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Thread: Increase in minimum wage kicking in ... and so are 'unintended consequences'

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    Default Increase in minimum wage kicking in ... and so are 'unintended consequences'

    (snip)"Steffi Edwards is one of the Centers for Habilitation's employees whose hourly wage is based on a federal law that allows a lower pay scale to reflect a disabled worker's reduced ability. But Arizona's new voter-approved minimum-wage law, which goes into effect Jan. 1, neglected to include an exemption for disabled workers and supersedes the federal law.

    As a result, about 75 employees at TCH's Tempe job center will, at least temporarily, lose their jobs. So will about 25 employees in Tucson. "(snip)

    "If the law remains as is, industry experts say almost 5,000 Arizonans with disabilities will lose their jobs.

    But Etchechury criticized TCH's decision.

    "Quite frankly, that is shortsighted," Etchechury said.

    "We have to look past the money and to the needs of the people. I don't think there is any entity that would essentially hold someone accountable when clearly the regulating agency is saying, 'We don't know.' "

    Yet, that isn't enough to quell fears at TCH. The group could be fined for not following the rules, leaders there said.

    "TCH has never willfully broken the law, and they can't and won't at this point in time," said Vicki Kringen, the agency's vice president and chief financial officer. Also, paying the full $6.75 per hour for all TCH workers would cost an extra $425,000 a year.

    The group can't afford it, said Dave Cutty, TCH president and chief executive officer.

    Plus, he said, it doesn't make sense because the employees work at an average 35 percent productivity compared with someone who is not disabled. "(snip)

    "Those are the same disabilities that bar them from finding other employment, said Sarah Bruner, a Tempe nurse whose 39-year-old sister, Beth Bruner, is a TCH employee.

    Sarah said the TCH job gives Beth, who has cerebral palsy, a sense of independence and intellectual stimulus. Losing the job would be "devastating."

    Sarah also worries about what will happen if the law remains as is and her sister is paid $6.75 an hour.

    That, Sarah said, would bring Beth to an income level that could jeopardize the family's access to [social welfare programs providing free - sic] care, travel assistance, health care and even prescription drug coverage.


    "Would I have to quit my position as a nurse so I know she's taken care of?" Sarah said.

    "Talk about unintended consequences. This has implications like I couldn't even imagine when I checked that 'yes' box when I voted.""(snip)

    ~
    Last edited by Melonie; 12-29-2006 at 04:12 PM.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    My question is ....if there was a federal law about that on the books before, why wouldn't the lawmakers have thought about that before? Like when they were putting together the wording to the ballots?

    When you vote on those types of issues, are they really so cut and dry? I mean, there was a referendum on my ballot about elderly housing. I knew about it ahead of time, investigated to see how I should vote for it, but I assumed there was more to it on paper. Like more legal terminology, stipulations, etc. Am I wrong to assume that?






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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    in reality, if voters don't read the wording of the actual law that they are voting on, and don't bother to find out or understand the ramifications of passing that law (whiich obviously most voters don't), then they're basically at the mercy of the news media's portrayal of the law which they do read / see. Without departing too far into the political, let me simply point out that this often results in news media creating 'impressions' as to the supposed results of the new law's passage which may or may not be totally accurate or complete.

    At any rate, the 'impression' behind the increased minimum wage laws was portrayed as everyone in the state deserving a 'decent' hourly wage ... as well as a desire not to leave employers any 'loopholes' through which they could avoid having to pay minimum wage to ALL employees. The supposed principle behind this is that the actual employee productivity / value added contribution / whatever you want to call it / of individual workers and particulars of the actual jobs they are being asked to do shouldn't matter - because ALL American workers deserve to earn a 'decent' hourly wage, period ... regardless of the business economics behind the employer's ability to actually afford paying that 'decent' hourly wage and still 'break even'. In the case of disabled employees, whose average productivity is only 35% as high as non-disabled workers, as the financial officer pointed out in the news story there is no way that their non-profit company can 'break even' if they must pay disabled employees the new minimum wage. Thus the effect of the new minimum wage law was to convert former $3.00 an hour disabled employees into zero $ an hour former employees.

    In a larger sense, the gov't mandate that ALL employees are to be paid the minimum wage, regardless of their personal productivity and regardless of the productivity of the job they are being asked to do, now forces employers to be sure that they can 'get their money's worth' from their minimum wage employees. This translates into an employer's desire to hire young, healthy, fully capable workers ... as well as workers who have basic English language and basic math skills ... so that these employees can be productive enough to generate enough added value for the employer to cover the employer's cost of paying them $6.75 or whatever per hour (plus approx another $2.75 per hour in wage proportional employer's Social Security tax, unemployment insurance and workmens' comp/disability premiums etc). If the minimum wage employees are unable to do this, either through lack of personal capabilities / skills, or through the nature of the job they are being asked to do, the new minimum wage laws virtually guarantee that such employees will be ex-employees.

    Thus employers will now be extremely reluctant to hire the physically disabled, the mentally retarded, the totally inexperienced, high school dropouts, people who have had previous brushes with the law etc. Compounding the problem is the fact that, besides having to pay such employees the same $6.75 or whatever per hour as they could pay a 'normal' new employee with a high school diploma and a clean record, if the disabled / mentally retarded / dropout / criminal record employee IS hired and then fails to produce enough to cover his $6.75 per hour paycheck the employer is then stuck paying unemployment benefits AFTER firing them (on the assumption that no other employer is going to risk hiring them either).

    Also, employers will now have very strong motivation to increase the workloads of minimum wage employees in order to get more productivity / value added out of the same number of workers (or an equal amount of productivity from a lower number of workers) to justify their higher hourly pay rate. This may result in additional lay-offs of 'normal' minimum wage employees as employers attempt to get 4 remaining minimum wage employees to do their own work plus the work of a 5th former minimum wage employee who the employer laid off in order to hold his total payroll at the same level. This may also result in consolidation of minimum wage workloads i.e. closing down two small convenience stores and opening one large new convenience store which will attract twice as many customers but employ the same number of minimum wage clerks as one smaller convenience store did (with the clerks that worked at the second smaller convenience store now being permanently laid off).

    Another aspect of this principle is the employer now having a strong incentive to purchase more automated equipment to allow fewer minimum wage workers to perform the same amount of work i.e. giant lawnmowers, giant agricultural harvesting equipment, check-yourself-out cashier equipment, with a significant number of current minimum wage workers being permanently laid off in the process.

    Yet another aspect is that employers will now have strong incentive to 'outsource' component parts rather than having their own minimum wage employees make them, and/or 'outsource' services from subcontractors which are beyond the jurisdiction of the state minimum wage law (or who are breaking the minimum wage law but prepared to 'hightail it' as soon as LE starts sniffing around without implicating the business owner who subcontracted them), and/or pack up and move their own business outside the jurisdiction of the state minimum wage law themselves. All of these would result in current minimum wage workers who reside in that jurisdiction becoming unemployed ex-minimum wage workers.

    The news story also makes passing mention of a different 'unintended consequence', the fact that paying $6.75 an hour or whatever now results in an income level that may put that minimum wage worker (or that family's income level) above the eligibility threshold for social welfare benefit programs. Thus from a cold hard financial standpoint, in that situation the employer must pony up an extra $ 1500 per year in minimum wage paycheck amount out of the company's budget, the minimum wage worker loses X thousands of dollars worth of 'free' social welfare program benefits as a result of their larger minimum wage paychecks, and it is the gov't who is the only winner i.e. a significant reduction in social welfare program spending.

    Newton's law stating that 'every action has an equal and opposite reaction' applies to business finance as well as to physics. A related correllary is that, like the solar system, it's easy to see and predict motions of the major planets, but there are also comets, asteroids etc. out there that are much more difficult to see let along predict !
    ~
    Last edited by Melonie; 12-29-2006 at 05:46 PM.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    Now the company will just have to hire people at the lofty wage of $6.75/hr.

    BTW, what are they currently paying their employees who will temporarily lose their jobs? The article doesn't say.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    ^^^ based on similar non-profit institutions for the disabled in NY, I'd guess around $3.00 per hour. And no, the company doesn't have to pay anyone $6.75 an hour ... they also have the option of going out of business rather than going bankrupt, which is effectively what the non-profit company's financial officer said was their only option. Other companies employing minimum wage workers also have the option of moving outside of the jurisdiction to avoid the new minimum wage law, the option to 'outsource' work formerly done by local minimum wage employees etc. ! Employers also have the option of automating minimum wage workers out of jobs, the option to fire every 5th minimum wage worker and force the remaining 4 workers to produce 20% more if they wish to keep their jobs etc.

    It remains to be seen whether or not an exception to the minimum wage law will be instated for disabled workers. However, as you know, introducing exceptions of any sort is a 'slippery slope' which potentially opens the legal door to other types of exceptions to the new higher minimum wage ... i.e. possibly for employers whose businesses aren't profitable, for employees who are high school dropouts, or are weak in English and math skills etc. If the question of minimum wage employees' actual financial 'worth' to an employer, versus an assumed 'equal minimum worth' of every minimum wage employee, winds up in front of a high court judge - an issue which lies at the heart of an exception for disabled employees - all sorts of unpredictable things might result from such a precedent !
    ~
    Last edited by Melonie; 12-29-2006 at 06:35 PM.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    Just focus on the billions of additional spending power the poor will have at Walmart now.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    ^^^ yes, but, if the media accusations against WalMart being a minimum wage employer are true, then WalMart will have no choice but to raise prices in order to meet a higher payroll as their $5.15 an hour workers must now be paid $6.75 an hour (or whatever). This in turn will cancel out any increase in 'spending power' for the poor despite the fact that their new minimum wage paychecks will contain more dollars per week. Thus the only result of an increased minimum wage on 'poor' Americans will be additional US dollar inflation.

    Actually one can't say 'only' because there will definitely be increased taxes on those larger minimum wage paychecks (SSI and medicare taxes at the very least), as well as the possibility of reduced / lost social welfare program benefit eligibility as rising minimum wage incomes begin to exceed eligibility thresholds.

    Well actually WalMart could take other measures to control their rising total payroll cost too, like for instance permanently laying off all of the retirees who are working as 'greeters' to supplement their Social Security checks and investing in more automated security systems, like laying off another 20% of their check-out clerks and investing in more self-checkout machines etc. ! WalMart could also decide to try and 'beat up on' suppliers for even lower pricing - which at this point wouldn't really affect American businesses very much (since WalMart has already switched to cheaper offshore sources, and American businesses have already started migrating their production facilities offshore in response), but this might force Chinese suppliers to relocate to Vietnam to take advantage of even lower labor costs, even less restrictive / less expensive environmental compliance requirements etc !

    ~
    Last edited by Melonie; 12-30-2006 at 04:30 AM.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    now some 'different' unintended consequences are starting to be reported ...

    from


    (snip)"Employers are particularly stumped about "what to do with the people that maybe had just been at the $6.75 level, those people who have worked their way up to $6.75 per hour," said Jo Adams, director of human resources for Desert de Oro Foods Inc. in Kingman. "We're trying to figure out what would be best for all involved.""(snip)


    (snip)"Adjusting other wages

    Desert de Oro, which owns 53 Taco Bell restaurants mostly in metropolitan Phoenix, is trying to be as fair as possible when examining wage structures, Adams said. Its payroll budgets could increase by six figures annually.

    "We have spreadsheets galore, and we're running all sorts of 'what if' scenarios," she said.

    Comer of the bible college is also trying to determine adequate salary increases for other employees.

    "Many of our staff members work at a ridiculously low wage, and it's not right that students get bumped up within 25 or 30 cents of their salaries," he said.

    Advocates of the new law maintain it will help Arizona create a "living wage" for some of the poorest workers.

    The Economic Policy Institute in Washington estimates that 145,000 Arizonans will receive a pay raise. That is how many make $5.15 to $6.74 per hour.

    Opponents maintain the tight labor market generally dictates that companies pay Arizona workers more than $6.75 per hour to keep them.

    In addition, the law's automatic adjustment for inflation every year could push employers to cut jobs in order to raise wages. That could financially ruin some businesses.

    It has certainly been a splash of cold water.

    Monica Stern, a certified public accountant in Phoenix whose clients are non-profit groups and small businesses, said her one restaurant client will see an annual payroll increase of $40,000 to $45,000 due to the jump in pay for tipped employees.

    Under the new law, tipped employees must make at least $6.75 per hour, but that can come from a combination of tips and fixed wages. A majority of those workers will be paid a base wage of $3.75 per hour, plus tips.

    The restaurant determined its menu prices would need to be increased 4.5 to 5 percent.

    "Not a lot of businesses pay minimum wage, so certain industries are going to be hit harder," she said. "And one is (a business) with tipped employees."

    Rick Hall, a Subway franchisee and chairman of the local Subway advertising board of trustees, said the chain is very "sensitive to the reality that the new minimum-wage increase will affect customers as well, almost assuredly making it pricier to eat out and shop at many establishments." "(snip)

    (snip)"A new starting wage
    How the new law will impact wages in the Valley's already tight labor market is anyone's guess.

    "An increase like this doesn't just mean it's a new minimum wage; it's a new starting wage," said Lynette Hall, a director of training for Kahala Corp., a national restaurant franchising company based in Scottsdale. "You might get people to come into your building for $6.75, but they're still going to ask you what you actually pay as a starting wage. It's so competitive out there, small-business owners, they're obviously going to meet or beat that minimum wage.""(snip)


    The 'tin foil hat' crowd would comment that raising the minimum wage will have exactly the effect that Unions and other supporters were counting on ... it serves as a new higher salary baseline, which can then be used to justify pay raises for other employees with longer service on the job, higher skills etc. As the college administrator pointed out, there is now an issue of fairness involving long time staffers who had worked their way up from $5.15 an hour to $7.00 an hour who will now see the nearly two dollar an hour 'fruit' of their long labors instantly reduced to 25 cents an hour compared to a new hire with no skills and no service !

    The 'tin foil hat' crowd would elaborate that the new minimum wage law sets $6.75 an hour as the accepted pay rate for the worst employees ever in terms of skills, work ethic, productivity etc. Thus, as the news story points out, employers who try to hire new employees who DO have a promising background and work ethic are not going to be able to pay them $6.75 an hour too !

    Also, as the new minimum wage law takes effect, employers are now - finally - sitting down to calculate the price increases which will be necessary to cover their increased payroll costs. This appears to be a major issue in the food / restaurant sector, where 5% price increases are being discussed. This of course is due to the fact that the 'tipped' minimum wage has jumped from $2.15 an hour to $3.75 an hour (on the assumption that the $3.00 per hour average tip earnings which contribute the other part of tipped employees' minimum wage salaries won't increase) - but it represents a 74% increase in employer payroll costs for 'tipped' minimum wage employees.

    ~
    Last edited by Melonie; 01-01-2007 at 08:10 AM.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    this is just one reason why the minimum wage laws are actually hurting the poor. It sounds good in theory, but it end up costing lower income people their jobs, and puts small businessses out of business.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    A price floor that arbitrarily pushes the price of a good above the market equilibrium will create an excess supply. When there's an excess supply, the market is in failure. The employers have more employees to choose from than they can optimally employ so they rationally choose to employ the most productive employees. With no ability to use price to compensate for lower productivity (disabled employees, poorly educated) or higher risk (dropouts, past convicted), this surplus labour just becomes unemployment.

    I teach this stuff to my Microeconomics 101 class. It is beyond belief that the legislators do not see these "unintended consequences". Sure, they're "unintended"... but they're not "unexpected". One can't 'exempt' a particular group... 'cos then what will happen to the dropouts, undecuated and inexperienced? If they get 'exempt' too then it's the same as not having a minimum wage at all.

    The government needs to subsidize disabled labour to make it at least breakeven for the employer. But if you offer a flat rate then the most productive of the disabled get employed - so you'd have to have a categorization like in the paralympics... but I mean how can you assign numbers like cerebral palsy = 15, dominant hand lost = 5, non-dominant hand = 3, I mean that's just dumb.

    When will these idiots realize that interfering with the market just doesn't work?

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    When will these idiots realize that interfering with the market just doesn't work?
    Assuming that by 'idiots' you're referring to Democrats and some Republicans who voted in support of the minimum wage increase, the likely answer is NEVER as long as the majority of negative financial consequences fall on small businesses and middle class taxpayers. From their standpoint, most of the important constituencies are still happy. Unions get to push for higher wages across the board using the higher minimum wage and the 'skill differential' argument. Unemployed minimum wage workers wind up enjoying the same 'minimum acceptable American standard of living' by collecting as much in social welfare benefits as they 'lost' in former minimum wage paychecks. Price inflation plus wage inflation result in higher tax revenues from proportional sales taxes and especially from progressive income taxes on wages. The 'rich' really don't care one way or the other because spending an extra $20 a week on groceries or on having their lawn mowed is inconsequential in their world of Porsches, stock and bond portfolios etc. The 'rich' will simply rotate away from stocks of companies whose future profits will be disproportionately affected by the minimum wage increase !

    In regard to those bankrupt small businesses and more heavily burdened middle class taxpayers ... well they always seemed to vote 'the wrong way' anyhow. Everything is likely to proceed with a big smiley face until the US economy eventually tanks ... at which point very few Americans will actually bother to connect the dots re cause and effect if similar past scenarios are any example.

    The government needs to subsidize disabled labour to make it at least breakeven for the employer. But if you offer a flat rate then the most productive of the disabled get employed - so you'd have to have a categorization like in the paralympics... but I mean how can you assign numbers like cerebral palsy = 15, dominant hand lost = 5, non-dominant hand = 3, I mean that's just dumb.
    just think - such a system could be the basis of a whole new division of the DOL, with several thousand new employees being put on the gov't payroll who will be tasked to come up with such a system, implement it, and enforce it ! Hmmm ... more middle class Americans becoming dependent on a gov't paycheck, more paperwork for small businesses that managed to survive the minimum wage increase !

    ~
    Last edited by Melonie; 01-20-2007 at 04:53 AM.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    Quote Originally Posted by Melonie View Post
    Assuming that by 'idiots' you're referring to Democrats and some Republicans who voted in support of the minimum wage increase, the likely answer is NEVER as long as the majority of negative financial consequences fall on small businesses and middle class taxpayers. From their standpoint, most of the important constituencies are still happy. Unions get to push for higher wages across the board using the higher minimum wage and the 'skill differential' argument. Unemployed minimum wage workers wind up enjoying the same 'minimum acceptable American standard of living' by collecting as much in social welfare benefits as they 'lost' in former minimum wage paychecks. Price inflation plus wage inflation result in higher tax revenues from proportional sales taxes and especially from progressive income taxes on wages. The 'rich' really don't care one way or the other because spending an extra $20 a week on groceries or on having their lawn mowed is inconsequential in their world of Porsches, stock and bond portfolios etc. The 'rich' will simply rotate away from stocks of companies whose future profits will be disproportionately affected by the minimum wage increase !

    In regard to those bankrupt small businesses and more heavily burdened middle class taxpayers ... well they always seemed to vote 'the wrong way' anyhow. Everything is likely to proceed with a big smiley face until the US economy eventually tanks ... at which point very few Americans will actually bother to connect the dots re cause and effect if similar past scenarios are any example.



    just think - such a system could be the basis of a whole new division of the DOL, with several thousand new employees being put on the gov't payroll who will be tasked to come up with such a system, implement it, and enforce it ! Hmmm ... more middle class Americans becoming dependent on a gov't paycheck, more paperwork for small businesses that managed to survive the minimum wage increase !

    ~
    I agree. It's not about doing things sensibly, it's about getting the right votes. And that paragraph on rating disabilities was written in jest to show the stupidity of the whole thing

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    Quote Originally Posted by scorpio View Post
    this is just one reason why the minimum wage laws are actually hurting the poor. It sounds good in theory, but it end up costing lower income people their jobs, and puts small businessses out of business.
    I've already seen this happen. I get my lunch at work about twice a month at a local McDonald's. It's a tiny one, shoehorned into a food park at a local shopping mall. Since the first of the year, they've raised the price of their sodas. The largest increase was from $1.00 to $1.39 for a small drink, although I'm not sure if they give you a tiny bit more or not - the small drink cup size was changed, and is now taller, but also slimmer. So someone from another fast-food chain, when purchasing a meal from that Mickey D's, will have to spend some more of the raise they received from the minimum wage increase.

    Also, my roommate cousin is the general manager of a local restaurant, more upscale than McDonald's, and while he only had one employee earning under the new minimum wage (in California, it was raised to $7.50/hr on the 1st, and will go to $8.00/hr on January 1st next year) he did respond. He just eliminated 1.5 jobs (3 part-time ones he didn't replace) when three of his current employees left to go back to high school and college after the summer last year, in anticipation of this - although it's "slow season" for him right now anyway.

    And restaurants are doubly squeezed, this time around, due to the cold weather in California and freezing weather in other states, in that they will have to pay more for produce, etc., in addition to higher wages.
    Last edited by PhaedrusZ; 01-20-2007 at 09:14 AM. Reason: typos

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    ^^^ actually, restaurants and other businesses employing 'tipped' minimum wage workers are hit the hardest of all by the new minimum wage law. A non-tipped minimum wage employee's labor cost to the employer will go up from $5.15 an hour to $7.25 an hour (or whatever) or 41 %. However, under federal law, employers of 'tipped' minimum wage workers were previously allowed to deduct an assumed $3.00 per hour worth of direct tipped income ... and that amount was not changed as a result of the new minimum wage bill. Thus restaurants' actual 'tipped' minimum wage hourly labor costs will go from (5.15-3.00)=$ 2.15 to ($7.25-3.00)=$ 4.25 an hour or 98% ! Thus from a restaurant owner's viewpoint, the new minimum wage law represents just about a DOUBLING of his 'tipped' minimum wage employee labor costs.

    Again the 'rich' are not significantly affected because the consequences of adding an extra dollar to the price of a five star restaurant meal to cover higher employee labor costs is a pitiful drop in the bucket compared to the $50 a plate dinner price and the $100 bottle of wine. However, as you point out, adding the same dollar to the cost of a McD's Happy Meal is a very different story on a percentage basis ... and has the heaviest financial impact on precisely those low income workers that were supposed to benefit from the minimum wage increase. This same principle applies equally to upscale department stores vs big box stores, upscale (example - organic veggies) grocery stores vs discount supermarkets etc. The bottom line is that the smaller the value of the 'commodity' is to begin with, the higher the percentage of impact from an increase in labor costs.


    And that paragraph on rating disabilities was written in jest to show the stupidity of the whole thing
    if the right person in Washington DC hears your suggestion, they may not take it as a joke !!!
    ~
    Last edited by Melonie; 01-20-2007 at 11:10 AM.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    The whole situation is shitty. Even before this new min wage hike, which granted they've talked of for years, the life at min wage was hard. Still is and will be even with the hike as all these other price rates will rise.

    Has anybody here read 'Nickel and Dimed: On (Not) Getting By in America' by Barbara Ehrenreic?

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    There's a good deal of discussion re Ms Ehrenreich an her book in a Member Boards area thread. As the focus of Dollar Den is supposed to be financial, all I can say is that Ms. Ehrenreich's experiences in attempting to live as a 'poor' person were vastly skewed from that of a person who was truly poor, because Ms Ehrenreich's actual income and assets prevented her from being eligible for the cornucopia of social welfare benefits and tax subsidies that would be an integral part of a truly poor person's standard of living.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    I agree! I wasn't aware of the thread as it just came to mind. I always think of that book when I'm thinking of a subject to do with minimum wage laws. I read the book very objectively and agree that her situation was vastly different.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    This increase also has a very large impact on SC owners. A LOT of employees in SCs are minimum wage + tips. While the extra $2/hr doesn't seem like a lot, if you're running a big club, that is a nasty hit to the expenses of the club. That club owner might be looking to make that money back somehow...

    On the good side, if the entire pay scale moves up (and not just the bottom), there could be more expendable income to go around. And while the minimum wage earner might not be the best customer for SCs, imagine the company owner who happens to be able to capture a lot of those extra expendable dollars? - That company owner will have a lot to be happy about on his next visit to the club.

    Interestingly to me, in Nevada (which has a low min-wage), they have tried to carve out an exception for "piecework" specifically to protect some disabled workers.
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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    VegasGroup, all of the 'pieces' that you mentioned are arguably true, but you haven't put the puzzle together. A club's mandate to pay 'employee' dancers an extra $2 an hour forces you to generate more revenue to cover the greater labor costs ... so you raise the house's 'cut' of private dances or the stage fee. If the price of private dances is not increased, and the number of private dances sold remains the same, the 'employee' dancers will wind up losing every bit of the extra $2 an hour they receive in base pay in lower de-facto earnings per private dance or paying higher fees.

    On the other hand, if you raise the private dance price enough to cover the increased house 'cut' necessitated to pay for the mandatory $2 per hour increase in 'employee' dancer base pay, the number of private dances sold will decline ... which will also cause the 'employee' dancers to lose every bit of the extra $2 an hour they receive in base pay due to a lower number of private dances they are able to sell.

    In a theoretical model economy, if a $2 increase in minimum wage were to result in a $2 increase across the board based on the 'relative skill / value' theory, then yes everybody would have more money in their pocket ... BEFORE TAXES. But thanks to progressive tax rates, once a person starts earning more than say $50k per year their tax rate will start to nibble a sizeable chunk of those extra earnings. The higher pricing of products from companies who must cover the mandated increases in labor costs will also nibble a sizeable chunk of those extra earnings. Thus the actual amount of 'disposable income' that will be floating around after paying more in taxes plus paying higher prices for food, clothing etc. won't really be all that much. And don't forget that the dancers will also be facing the necessity of paying higher prices for food, clothing etc. themselves, meaning that their dancing incomes will need to increase by some amount just to 'break even' vs inflated prices.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    In fact, your comments actually provide an opportunity to follow through on a potential 'real world' example of the effects of a minimum wage increase on 'employee' dancers. Let's start out with our example club, which charges $20 per private dance, charges no stage fee but the club keeps $5 out of each private dance to cover $2 an hour base pay for the 'employee' dancers and other costs, where girls work 8 hour shifts, and where the girls average one private dance sale per hour. Right now

    average dancer 8 * $2 base pay + 8 * $15 private dances = $136
    hustler dancer 8 * $2 base pay + 16 * $15 private dances = $256
    marginal dancer 8 * $2 base pay + 4 * $15 private dances = $76

    If the club opts not to increase the price of private dances, but to raise it's $5 take on private dances to $7 in order to cover a mandated $4 an hour base pay, this happens ...

    average dancer 8 * $4 base pay + 8 * $13 private dances = $136
    hustler dancer 8 * $4 base pay + 16 * $13 private dances = $240
    marginal dancer 8 * $4 base pay + 4 * $13 private dances = $84

    If the club opts to raise the private dance price from $20 to $25 at the same time the club raises its cut from $5 to $7 to cover a mandated $4 an hour base pay, but as a result private dance sales drop by 25% due to the price increase, this happens ...

    average dancer 8 * $4 base pay + 6 * $18 private dances = $140
    hustler dancer 8 * $4 base pay + 12 * $18 private dances = $248
    marginal dancer 8 * $4 base pay + 3 * $18 private dances = $86

    in both scenarios, the end result of the mandated increase in minimum wage base pay results in a pretty much break even situation for an average dancer. It definitely benefits marginal dancers whose earnings go up by 15-20%. It also definitely penalizes hustling dancers whose earnings go down !

    The incentives implied in this example, as well as the cost shifting mechanisms implied in this example, also arguably apply to other types of minimum wage businesses as well.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    spot on, Melonie

    for the clubs to maintain their status quo, the renumeration for dancers will change from a smaller base pay and larger 'commission' on dances to a higher base pay and lower 'commission' on dances

    this represents a net loss for the high performing dancer

    combined with the inflationary effects and associated bracket creep created by the minimum wage increase, that's a double whammy for the good dancer

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    That's a logical way to look at paid dancers (out in LV, there is very little of that). The problem comes with everyone else in the club. A lot of the folks that dancers tip out at the end of their shift are minimum wage employees too. Those folks make tons of money through tips, so they don't really care what they get paid. This can also include bartenders, bathroom valets, etc... All of those folks will be making $2/hr more when the law goes into full effect (which is still awhile off). The owners have to pay, and changing the tip-out structure gives nothing extra to the owner.

    The owner who is looking at making "back" that $40-$50/hr (20-25 employees), will try to get it somewhere. In LV (don't have any experience with other places), there are really only two sources of "standard" revenue for the owners; bar tabs and dance fees. Some places have tried/are trying to get cuts of dance money, but that can be very hard to do logistically particularly at large clubs, and has all sorts of "and now you go to jail" implications.

    So the owner can raise dance fees (bad for dancers directly as there is no offset in revenue) or raise drink prices (bad for dancers indirectly, as now there is less money in pocket to be spent).

    The effect overall is negative on a micro level, but probably minor (upping dance fees by $5 would probably cover the extra overhead for the owner).

    I should mention that door fees are sometimes a source of revenue too, but in LV lately, that entire fee, and often more, goes right back out to the cab driver (sometimes a LOT more).

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    It amazes me how strongly people will argue that making $6.75 an hour is "too much money" and will hurt the economy, yet those very same people will also argue that increasing taxation (or even maintaining it) on the wealthy is "punishing the rich". In order to qualify for the "cornucopia of benefits" available to the poor, one has to be living at or below the poverty level, which even now is less than minimum wage pays. However, I wonder when was the last time anyone even remotely involved in legislation was forced to subsist on $14K a year? That's $950 a month after taxes, give or take. Especially when you factor in the rise in the cost of health care, education and even fuel (which affects everything from public transportation costs to food prices).

    This wouldn't have been a huge issue if our legislators hadn't voted to table it for a decade, without even adjusting the wage for inflation. Of course, they certainly made it a priority to vote raises for themselves, since who can raise a family these days on only $140,000 a year?

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    ^^^ a very valid point ... especially when you consider that the vast majority of minimum wage advocates in Washington DC are multi-millionaires not merely hundred-thousandaires. These truly 'rich' senators and representatives don't have a clue what the day to day life of a truly poor person is like. Of course, they don't have a clue either what it's like to try and run a small business profitably or for a middle class person to carry a 40% total tax burden.

    At this point it looks like the minimum wage bill is stalled anyhow, because Senators decided that they didn't want to have to deal with a rash of new unemployment claims from former minimum wage workers ...



    BTW senator Jeff Sessions has another amendment waiting in the wings that any company that violates the new minimum wage bill would become ineligible to do business with gov't bodies for the next ten years. However, under the wording of the amendment, it is questionable whether businesses who employ illegal aliens at pay rates under the minimum wage would be exempt from this provision !!!

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    Last edited by Melonie; 01-26-2007 at 05:07 PM.

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    Default Re: Increase in minimum wage kicking in ... and so are 'unintended consequences'

    Quote Originally Posted by aviendha View Post
    It amazes me how strongly people will argue that making $6.75 an hour is "too much money" and will hurt the economy, yet those very same people will also argue that increasing taxation (or even maintaining it) on the wealthy is "punishing the rich". In order to qualify for the "cornucopia of benefits" available to the poor, one has to be living at or below the poverty level, which even now is less than minimum wage pays. However, I wonder when was the last time anyone even remotely involved in legislation was forced to subsist on $14K a year? That's $950 a month after taxes, give or take. Especially when you factor in the rise in the cost of health care, education and even fuel (which affects everything from public transportation costs to food prices).

    This wouldn't have been a huge issue if our legislators hadn't voted to table it for a decade, without even adjusting the wage for inflation. Of course, they certainly made it a priority to vote raises for themselves, since who can raise a family these days on only $140,000 a year?
    Right on. I also find that whole "punishing the rich" line so much utter bullshit, it's like nails on a chalkboard to me. Punishing the rich my ass. What about everyone else who has to PAY, in one way or another, for that rich lifestyle? Fuck the rich Let them pay.

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