Gyroscopic Investing

So Governor "Moonbeam" actually signed legislation on this past Monday raising the minimum wage in CA to $15 by 2023.  At 3% rate of inflation that will make it worth about $12 at that time.

Anyone have any ideas what is going to happen between now and then?  Are fast food prices going to rise and layoffs increase due to decreased sales revenue?  Will it provoke systemic inflation as more demand chases fixed supply?  Or will it not make much of a dent at all as everyone adjusts?

The push for automation will likely ramp up slightly faster in industries will a large amount of low paid workers.

I don't know how that will work out, but it will be interesting to see.

But, $12-15/hr is awfully low, considering the costs of living in NY - probably works out to somewhere around $25K/yr, depending on taxes.  I can't imagine how somebody could afford to live there on one full-time income, even out of Manhattan.

Sorry, you said CA, but the same issue probably applies there - I seem to recall seeing a story that NY was doing something similar.

Simonjester wrote: it doesn't seem likely to have any positive effect for workers, between the staggered implementation, the already high cost of living in CA, and the fact that most min wage jobs there are already part time to avoid obama-care.. the employers will just automate, or force workers to get more done with less staff, or raise prices, or all of the above..... i don't see anybody gaining from a higher min wage

This will be great for rents in my area

This will kill small business in rural areas--which may, in the end, be exactly what is intended.  Seems that every solution the lawmakers dream up just happens to select for the Walmarts and the Monsantos of the world.  And the majority of the supposed beneficiaries of this kind of "nanny state" legislation are either too dumbed-down to figure that out or have too little skin in the game to care.

This winter, where I don't recall, my wife and I were in a McDonalds that had self-order terminals inside the store.  They had regular cashiers too of course.  I imagine they are testing them to reduce labor hours when $15/hour comes their way.

I Shrugged wrote: This winter, where I don't recall, my wife and I were in a McDonalds that had self-order terminals inside the store.  They had regular cashiers too of course.  I imagine they are testing them to reduce labor hours when $15/hour comes their way.

Of course. If you raise labor input costs companies will scamble make productivity gains. That goes for any industry. Further automation in fast food would happen regardless but it's likely to force the issue faster this way.

The entire universe of options are:
1) eat the cost and operate at a lower margin
2) transfer the increase to consumers
3) increase productivity
4) cost out in the business

Results:
Part 1: Options 2 and 4 will be what most big box retailers will do since their scale allows for it
Part 2: Option 1 will be what most small shops have to do since they can't invest like the big guys

I listened to a great NPR "Planet Money" Podcast today.  Based on the recent CA minimum wage law passing, they resurrected an old podcast where San Jose, CA raised the minimum wage from $8.00 per hour to $10.00 per hour.    And then they interviewed employees and business owners at a mall that sat on the border between San Jose and Santa Clara.

Depending on which store you were in (or for Gap, which part of the store...) the minimum wage was either $8 or $10 an hour.

One store owner had a pretzel store on each end of the mall.

http://www.npr.org/podcasts/510289/planet-money
#562: A Mall Divided

They didn't cover too many issues concerning the positives and negatives of a minimum wage - but they dealt a lot with what happens when the minimum wage is not consistent.

As usual, I thought Planet Money did a pretty balanced job.

California should raise the median wage too, to let the middle class in on this action.

Kriegsspiel wrote: California should raise the median wage too, to let the middle class in on this action.

Even better, they should pass a law requiring everyone to be paid more than the median wage! Why should some people get less than that?

Maddy wrote: This will kill small business in rural areas--which may, in the end, be exactly what is intended.

I agree with this.  To give you a real-life example, I have a family member who works in a rural low-cost-of-living area of upstate NY, managing a small manufacturing business (< 30 people).  Since most of the floor jobs require some skills (welding, painting, etc), they hire new people at $11/hour (which is above the current $9 minimum wage), but even the most senior people, some of whom have been there for 30 years, are maxed out at $16/hour.  These are good wages for people with no education in an area of NY where it is very cheap to live.  When the minimum wage goes to $15, my family member says that the final price of the product will have to go up 30%, which will kill sales, and basically kill the business.  So then all these people lose their jobs and go on unemployment.

I'm not sure what is the solution here.  As wages get higher, small manufacturing companies aren't going to replace workers with automated machines, they will simply close up the shop and be done.

Perhaps the minimum wages need to only be raised in larger cities, where the cost of living is higher.  There is no reason to increase the wages across the entire state.  This is the approach taken by Seattle.  Seattle is an expensive place to live in, so $15 might make sense there, but if you're picking apples in rural WA, you can probably get by with less than $15.

The glory days for this country are probably long behind us. I don't see the rest of the world suddenly going back to the 40's-60's model where they paid us a premium to manufacture their stuff.

Globalization and technology have minimized the value of human capital.

Seattle is an expensive place to live in, so $15 might make sense there, but if you're picking apples in rural WA, you can probably get by with less than $15.

This last fall, a number of orchards in Eastern Washington let tens of thousands of pounds of fruit (mainly cherries and apples) rot on the trees.  The owners couldn't afford to have them picked.  These business owners run on extremely thin margins.  If even one more straw is put on their backs, they will close up shop.

Austen Heller wrote:

Maddy wrote: This will kill small business in rural areas--which may, in the end, be exactly what is intended.

I agree with this.  To give you a real-life example, I have a family member who works in a rural low-cost-of-living area of upstate NY, managing a small manufacturing business (< 30 people).  Since most of the floor jobs require some skills (welding, painting, etc), they hire new people at $11/hour (which is above the current $9 minimum wage), but even the most senior people, some of whom have been there for 30 years, are maxed out at $16/hour.  These are good wages for people with no education in an area of NY where it is very cheap to live.  When the minimum wage goes to $15, my family member says that the final price of the product will have to go up 30%, which will kill sales, and basically kill the business.  So then all these people lose their jobs and go on unemployment.

What does a state really have to gain though by killing small businesses in rural areas?

Also, Austen, can I ask what types of products are made in the small business you are referring to? Those wages really strike me as low but maybe I need a reality check.

barrett wrote: What does a state really have to gain though by killing small businesses in rural areas?

Also, Austen, can I ask what types of products are made in the small business you are referring to? Those wages really strike me as low but maybe I need a reality check.

I don't think the state has anything at all to gain, the loss of rural manufacturing jobs will just be an unintended consequence.  I'm sure the burger flippers in Manhattan will love getting $15/hour though, regardless of how it affects folks upstate.

For anonymity, I'd rather not tell the exact product.  Suffice to say it's a recreational product, so if the prices go up, people will just choose not to buy.  As learned in 2008/9, sales are highly correlated to a prosperous economy.

I also thought the wages were low, but these are jobs for people without any degrees, some don't even have a high school diploma.  Housing is pretty cheap in a lot of upstate NY areas, $75k can get you a decent house on a quarter acre up there.  Having said that, even where I live now (southern Cali.), I know of some young guys who are aspiring to get jobs at an auto dealer, where they can make $10/hour.  Of course, these are kids, still living at home and no debts to repay.  But sheesh, $10/hour is a tough way to make it through life in CA.  You will never move out of your parents' basement at that rate.

barrett wrote: What does a state really have to gain though by killing small businesses in rural areas?

It's not what the state has to gain, but rather what's to be gained by those who line the lawmakers' pockets.  Think
Walmart, for one. 

My wife's sister and family are visiting from Australia and my brother-in-law reports that they have a $15+ minimum wage in Australia. He also reports that a Big Mac at McDonald's costs $6 (not the meal, just the sandwich). Even worse, a twelve pack of Heineken runs about 30$. He's really enjoying our beer at half the cost.

curlew wrote: My wife's sister and family are visiting from Australia and my brother-in-law reports that they have a $15+ minimum wage in Australia. He also reports that a Big Mac at McDonald's costs $6 (not the meal, just the sandwich). Even worse, a twelve pack of Heineken runs about 30$. He's really enjoying our beer at half the cost.

Are you taking the exchange rate into account? 15 Aussie Dollars would be about $11.40 US at current exchange rates. Of course the Big Mac is still expensive... not to mention the beer (the more painful issue for me personally. One can, after all, live without Big Macs).