Good news from Arkansas! (Minimum wage increase)

[Ogie Oglethorpe]

Originally posted by Kidicious


So you are saying that a small increase in costs is going to 'generally' result in one of those 4? Those are decisions which will severely impact the business and you think a small increase in labor cost is going to affect the decision making?

Depends on what your defintion of small is in comparison to the budgets already established. Certainly small things often get masked by other factors such as productivity improvements etc. but by and large you have a negative effect of costs it translates into an effect either at the customer, cost reductions in terms of controlable costs (read labor costs pay freezes reduction in overtime, reductionin scope of operations, etc as outlined above) or a reduction in profits shared to owners/stockholders (which likewise is bad for the public at large)

[Imran Siddiqui]

Originally posted by Kidicious
Factors aren't held constant. That's why economic models and studies aren't a substitute for common sense.

If you don't hold factors constant then you have NO idea as to the effectiveness of a policy. You'd be the type of person that says, look, min wage increases lead to more employment when you do it during a boom time, resulting in pushing a min wage increase during a recession (to get more employment) and watching as it blows up all over your face.

Factors need to be held constant to figure out if X leads to Y. Otherwise, you are just shooting in the dark, hoping X will work in other circumstances.

[Kidlicious]

Originally posted by Ogie Oglethorpe


Depends on what your defintion of small is in comparison to the budgets already established. Certainly small things often get masked by other factors such as productivity improvements etc. but by and large you have a negative effect of costs it translates into an effect either at the customer, cost reductions in terms of controlable costs (read labor costs pay freezes reduction in overtime, reductionin scope of operations, etc as outlined above) or a reduction in profits shared to owners/stockholders (which likewise is bad for the public at large)

Those 4 items you mentioned are long range strategic decisions not monthly operational decisions. With monthly operational decisions you have producion requirements based on forecasted demand. If the forecasted demand doesn't change then you need the same production, or you will have shortages.

You can increase your price but you don't really know if or how much your demand will change. So usually I don't think you are going to start laying people off until you make some long range planning, and I think that that long range planning is going to be far and away more based on future demand than a small increase in some wages.

[Imran Siddiqui]

Originally posted by Kidicious
Those 4 items you mentioned are long range strategic decisions not monthly operational decisions. With monthly operational decisions you have producion requirements based on forecasted demand. If the forecasted demand doesn't change then you need the same production, or you will have shortages.

You can increase your price but you don't really know if or how much your demand will change. So usually I don't think you are going to start laying people off until you make some long range planning, and I think that that long range planning is going to be far and away more based on future demand than a small increase in some wages.

Do you think franchisees (who own most fast food restaurants) are coming up with forcasted demand? If the wage rises so that they are losing money, they will most likely fire a worker or two to get to the same level as before, fianancially. Joe Franchisor isn't doing forecasted demand projections.

[Kidlicious]

Originally posted by Imran Siddiqui


If you don't hold factors constant then you have NO idea as to the effectiveness of a policy. You'd be the type of person that says, look, min wage increases lead to more employment when you do it during a boom time, resulting in pushing a min wage increase during a recession (to get more employment) and watching as it blows up all over your face.

Factors need to be held constant to figure out if X leads to Y. Otherwise, you are just shooting in the dark, hoping X will work in other circumstances.

So you want to make sure somehow that consumer spending remains constant will the minimum wage increases? How do you propose to do this, and whouldn't that be bad for the economy.

[Kidlicious]

Originally posted by Imran Siddiqui


Do you think franchisees (who own most fast food restaurants) are coming up with forcasted demand? If the wage rises so that they are losing money, they will most likely fire a worker or two to get to the same level as before, fianancially. Joe Franchisor isn't doing forecasted demand projections.

He certainly does make forecasted demand projections. He knows pretty much how many people come in for lunch and how many employees he needs to feed those people. If he fires someone he's going to lose customers. Some of those customers are never coming back.

[Ogie Oglethorpe]

Originally posted by Kidicious


Those 4 items you mentioned are long range strategic decisions not monthly operational decisions. With monthly operational decisions you have producion requirements based on forecasted demand. If the forecasted demand doesn't change then you need the same production, or you will have shortages.

You can increase your price but you don't really know if or how much your demand will change. So usually I don't think you are going to start laying people off until you make some long range planning, and I think that that long range planning is going to be far and away more based on future demand than a small increase in some wages.

Pays me now pays me later. Its not like the minimum wage increase gets repealed.

The arguement that you simply raise prices is good for who?

Likewise as Imran ascribes the business cycle today even of larger corporations reacts (inmany cases too) swiftly in fact swifter than ever. Case and point, my company after one month in (Jan's numbers) after not meeting sales/profitability numbers immediately effected a pay freeze. I've never seen that kind of knee jerk reaction before. Typically managment digests the 1st quarter number to assess the situation.

[Imran Siddiqui]

Originally posted by Kidicious
He certainly does make forecasted demand projections. He knows pretty much how many people come in for lunch and how many employees he needs to feed those people. If he fires someone he's going to lose customers. Some of those customers are never coming back.

How many franchisees do you know? He knows how many people come in for lunch and knows how many people he hires to feed them. He realizes that if he fires one person, there will be greater lines, but has no idea how many people are not going to eat lunch at his place.

He has absolutely no idea how the fast food market will increase or decrease based on other, future factors (unless he can see another restaurant go up across the street).

What you are saying is that the franchisee makes forcasted demand projections PROVIDED THAT demand stays perfectly constant. But it won't always do so, and the franchisee won't know what the demand will be at that time or what direction it will move.

[Kidlicious]

Originally posted by Imran Siddiqui


How many franchisees do you know? He knows how many people come in for lunch and knows how many people he hires to feed them. He realizes that if he fires one person, there will be greater lines, but has no idea how many people are not going to eat lunch at his place.

He has absolutely no idea how the fast food market will increase or decrease based on other, future factors (unless he can see another restaurant go up across the street).

What you are saying is that the franchisee makes forcasted demand projections PROVIDED THAT demand stays perfectly constant. But it won't always do so, and the franchisee won't know what the demand will be at that time or what direction it will move.

From my experience the manager will man a cash registar during periods of unexpected demand or call someone in who has a day off. When demand is low they let some people go home. But these are temporary adjustments. He's not going to want the manager on the cash registar everyday, because the manager has to do other things. And he's not going to want to lose customers because the lines are too long (every day).

[Kidlicious]

Originally posted by Adam Smith
That includes the margin of error, which is why its a range, not a single number.

Lets take the midpoint (that a 10 percent increase in the minimum wage reduces the employment of low-skilled labor by 2 percent), with an implied elasticity of 2/10 = 0.2. Apply that to the situation in Mr Mitchel's post where the minimum wage increased from $5.15 to $6.25 in Arkansas and you get a [(6.25-5.15)/5.15]x0.2 = about 4 percentage point increase in unemployment of unskilled labor. Apply that to the situation in Ogie's post where the minimum wage increased from $5.15 to $7.00 in Minnesota and you get a [(7.00-5.15)/5.15]x0.2 = about 7 percentage point increase in unemployment of unskilled labor.

Some people might argue that they are willing to accept that cost in order to make some low wage workers better off. Or you might argue, as LOTM does, that better policies such as the negative income tax are politically infeasible (I am not so sure). But to claim that the cost simply does not exist is contrary to the evidence.

To clarify my position. I believe that a minimum wage increase is acceptable is elasticity of labor demand is 0.2, because the increase in wages will translate into more consumer spending which will create more demand for labor. I do agree that some employers will reduce hours and hiring, but that the overall effect will be neutral or possibly good.

[Imran Siddiqui]

Originally posted by Kidicious
From my experience the manager will man a cash registar during periods of unexpected demand or call someone in who has a day off. When demand is low they let some people go home. But these are temporary adjustments. He's not going to want the manager on the cash registar everyday, because the manager has to do other things. And he's not going to want to lose customers because the lines are too long (every day).

And he's not going to want to lose a lot of money by keeping the same number of staff when their hourly pay rises by a $1 an hour. He'll probably see it as far more economical to fire one guy and lose a few customers.

[Kidlicious]

Originally posted by Imran Siddiqui


And he's not going to want to lose a lot of money by keeping the same number of staff when their hourly pay rises by a $1 an hour. He'll probably see it as far more economical to fire one guy and lose a few customers.

Oh sure, business owners always like to bring in less cash to the registar.

[Imran Siddiqui]

Originally posted by Kidicious
Oh sure, business owners always like to bring in less cash to the registar.

Cause it never ever costs more to have one more employee than it does to lose a few customers (who may buy, in total, half of an employee's salary for a shift). No one ever gets lets go when employee costs go up?

Seriously, Kid. Do you live in the real world?

[Donegeal]

Here Kid:

As someone who owns and runs a small business (no employees... yet ), this is what I would do if I did employ minimum wage employees and the min went up...

A) Raise prices (inflation)
B) Downsize (unemployment)

Try not looking at it just from the viewpoint of the people getting the raise... look at it from both sides.

[xvdravarvx]

As someone fairly new to the OT topics (I have lurked on the board for Civ stuff) I am having a hard time following just who is replying to whom. Is there any way to collapse the threads down into a reply tree?




As far as minimum wage I find it rather interesting that people feel that there should be one at all. Besides the facts that I pointed above, (and from what I think people are confusing me for someone else, of whom I am not...)

Accepting a job is an agreement between the employer and the employee. The wage will be what the two between them agree is the worth of the employees labor. It is just the same as you deciding whether you want to get that $10 watch or the rolex. They both tell time, (all employees by definition work) but one is definitely of more value to the purchaser.

If I want to sell crap watchs at $1000.00 I will not be able to sell anything, just as an employee who over prices his own abilities will be unable to sell his labor.

If I want to sell a rolex at $10 I will soon run out of rolexes. Just as if an employee who under shoots his own value will be inudated with offers.

The labor market is a fine line and as individuals we should be allowed to choose whom and how much we enter our agreements with; both employers and employees.