Got the following email from MNB reader Craig Espelien:
On the wage front, I do not agree with a mandatory increase in minimum wage to a “living wage”. I empathize with folks who are unemployed and underemployed (I have been both during periods of my career) but the jobs (retail, fast food, etc.) that this impacts are typically part-time and were not intended to be a “career” (I worked at these jobs in the past – and my wages increased the longer I stayed the more value I added to the organizations involved) and are usually adjusted by the market forces as necessary.
I am an economist by education and a retailer by experience – and the concept of scarcity of resources has been ingrained in me continuously over the years. If you own a scarce resource, then you will be rewarded for it; if you need a scarce resource then you will be forced to pay a premium for it. Minimum wage jobs in and of themselves typically do not require a scarce resource – they require limited training and are perceived as replaceable (this is a chicken or egg dilemma as the hidden cost of replacing unhappy workers is not factored in to the cost of operating a business or the impact of low wages on a business) provided there exists a sea of “replacement” workers. When labor is scarce (per your notes today on both the MarketWatch and Bloomberg pieces), wages naturally rise as companies compete for these scarce resources (similar to how inflation works – fewer goods being chased by more dollars).
As an example, when Eden Prairie (Minneapolis suburb) was new and growing (and was the HQ of Supervalu where I worked at the time) in the mid-1990’s, the local Burger King was offering part time jobs starting at $9.00 – and struggled to get workers due to the scarceness of labor (minimum wage was under $4 per hour at the time). I believe that Walmart embraced both this opportunity and the PR opportunity by taking the stance they did – the challenge going forward with a mandatory minimum at $15 is that there is no going back once the scarcity of labor is removed – and then companies will need to reduce staff to save costs. I am not convinced that the upward spiral (the multiplier effect of rising wages and rising disposable income) will offset the downward spiral (low sales/profits leads to cuts in costs and staff which leads to poor service which leads to lower sales/profits). The market will work if we allow it to – but demanding a short term (and permanent) fix to a passing (albeit uncomfortable and disheartening) challenge is not good fiscal or monetary policy.
Jobs are worth what the market dictates (or should be) – one of the large tech companies (Google I think but don’t quote me here) recasts wages for every job every year – some years you get a raise and some years you don’t based on what your job is worth in that market. Mandatory increases in minimum wage moves us closer to the nanny state – and smells too much like welfare to me as the jobs it would apply to were never intended to be the sole support mechanism for an individual or a family.
On a related issue, MNB reader Christ Utz wrote:
Walmart’s well-publicized wage hikes highlight a simple economic trend: Inflation…
I wouldn’t be too quick to credit Walmart with altruistic motives. Other retailers have raised wages with little fanfare. I’ve seen signs at Aldi offering over $12/hour for non-managerial positions. As long as Washington keeps printing boatloads of money to finance deficit spending; we can expect this trend to continue.
From another reader:
Kevin, its hard to feel sorry for Wal-Mart increasing its minimum wage. They still rely on the Gov’t to provide healthcare to many of their workers. Perhaps the solution would be to provide meaningful healthcare (and related premiums) to their part & full-time workers, instead of asking the Gov’t to subsidize? That’s a better solution in the long term…
On the subject of yet another great quarter for Kroger, one MNB user wrote:
I work for Kroger (Fred Meyer) and I have to say, it’s a great feeling to wake up and go to work each day knowing that the leadership of your company really knows what they’re doing!
It occurs to me that the people who don't know what they are doing are the folks who a couple of weeks ago were suggesting that Kroger's winning streak was about to end ... I'm convinced that more often than not, those kinds of statements are uttered by people who most want to see themselves quoted in the papers, and who are less interested in understanding the companies they cover.
And, from another reader on a different subject:
I was one of those people who yesterday when someone mentioned to me about Daylight Savings Time being this Sunday and I hadn’t realized it….but you know the nice thing…even if somehow I would have forgotten….my iPhone would have changed and I wouldn’t have missed it….I still remember a time when I was in college and a friend who forget to set his clock for the time change and missed a class on the Monday…it was pretty funny but that is not something anyone could claim anymore.
True. I think the only things that don't change by themselves are old fashioned wrist watches, microwave ovens, and car clocks.
On the wage front, I do not agree with a mandatory increase in minimum wage to a “living wage”. I empathize with folks who are unemployed and underemployed (I have been both during periods of my career) but the jobs (retail, fast food, etc.) that this impacts are typically part-time and were not intended to be a “career” (I worked at these jobs in the past – and my wages increased the longer I stayed the more value I added to the organizations involved) and are usually adjusted by the market forces as necessary.
I am an economist by education and a retailer by experience – and the concept of scarcity of resources has been ingrained in me continuously over the years. If you own a scarce resource, then you will be rewarded for it; if you need a scarce resource then you will be forced to pay a premium for it. Minimum wage jobs in and of themselves typically do not require a scarce resource – they require limited training and are perceived as replaceable (this is a chicken or egg dilemma as the hidden cost of replacing unhappy workers is not factored in to the cost of operating a business or the impact of low wages on a business) provided there exists a sea of “replacement” workers. When labor is scarce (per your notes today on both the MarketWatch and Bloomberg pieces), wages naturally rise as companies compete for these scarce resources (similar to how inflation works – fewer goods being chased by more dollars).
As an example, when Eden Prairie (Minneapolis suburb) was new and growing (and was the HQ of Supervalu where I worked at the time) in the mid-1990’s, the local Burger King was offering part time jobs starting at $9.00 – and struggled to get workers due to the scarceness of labor (minimum wage was under $4 per hour at the time). I believe that Walmart embraced both this opportunity and the PR opportunity by taking the stance they did – the challenge going forward with a mandatory minimum at $15 is that there is no going back once the scarcity of labor is removed – and then companies will need to reduce staff to save costs. I am not convinced that the upward spiral (the multiplier effect of rising wages and rising disposable income) will offset the downward spiral (low sales/profits leads to cuts in costs and staff which leads to poor service which leads to lower sales/profits). The market will work if we allow it to – but demanding a short term (and permanent) fix to a passing (albeit uncomfortable and disheartening) challenge is not good fiscal or monetary policy.
Jobs are worth what the market dictates (or should be) – one of the large tech companies (Google I think but don’t quote me here) recasts wages for every job every year – some years you get a raise and some years you don’t based on what your job is worth in that market. Mandatory increases in minimum wage moves us closer to the nanny state – and smells too much like welfare to me as the jobs it would apply to were never intended to be the sole support mechanism for an individual or a family.
On a related issue, MNB reader Christ Utz wrote:
Walmart’s well-publicized wage hikes highlight a simple economic trend: Inflation…
I wouldn’t be too quick to credit Walmart with altruistic motives. Other retailers have raised wages with little fanfare. I’ve seen signs at Aldi offering over $12/hour for non-managerial positions. As long as Washington keeps printing boatloads of money to finance deficit spending; we can expect this trend to continue.
From another reader:
Kevin, its hard to feel sorry for Wal-Mart increasing its minimum wage. They still rely on the Gov’t to provide healthcare to many of their workers. Perhaps the solution would be to provide meaningful healthcare (and related premiums) to their part & full-time workers, instead of asking the Gov’t to subsidize? That’s a better solution in the long term…
On the subject of yet another great quarter for Kroger, one MNB user wrote:
I work for Kroger (Fred Meyer) and I have to say, it’s a great feeling to wake up and go to work each day knowing that the leadership of your company really knows what they’re doing!
It occurs to me that the people who don't know what they are doing are the folks who a couple of weeks ago were suggesting that Kroger's winning streak was about to end ... I'm convinced that more often than not, those kinds of statements are uttered by people who most want to see themselves quoted in the papers, and who are less interested in understanding the companies they cover.
And, from another reader on a different subject:
I was one of those people who yesterday when someone mentioned to me about Daylight Savings Time being this Sunday and I hadn’t realized it….but you know the nice thing…even if somehow I would have forgotten….my iPhone would have changed and I wouldn’t have missed it….I still remember a time when I was in college and a friend who forget to set his clock for the time change and missed a class on the Monday…it was pretty funny but that is not something anyone could claim anymore.
True. I think the only things that don't change by themselves are old fashioned wrist watches, microwave ovens, and car clocks.
- KC's View:
