Lies, Damn Lies, Statistics and Studies
Senator Elizabeth Warren (D) of Massachusetts said that if the minimum wage
had kept pace with productivity, it would be around $22 per hour in 2012, basing
her statement on a conversation she had with a professor who has studied the
issue. Now I’m not a professor of
anything, but somehow there’s a major disconnect in my mind when someone tries
to make a connection between productivity and minimum wage.
In 1975 I took a job at minimum wage at Jack-in-the-Box in Santa Monica. That minimum wage was $2.00 per hour. By December of 1976 the minimum wage had climbed to $2.20 and would become $2.30 on January 1st of 1977. But here in California, it would actually climb to $2.50. At the time I was earning $2.80 an hour as a shift leader. My manager gave me a raise to $2.85 to partially offset the fact that suddenly I would only be earning 30 cents an hour than the others while I had many more responsibilities.
36 years later the minimum wage at the Federal level is $7.25. California minimum wage is $8.00. So in the 36 years since the Federal minimum was $2.30 and the CA minimum was $2.50, they have slightly more than tripled. Since labor productivity rises annually by somewhere between one and four percent (according to the statistics used by the professor Warren spoke with), the two haven’t kept pace with one another.
Should they have? Is the value of labor and the price put on that value the only component of productivity? Of course not. Technology is a major factor in the growth of productivity. The systems in use in the fast-food industry are so much more efficient today than they were in the late 1970s. Cost-controls are more effective. Waste is lower. So productivity will naturally increase faster than wages. Because wages aren’t the sole factor than controls productivity.
Interestingly, back in 1977 I moved to McDonald’s to work. Back then a quarter-pounder could be had for right around a buck. Today they cost just over three bucks. So while the minimum wage had tripled during that period, so has the price of a basic menu item. McDonald’s hamburgers were roughly $0.35 back then and today they are on the dollar value menu. I could go on, but I think I’ve made my point. While some things, like gasoline and the cost of healthcare; have risen dramatically during this period, the cost of many staple items have not.
Now what would happen if the owner of the local McDonald’s franchise was required to pay their minimum wage staff $22 per hour? Wait, that’s not fair because Senator Warren isn’t advocating that. How about we use $10.00 per hour as a minimum wage? Okay. That’s a 37.9% increase. So will our franchise owner have to raise the wages of the shift leaders, assistant managers, and managers by 37.9% as well? Won’t he or she have to raise prices by that same factor? Suddenly that $3.19 quarter-pounder is going to cost consumers $4.40.
The net effect will be a 37.9% increase in minimum wages, a 37.9% increase in prices and a Zero point Zero percent increase in the buying power of minimum wage employees.
Try again, Senator Warren.
In 1975 I took a job at minimum wage at Jack-in-the-Box in Santa Monica. That minimum wage was $2.00 per hour. By December of 1976 the minimum wage had climbed to $2.20 and would become $2.30 on January 1st of 1977. But here in California, it would actually climb to $2.50. At the time I was earning $2.80 an hour as a shift leader. My manager gave me a raise to $2.85 to partially offset the fact that suddenly I would only be earning 30 cents an hour than the others while I had many more responsibilities.
36 years later the minimum wage at the Federal level is $7.25. California minimum wage is $8.00. So in the 36 years since the Federal minimum was $2.30 and the CA minimum was $2.50, they have slightly more than tripled. Since labor productivity rises annually by somewhere between one and four percent (according to the statistics used by the professor Warren spoke with), the two haven’t kept pace with one another.
Should they have? Is the value of labor and the price put on that value the only component of productivity? Of course not. Technology is a major factor in the growth of productivity. The systems in use in the fast-food industry are so much more efficient today than they were in the late 1970s. Cost-controls are more effective. Waste is lower. So productivity will naturally increase faster than wages. Because wages aren’t the sole factor than controls productivity.
Interestingly, back in 1977 I moved to McDonald’s to work. Back then a quarter-pounder could be had for right around a buck. Today they cost just over three bucks. So while the minimum wage had tripled during that period, so has the price of a basic menu item. McDonald’s hamburgers were roughly $0.35 back then and today they are on the dollar value menu. I could go on, but I think I’ve made my point. While some things, like gasoline and the cost of healthcare; have risen dramatically during this period, the cost of many staple items have not.
Now what would happen if the owner of the local McDonald’s franchise was required to pay their minimum wage staff $22 per hour? Wait, that’s not fair because Senator Warren isn’t advocating that. How about we use $10.00 per hour as a minimum wage? Okay. That’s a 37.9% increase. So will our franchise owner have to raise the wages of the shift leaders, assistant managers, and managers by 37.9% as well? Won’t he or she have to raise prices by that same factor? Suddenly that $3.19 quarter-pounder is going to cost consumers $4.40.
The net effect will be a 37.9% increase in minimum wages, a 37.9% increase in prices and a Zero point Zero percent increase in the buying power of minimum wage employees.
Try again, Senator Warren.
posted by me at 9:49 PM
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