Posts tagged with: Wage

starbucksWhen most people think of Starbucks they think of overpriced coffee, free wifi, and omnipresence. Starbucks are everywhere. The company was founded in 1971 and since 1987 they’ve opened an average of two new stores every day. In the U.S. alone there are 12,973 locations.

When most people think of “big business”, though, they don’t often think of the Seattle-based coffee company. But they should. Starbucks has 151,000 fulltime employees, $15 billion in annual revenues, and three times as many locations as Walmart. Starbucks is one of the biggest of big businesses. And, not surprisingly, a big proponent of cronyist policies.

Cronyism occurs when an individual or organization colludes with government officials to create legislation or regulations that give them forced benefits they could not have otherwise obtained voluntarily. Those benefits come at the expense of consumers, taxpayers, and everyone working hard to compete in the marketplace. A prime example is minimum wage laws. Almost without fail, big businesses tend to support higher minimum wages.

Since they could just choose to pay higher wages, why would they support federal mandated wage floors? One reason is because it helps to eliminate the competition from small business who don’t have the size and scale to absorb higher-than-market wage increases.

In a recent interview with CNN, Starbucks CEO Howard Schultz said he supports an increase to federal minimum wage even though he admits the $15 wage in Seattle could have “traumatic effects” on small business owners and employees.
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Given the recent and wide-ranging discussion here on the PowerBlog surrounding the the minimum wage (Hunter Baker, Joe Carter, Jordan Ballor, Elise Hilton, yours truly), this short little video offers a nice overview of the seen and unseen effects of such an instrument.

To make its argument, the video assumes the worst about wage-setters, describing Edgar the Employer as Edgar the Exploiter: one who cares only about “making profit” and even dreams about paying his employees less. I have yet to meet such a miser, even in my dark days behind the McDonald’s fry vat, but surely he exists. (more…)

minimum_wage_custom-8614e5bd8d516fbadd22d4a09fff441a70ba1596-s6-c301. Both sides of the debate believe they are arguing in defense of the poor. Most people who support or oppose minimum wage laws and/or increases share a common objective — helping the working poor. Because both sides have noble intentions, the merits of the debate over minimum wage laws and minimum wage increases should be based on empirical evidence that it will actually help, rather than harm, the poor.

2. Economists disagree about the effects of small increases in minimum wages. It’s true that economists disagree about the effects of the minimum wage on employment and the living standards of minimum wage earners. But almost all of the disagreement is about relatively small increases (less than 20%). Almost all economist agree that significant increases to the minimum wage or attempts to bring it in line with a “living wage” (e.g., $12-15 an hour) would lead to significant increases in unemployment. (President Obama’s proposal would only increase the federal minimum wage by $1.75 an hour.)

3. The primary argument for minimum wage increase is that is increases the value of the worker’s labor. — The efficiency wage theory of labor holds that higher real wages improve labor productivity by reducing worker turnover and the associated costs of hiring and training new workers, by reducing the incentive for workers to unionize, and by increasing the opportunity cost of being fired—thereby giving the worker incentive to be more productive. Under this view, small increases to the minimum wage will have no deleterious employment effects.

4. The primary argument against minimum wage increases is that it discriminates against those who have low-skills. Milton Friedman once described the minimum wage as a requirement that “employers must discriminate against people who have low skills.” As Anthony Davies explains, “the minimum wage prevents some of the least skilled, least educated, and least experienced workers from participating in the labor market because it discourages employers from taking a chance by hiring them. In other words, workers compete for jobs on the basis of education, skill, experience, and price. Of these factors, the only one on which the lesser-educated, lesser-skilled, and lesser-experienced worker can compete is price.”

5. The minimum wage redistributes wealth from the low-skilled poor to the more skilled working poor and middle class. Many supporters of minimum wage increases mistakenly believe that increases in wage rates are transfers of wealth from employers and investors to the workers. But as Anthony Davis explains, the money to pay for the increased wage must come from at least one of four places: higher prices for consumers, lower returns to investors, lower prices to suppliers, or a reduced work-force. Empirical research has shown that the primary effect of minimum wage increases is reduced employment, which essentially transfers the wealth (in unearned wages) from the less skilled to the more skilled working poor and middle-class teenagers.
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Wizard of Id - Minimum WageThe protests organized by labor organizations to advocate for an increase in the minimum wage have garnered attention, most recently from the NYT, which editorialized in favor of such moves. Over at Think Christian, I weigh in with an attempt to provide some more of the complex context behind the moral evaluation of such mandates.

In the piece, I’m really less interested in the plight of current-minimum wage workers relative to those who might become minimum-wage workers with an increase, those who are currently priced-out of labor markets because of minimum-wage legislation, and those who will be priced out with an increase.

Earlier this week, Joseph Sunde discussed the issue with an eye towards the price of labor: “Prices are not play things.” I largely agree with Joseph about the significance of the price associated with various kinds of labor. The signal that minimum-wage workers should be receiving is that their work is not that specialized or valuable in the marketplace. You can rage against the values of the marketplace all you like, but that’s what the prices signal.
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If only we would use public policy to generate working-class jobs at good wages, some progressives argue, the problems of the new lower class would fade away. But as social scientist Charles Murray explains, there are two problems with this line of argument:
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