  In spite of automation, what do all of these businesses have in common?  They still have human employees selling tickets, taking your money at the checkout line, radio operators that take information from flights and deliver it to air traffic control, and human pilots that fly the planes. 

Why is that?  If a machine can do the job just as well, why have humans there also?  There are a couple of different answers that I can think of… The first, and I feel, the most important… Humans like interacting with other human beings more than they do machines, especially when they’re out in the world.  Secondly, machines break down! Who will take peoples orders if all of the employees have been replaced by  machines that have broken down?  I know from experience, machines aren’t always reliable, even with multiple redundancies in place.  Even if, some day in the distant future, all minimum wage workers are replaced by machines, you will still need human beings to service those machines when they have problems (and they will have problems).  

In summary, my point is that all of the fear-based talking points that come from the right, while not without any merit, are just that… Fear-based.  It’s reasonable to have uncertainties, but these fears do not stand up to history, research, or consensus from economists, so we cannot allow them to direct policy.  Especially when it comes to the livelihood of the American people.  In reality, these same talking points have been used nearly every single time the minimum wage has increased (including when it was first instituted).  I would even go so far as to argue that these predictions are nothing more than attempts by greedy corporatists who don’t want their profit margins to decrease because of mandatory wage increases for employees that they have taken advantage of for far too long.  The American economy has bolstered corporate profits for long enough.  It’s time for the economy to once again start working for the American people, and raising the minimum wage is a great place to start.  

James Garcia – April 7, 2016

California’s New Minimum Wage and the Fear Based Freak Out

Ugh… I am so sick to death of hearing people complain about California raising the minimum wage… Sick… To… DEATH!!! Anyway… This latest post (that I am going to pick apart presently) is the straw that broke the camel’s back… And it sums up all of the fear-based, right-wing talking points all in one ignorant post.

“The sound of $15/hr sounds great at first, but let’s think a little more into this.”  

Oh please wise economic genius… Wow us with your astounding thought processes!

Argument: “If a company has to pay each employee $15/hr. the costs for their product rises. Of course the cost is put on the consumer. Duh.”  

Sure, this might be true, but let’s think on it just a little further.  First off, let’s consider something:

Question: What makes a business successful?

Answer: Aside from a good marketing plan, good management techniques, and hard working employees, the answer is a large customer base that is willing to spend money on the products the business offers.  This is what is called “demand.”

Argument: “Say good bye [sic] to small, family run businesses, large corporate businesses that will soon be moving out of state, and your local restaurants and farms.”

Again… This might be true, but let’s go a little further with our thinking and leave emotional, fear-based predictions behind.

Question: What happens if that business does not have a large enough customer base to support it?

Answer:  There are a few things that can happen.  They raise prices to counter the lack of demand.  They cut costs by cutting corners on their products (which isn’t necessarily honest, but who are we kidding? We know they do this!) They could also lay off employees, downsize, etc… However, if the demand they have available isn’t enough to cover their basic cost of business, they eventually close their doors.

Question: So what happens when a large portion of society barely has enough money to cover basic necessities like food, clothing, rent, insurance, etc?

Answer:  Well for starters they don’t spend money at small mom and pop businesses that typically charge more (considering they don’t have the vast resources available to them like companies like Wal-Mart do) that’s for damned sure!  So where do they go instead? They turn to large corporations like Wal-Mart, who can afford to completely undercut any mom and pop business, where they can buy cheap groceries in bulk.  So the argument that “mom and pop businesses will close down because the minimum wage will increase” is just flat out ridiculous.  Mom and Pop businesses are closing now because the middle class is quickly being absorbed into the poor class because they more and more often don’t have money to spend!

Also, if you honestly think that every business is suddenly going to pick up and move out of state, abandoning a large customer base like California (that will now have a lot more money to spend I might add…) then you are even more naive than I originally thought (and I thought you were pretty naive to begin with…)

Argument: “If large chain stores stay in this state, they are forced to choose one of two things. Raise prices considerably or cut jobs. WAIT?! What loose [sic] jobs, yes, jobs will be cut because people can’t afford to pay them.”  

Wrong… What they will do is possibly raise their prices, once again passing the buck on to consumers so they can continue to make billions of dollars in profits.  Eventually, when that consumer base has more money to spend, and their customer base grows, prices will return to a level that meets the demand.  That is how economics works.  It’s called “supply and demand.”  You should probably look it up.

Also, companies like Costco have been paying higher wages for years, and they are doing quite well.  In fact, Costco pays significantly more than Wal-Mart but for some strange reason (that’s really not so strange at all…)  They make more money than Wal-Mart does! But how can this possibly be true!?

Answer: Happy employees = higher productivity + better customer service = happy customers who will then be more likely to return and patronize the business again! What a surprise!

http://www.fool.com/investing/general/2014/03/12/costco-vs-wal-mart-higher-wages-mean-superior-retu.aspx

Argument: “Who pays for unemployment? You can guess my answer to that.”

And? We’re paying to subsidize Wal-Mart and McDonald’s profits now by allowing them to pay their employees less than a living wage, which in turn requires their employees to collect Welfare and food stamps.  Is that what you want? McDonald’s even encouraged their employees to apply for Welfare because they know they aren’t paying their employees enough to live on! What you’re essentially arguing for, is for the government to use our tax dollars to subsidize the profits of large corporations, all so they can pay their employees garbage wages! How ridiculous is that??? As I’ve said before in other posts, I would much rather have our tax dollars go to things like education, infrastructure, and universal health care, instead of going to subsidize greedy corporations so they can continue to pay their employees shit!

http://www.businessinsider.com/mcdonalds-mcresources-hotline-tells-nancy-salgado-to-get-on-food-stamps-2013-10

“For all of you that think this minimum wage increase is another “fantastic” thing that Jerry Brown has done for us, please unfriend me.”  

Oh trust me, if you were on my friends list, I would have unfriended you a long time ago.  I can’t handle fear-based, ignorant arguments that don’t point to any actual facts or logic.

“You are an idiot and I honestly can’t handle it anymore.”  

Perhaps before you question the intelligence of others, you should make sure your rants use correct spelling, grammar, and punctuation.  I can’t imagine how you’d expect anyone to take advice from you on a complex subject like economics when you can barely get through a few paragraphs without a slew of spelling errors.

“People really need to start thinking about the larger picture.” 

You’re right.  You should probably try looking past your fear-based initial reaction and actually research a topic before you open your fat mouth.

“I am so not sorry for this rant. This is real life, and people need to start getting real.”  

And I am so not sorry for soundly destroying your ridiculous rant for the nonsense that it is.  You’re right, this is real life, and in this day and age, no one working 40 hours a week (sometimes even more than that) should have to go on Welfare or collect Food stamps because they don’t have enough money for basic necessities, all while companies like Wal-Mart and McDonald’s make millions of dollars in profits.

“We all need to think long and hard with this upcoming election, this nation needs to start electing people that can see the larger pictures.” 

If you mean people that will continue to line the pockets of the already rich, then I gladly have to say I disagree.  We need to elect government officials that will look out for the vast majority of the American people who have been sadly neglected for far too long.  People like Bernie Sanders and Elizabeth Warren.

“We are headed down a dark road, and I for one am scared to death of our future.”

With uninformed people like you voting based on their fear instead of facts?  I have to say, I agree completely.  I just hope those that bother to actually look into issues outnumber those like you.

Finally, the fact of the matter is, there are other places that have already raised their minimum wages.  Seattle is one that comes to mind, and they aren’t experiencing the effects on the economy that you are so scared of.  Businesses aren’t fleeing the city or closing down in record numbers, there hasn’t been a plague of mass layoffs.  None of what you’re claiming will happen here has happened there.  Why? Can you answer that?

Besides all of that, the minimum wage will not reach $15 an hour for 6 years.  If a business can’t properly prepare for the adjustment in that amount of time, then they need to find a new accountant!

http://www.latimes.com/business/hiltzik/la-fi-mh-no-the-minimum-wage-isnt-20150316-column.html

http://www.dailykos.com/story/2015/10/1/1425663/-Seattle-Raises-its-Minimum-Wage-Jobless-Rate-Drops-Fox-Scrambles-for-a-Ladder-to-Pick-Cherries

For those that are interested, here is the entire Facebook post that I responded to in its entirety:

“Well California, you sure have done it now. $15/hr. Minimum wage, you sure thought this out. Say good bye to small, family run businesses, large corporate businesses that will soon be moving out of state, and your local restaurants and farms.

I can not believe we actually elect these stupid ass people. The sound of $15/hr sounds great at first, but let’s think a little more into this.

If a company has to pay each employee $15/hr. the costs for their product rises. Of course the cost is put on the consumer. Duh.

Let’s think farther, the property management company is also going to raise their fees, passing on the buck to the tenant. That tenant now has to raise the prices of their products also to the consumer.

How about food? Farmers have several farm labor workers. You all should get excited for things such as strawberries, peaches, or cherries. Hand picked and soon to be unaffordable.

If large chain stores stay in this state, they are forced to choose one of two things. Raise prices considerably or cut jobs. WAIT?! What loose jobs, yes, jobs will be cut because people can’t afford to pay them. Of course no one will say that out loud. Well, y’all should start thinking about this. Bye bye jobs. Hello unemployment.

Who pays for unemployment? You can guess my answer to that.

For all of you that think this minimum wage increase is another “fantastic” thing that Jerry Brown has done for us, please unfriend me. You are an idiot and I honestly can’t handle it anymore. People really need to start thinking about the larger picture.

I am so not sorry for this rant. This is real life, and people need to start getting real. We all need to think long and hard with this upcoming election, this nation needs to start electing people that can see the larger pictures. We are headed down a dark road, and I for one am scared to death of our future.”