Fewer People Wiping More Bottoms: Minimum Wage Hikes Explained

Fewer People Wiping More Bottoms: Minimum Wage Hikes Explained

Tyler Durden’s pictureSubmitted by Tyler Durden on 03/23/2016 18:35 -0400

More money for everyone. That sounds like a great idea.

Much like free healthcare for everyone.

And free college tuition.

And just “free shit” in general.

Unfortunately, “there’s no such thing as a free lunch” is one old adage that generally turns out to be true in almost all cases.

Be that as it may, advocates of a sharply higher minimum wage don’t seem to understand that most corporations exist to maximize profits. Reduced to the basics, profits come from selling something (or a lot of somethings) for more than your fixed and variable costs. When your costs (like say, labor) rise, you have three basic choices as a company: 1) accept less profit (lower margins), 2) raise prices to offset higher costs, 3) keep prices the same and look for other ways to offset higher costs, like making your operation more efficient.

Nowhere is this dynamic more apparent than WalMart, where an ill-fated attempt to pay the retailer’s meagerly compensated hourly workers a few extra pennies led directly to fights with suppliers, reduced hours, layoffs at the home office in Bentonville, a kitchen sink guidance cut, and finally, a wave of job cuts and store closures. And all so someone who was poor on $9/hour last year could be still poor on $10/hour this year and poor some more on $11/hour next year. And that’s if they’re lucky to keep their job in the first place.

Below, find excerpts from “Proof Perfect That The Minimum Wage Costs Jobs From New York,” by Tim Worstall as originally published on Forbes.

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From “Proof Perfect That The Minimum Wage Costs Jobs From New York”

It’s long been one of those little puzzlers, why people simply cannot understand that demand curves slope downwards. And since they do that a rise in the minimum wage is going to cost jobs. It’s entirely true that a small rise in the minimum wage will have a small effect on employment and or unemployment. That’s been shown again and again in the various studies: we get either an effect too small to see or we get mildly bad effects. But a rise to $15 an hour isn’t a small rise: it’s larger in both dollar and percentage terms than any that the US has ever tried before. And even campaigning groupuscules like the EPI, who are entirely in favour of a modest rise in the minimum, are on record as thinking that $15 is too much. The ill effects will be larger than the benefits.

Today’s little proof that there will indeed be job losses comes from the discussion of New York’s mooted rise:

A coalition of health care providers — which includes the Home Care Association of New York State, LeadingAge New York, Healthcare Association of New York State, New York State Health Facilities Association — issued a statement Monday stressing how important it is that an increase in the minimum wage include a funding stream.

“Our industries are different from fast food establishments and we cannot just pass the costs along to consumers,” the groups said. “The services we provide are a public good, to large degree supported by reimbursement from public programs that have long provided a safety net for low-income and elderly New Yorkers.

“Without adequate state support for any wage increase, many organizations will close, worker hours will be reduced or eliminated, access to care will be imperiled, and some of our communities will suffer the loss of quality healthcare services,” they added.

Their money comes from taxation: the legislators (and also Cuomo himself, the proponent of the wage rise) aren’t minded to increase taxation to give them any more money. So, thus and therefore, there will be the same budget for wages but each hour of labour will cost more. And so, inevitably, there will be fewer people employed doing this work. As some seem not to have grasped:

There are, however, those who support raising the wage.

Allison Krause, a spokeswoman for 1199SEIU United Healthcare Workers East, a union representing health care workers, said that many nursing home and hospital workers they represent make less than $15 an hour and are struggling to make ends meet. After many years of service, the workers often earn only $10 to $12 an hour, she said.

Ms. Krause is obviously in for a shock when some of her members lose their jobs and have incomes of $0 as a result.

Increased labour efficiency, greater worker productivity, is using less labour. That’s the definition of it. Think about it: home care help. So, before the wage rise we need 10 people to wipe 100 bottoms a day. After the wage increase we have to increase labour productivity. We now, to pay for a 50% pay rise, use one third less labour. We now have to have 7 people wiping 100 bottoms in a day. That is using increased labour productivity in order to pay for that minimum wage rise. That’s just what it means. And note what is happening here: for every 100 bottoms wiped we are using the labour of three fewer people.

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