Politics from the Palouse to Puget Sound

Monday, November 14, 2005

Washington Leads Nation in Minimum Wage

Leading the nation in minimum wage is not something we should be proud of. Why do people insist that by increasing the amount of money someone earns, that they will be better off? Why do people earn minimum wage to begin with?

People earn minimum wage because they are working an unskilled job that does not take any kind of higher education to get. College graduates don't go out and solicit jobs at Burger King for minimum wage, well, unless they are a liberal arts majors. Instead college graduates go out and work in jobs that offer benefits, high wages, and typically job satisfaction. People who go to community colleges and vocational colleges typically earn more than minimum wage. No one applys to be the greeter at WalMart once he graduates from high school and expects to retire with the job.

Those who fight for a high minimum wage and/or a "living wage" think that those who don't aspire to do anything more than flip burgers or greet people at WalMart should some how be rewarded, the same as those who choose some sort of higher education.

According to the Washington State Department of L&I Website Washington's, minimum wage will increase on Jan 1, 2006, from $7.35 an hour to a nation-leading $7.63 an hour. How does that help anyone?

Assuming all food, goods, and service prices were to freeze and only the minimum wage increases then, yes, it would be a help. But those who want a minimum wage increase do not seem to realize that when the minimum wage goes up, so does the cost of doing business.

Lets look at a fictional pizza place in Pullman. There are the ingredients that are needed to make the dough, cheese, sauce, and boxes to name a few items. Each of those items that come from Washington will be more expensive as the farmer, paper-mill, printer, and trucking company all have to potentially pay more to create their respective product or service. So once those more expensive items make it to the pizza place, the owner must pay more. He of course will pass along that increase to the customer.

Then the employees of the pizza place will also be making more money. Many pizza places have several employees on the clock at any given time during their hours of operation. Typically opening at 11:00 am and closing around 1:00 in the morning, plus the time for prep before opening, and cleaning after closing. It is not a huge amount on any given day, but it adds up each week. Anyone who actually runs a business will tell you their employees are the biggest cost to any business.

So with the higher costs involved with the ingredients for the pizza place and the increased cost for the employees, the owner will raise his prices. But it is not just the pizza place, all the business will see some costs increases and price increases. So in the end the extra money that someone is making because of the higher minimum wage is eaten up in the higher costs of purchasing goods and services. But the increase will cause some inflation and, in Washington at years end, we will see a new increase in minimum wage and the cycle will start all over again.

PARD and other groups are calling for a "Living Wage". A living wage, according to Universal Living Wage (http://www.universallivingwage.org/) is the amount of money someone working 40 hours a week would need to make to afford a 1 bedroom apartment at a cost of 1/3 of the monthly income.

They use the HUD Fair Market Rate for the cost of the 1 bedroom apartment. In Pullman the calculation for this is as follows:
1) $421.00 -- HUD Fair Market Rate for a 1 bedroom apartment in Whitman County
2) $421.00 / .3 = $1403.33 -- Monthly Wage with 1/3 of the income going towards housing
3) $1403.33 x 12 = $16,480 -- Yearly wage
4) $16,480 / 2080 = $8.10 -- Hourly Living Wage in Whitman County

The Universal Living Wage Website includes all sorts of "myth-busting". Here is one example:

Myth #12: "If wages increase, the cost of everything else will increase."

FACT: Wages are just one of many factors that make up the cost of an item. Factors such as manufacturing, transportation, equipment, rent, advertising, business location, income demographics of the community, employee recruitment and training, expenses all add together with wages to create the cost make-up of an item. Clearly, the cost of goods does not have to automatically rise just because one small portion of their make-up increases.


As I wrote earlier, the biggest cost to a business is the employees. The Website "Fact" tries to argue that wages are a "small" portion of the make-up for the cost of goods and services. They also forget that the minimum wage will probably also effect the "factors such as manufacturing, transportation, equipment, rent, advertising" which in the end also effects the costs of goods and services.

WalMart is planning on a Supercenter in Pullman and one in Moscow. We should be thankful they would like to put a store in each city. Let me demonstrate with a simplistic example.

In Moscow, assume 15 workers on duty at any given time. The store will be open for 24 hours in a day. So that is 360 man-hours per day. At Moscow's minimum wage of $5.15 an hour, it would cost WalMart $1,854 a day to run. Lets assume WalMart is only closed on Thanksgiving and Christmas, so there are 363 days in a year they are open. $1,854 x 363 days is $673,002 a year to operate assuming they are only paying minimum wage.

In Pullman, assume 15 workers on duty at any given time. The store will be open for 24 hours in a day. So that is 360 man-hours per day. At Pullman's minimum wage of $7.63 an hour, it would cost WalMart $2,746.80 a day to run. Lets assume WalMart is only closed on Thanksgiving and Christmas, so there are 363 days in a year they are open. $2,746.80 x 363 days is $997,088.40 a year to operate assuming they are only paying minimum wage.

That comes out to a $324,086.40 a year savings by only operating in Moscow. So, yes PARD, would should be happy a business like WalMart is willing to locate in a place where they will pay nearly 1/3 of a million a year more to operate.

The whole point being; Washington State voters are known for making poor choices when it comes to money. They made a poor choice when they voted for the minimum wage to be tied to inflation. Maybe it is time for us to re-evaluate that tie.

5 comments:

Sarcastic Housewife #1 said...

This is one of my biggest pet peeves when PARD starts talking about a "living wage." I feel like my education has entitled me to make choices about where I work and how much money I make or don't make. For the most part people do not apply to work at Wal-Mart, McDonald's, or dare I say, Target and expect to make life long careers of it. Excellent write-up Scotty!

By the way Tom, Congrats on your new job as Town Crier! I can't wait until Wednesday.

Tom Forbes said...

Thanks SHW#1! I can't wait for the cards and letters from Ray Sacchi et. al to starting rolling in after my first column.

Wal-Mart Watch recently named Dr. David Neumark as it's person of the week for a study he did of Wal-Mart's wages recently. But here is what Dr. Neumark had to say previously about "living wages": “Living wages seek to raise the income of low-wage workers by mandating higher wages. However, such wage increases may also have adverse employment effects, leading employers to reduce employment of less-skilled labor. This study notes that although living wages deliver some benefits to low-income families, additional policies are needed to help the most disadvantaged.”

April E. Coggins said...

Payroll TAXES are directly related to the amount an employee earns. The more an employee earns, the higher the tax that is paid by the employee and employer. If "society" wants to help the employee, shouldn't it be the obligation of "society" to lower the taxes on the employees wages rather than transfer "society's" so called obligation to provide a living wage to the employer, who may be struggling him or herself?

And this is the bugger to me: When the State of Washington reaches in my pocket and gives my employee a raise, I am not given a better employee in return. The employee is being rewarded for being an employee, not for being a better worker.

The laugher is that the Federal Gov't is replacing the unions and the unions don't seem to realize it. Why should a worker pay dues to the union when he or she can get the same benefits just being a citizen? And even worse, just being an illegal immigrant?

Ray Lindquist said...

The laugher is that the Federal Gov't is replacing the unions and the unions don't seem to realize it.
Now that is oh so right on wake up sheeple they are doing it to you and you don't even realize it. VERY good point April.

Scotty said...

I was thinking about that today. Minimum Wages are government-forced private welfare.