Minimum wage push-back
Thursday, Feb 7, 2013 - Posted by Rich Miller
* If you haven’t watched the new PBS documentary on Henry Ford, you should. When Ford raised wages to $5 a day, doubling the going rate, he was attacked by his fellow industrialists and called an anarchist and a class traitor and confidently predicted Ford’s bankruptcy.
But one of Ford’s big problems at his factories was high employee turnover. People just didn’t like working at such repetitive tasks. Pretty much anybody could do those tasks, by design, but people just didn’t like doing them. Raising wages meant he attracted the best of the best and retained them for much longer.
* That documentary came to mind while I was reading an interesting story in today’s Tribune about Gov. Quinn’s State of the State proposal to raise the minimum wage to $10 an hour over a period of four years…
Chris Ondrula, chief executive of Downers Grove-based Heartland Food, which has more than 3,500 minimum wage employees at 178 Burger King restaurants in Illinois, said a wage hike would be ill-timed because he’s already dealing with higher prices for commodities and bracing for higher costs as the federal health care overhaul takes effect.
“The ripple effects are exponential,” Ondrula said. A restaurant that is marginally profitable, he said, might become unprofitable and be forced to close.
[…]
Ondrula’s views on job losses that could stem from a higher minimum wage were once widely shared by economists. But a now-famous case study published in 1994 by labor economists David Card and Alan Krueger began to change conventional wisdom. They compared employment trends in fast-food restaurants in New Jersey, which had just hiked its minimum wage, with trends in neighboring Pennsylvania, and found little impact on low-wage workers.
Berkeley’s Reich, along with two economists from the universities of Massachusetts Amherst and North Carolina, expanded on the research by examining restaurant employment in neighboring counties in different states with different minimum wage levels. They studied 16 years’ worth of data and found no negative effects on low-wage employment.
Instead, they found that higher wages reduced employee turnover, which saves business money.
Other academic research has found that minimum wage hikes increase consumer spending. A study by economists at the Federal Reserve Bank of Chicago reported that immediately following a wage increase, incomes in households with minimum wage earners rose on average by about $1,000 a year and spending by roughly $2,800 a year. Much of new spending was on automobiles.
* Despite all that, a minimum wage hike doesn’t look like a slam dunk…
Although the state already has one of the highest rates in the nation, Quinn argued another boost would help increase the quality of life for residents.
“Nobody in Illinois should work 40 hours a week and live in poverty,” Quinn said during his speech. “That’s a principle as old as the Bible.”
Quinn is seeking to revive a proposal that was floated last year but didn’t make it out of committee. Still, lawmakers said that such a proposal would need cooperation from the business community to get any traction.
The Illinois Retail Merchants Association and the Illinois Chamber of Commerce came out against the measure, saying Quinn should focus on the state’s massive financial problems. Illinois has the worst pension problem of any state in the country and billions in unpaid bills.
“Another minimum wage hike will only hurt those who are looking for a job and those who employ them in this challenging economy,” David Vite, the president of the merchants association, said in a statement. “It’s rather disappointing that Governor Quinn is supporting another job-killing proposal instead of focusing on solving our budget crisis and our bankrupt pension system.” […]
The chamber characterized the increase as “an untimely, ill-advised and outrageous proposal.”
More opposition…
Kim Clarke Maisch, state director of the National Federation of Independent Business, said it is ironic that Quinn is telling small business owners how to run their businesses when the state budget is a mess.
Not a bad argument.
* But raising the overall minimum wage is only part of the Quinn-endorsed plan by state Sen. Kimberly Lightford…
Lightford also seeks the elimination of the “tip credit,” which currently allows employers to pay as low as $4.95 per hour to employees who work for tips. This essentially amounts to the customer subsidizing a worker’s legally guaranteed wages.
This makes it even more difficult for a tipped worker to earn a living wage, because without precise documentation of tip income — the burden for which falls on the employee — a worker will have a difficult time obtaining a car loan or a mortgage if their employer only has to pay them $4.95 per hour.
Discuss.
- steve schnorf - Thursday, Feb 7, 13 @ 10:56 am:
Didn’t Ford also say he raised the wage so his employees could afford to buy his cars?
- wordslinger - Thursday, Feb 7, 13 @ 11:02 am:
Schnorf, he did.
Said a lot of things, that guy, lol.
- Ahoy! - Thursday, Feb 7, 13 @ 11:03 am:
Henry Ford raised his wages out of market demand; this was not the Government imposing an arbitrary wage increase. Additionally, Illinois does not live in a vacuum, we need to be cognizant of what our neighbors minimum wages are, we’re already third highest, which might not be a bad thing, but we need to ensure that our government does not set arbitrarily high wage rates that the market cannot bear since that would just lead to a decrease in the number of jobs.
Maybe instead of the Government looking to set arbitrary wages, they should look into policies that help job creation which will raise wages and create additional demand. Workforce training is also a good way to help increase wages since the job market has unfilled positions that workers are not qualified for. Our community colleges can prepare these workers but are underfunded, underutilized and under unfunded mandates from The State. Let’s reach out to them and see how they can provide more workers training.
- Cheryl44 - Thursday, Feb 7, 13 @ 11:03 am:
Grossing $400 a week is not going to make anyone middle class, Governor. Nice sentiment though.
- VanillaMan - Thursday, Feb 7, 13 @ 11:07 am:
Having a high minimum wage here hasn’t helped a twit. See our unemployment situation? Blago did it, and we’re not seeing any improvement. Raising it higher will give us the same results.
How about letting the folks gambling with their future who do the damn hiring decide how to run their own businesses?
Governor Quinn has been exposed as no expert in meeting his own worker’s needs. Who the heck should listen to him?
- Senator Clay Davis - Thursday, Feb 7, 13 @ 11:10 am:
Eliminating the tipped employee wage makes no sense. I waited tables for about 10 years on and off, from Steak n’ Shake to swanky bistros in Chicago, never making more than $4.25/hr, but always making GREAT money because of tips. Waiting is always better-paying than other food service jobs, and your net pay is NEVER below minimum wage, far from it.
Eliminating the tipped wage also assumes that customers won’t tip, which they will. It’s not “the customer subsidizing wages,” it’s the culture. We have a tipping culture in America, Kim Lightford isn’t going to change that.
- Esquire - Thursday, Feb 7, 13 @ 11:11 am:
Your account of Henry Ford increasing employee wages is correct and is still taught in business schools. The problem with making a valid comparison to increasing the minimum wage is the difference between a manufacturing economy and a service economy. Manufacturing economies can drive economic growth at a much greater pace than do service economies. In a service economy, growth is measured in the low single digits, whereas economic growth in a manufacturing economy is often much more robust.
Comparing the employees of a food processing company or restaurant chain selling fast food and auto workers is not an apt comparison. An extra fifty or sixty dollars per week to a minimum wage earner may not purchase a tank of regular gas.
- just sayin' - Thursday, Feb 7, 13 @ 11:13 am:
Henry Ford would be a better model had he not been a vicious anti-semite.
- Dazed & Confused - Thursday, Feb 7, 13 @ 11:17 am:
There is no small amount of hypocricy in insisting that the minimum wage needs to be raised for workers to elevate their standard of living while at the same time cutting cost of living increases for pensioners. I guess it depends on who is paying the bill. If its private business then fine but if its the government then it’s unacceptable. What about the thousands of pensioners who will slowly sink into poverty?
- Mittuns - Thursday, Feb 7, 13 @ 11:22 am:
If we are to continue the trend toward a service-dominated economy, then wages should reflect those changes so that workers may sustain some semblance of a decent middle class lifestyle. Whether it be from worker organizing, legislative directive, or employer arbitration is the question.
- Just Me - Thursday, Feb 7, 13 @ 11:23 am:
I’ve always wondered, and I don’t know the answer to this question, but what % of minimum wage earners are using that to live by for a long period of time? I always associated the minimum wage as something for teenagers to acquire gas money, college kids to acquire beer money, and adults that are in employee training programs.
- dupage dan - Thursday, Feb 7, 13 @ 11:26 am:
=== Henry Ford raised his wages out of market demand; this was not the Government imposing an arbitrary wage increase ===
And therein lies the key. Henry Ford made a decision about HIS business after looking at the realities of the industry. THe gov’t didn’t force him to do it. Market forces are what determine what is best for the market, by and large.
Part of the challenge is that you can find an multiple economists to support your position no matter what it is. How do we find our way thru the weeds to the truth? In the end, the gov’t is not the best arbiter in this debate, IMO. It cannot respond to market forces as well as the market itself does.
- titan - Thursday, Feb 7, 13 @ 11:28 am:
Ford used the ‘above market’ level wages to attract the better workers, presumably to perform better work along with reducing the hit Ford took from costs associated with high turnover.
Forcing ever employer to pay those wages will do one of that. And for workers with minimal job qualifications (such as many inner city minority youth), it may create a situation where their labor just isn’t worth their cost - and the ’starter jobs’ will dry up even more.
- Restaurant CFO - Thursday, Feb 7, 13 @ 11:29 am:
Businesses can adjust to a higher minimum wage, partly by raising prices as well as standards and expectations for minimum wage staff. Fewer, more expensive meals will be eaten at restaurants, but I can understand the logic.
Eliminating the tip credit, not so much. I’m not sure how tipping servers got started, but it is entrenched in the culture and economics of full-service restaurants. It is part of the cost of eating there. Owners need to understand the total cost of the meal when setting prices. Including tips, Servers are usually the highest paid staff in the restaurant. When thinking about low wage workers in the restaurant, dont think about the server in front of you, but the dish machine operator in back.
Note: Tips can be used to support a loan application as long as they are declared on your tax return (as required). Its really a trade off between tax evasion and credit score. I understand either choice.
- dupage dan - Thursday, Feb 7, 13 @ 11:30 am:
Mittuns,
Do you propose to make that into law? If you want to make a decent income, stay in school, get an appropriate education in a field that will pay a middle class income and then start working in your chosen field working your way up to a decent paying job. Don’t depend on the gov’t to force a company to pay you a wage that is in excess of what the job is worth. That is economic lunacy and simply won’t work.
- The Captain - Thursday, Feb 7, 13 @ 11:30 am:
I feel like you could have a lot of fun with this statement in other contexts:
“Kim Clarke Maisch, state director of the National Federation of Independent Business, said it is ironic that Quinn is telling small business owners how to run their businesses when the state budget is a mess.”
For example:
“Kim Clarke Maisch, state director of the National Federation of Independent Business, said it is ironic that Quinnthe Chicago Tribune is telling small business owners anybody how to run their businesses when the state budget is a mess they went bankrupt.”
Maisch’s statement is not without merit, but it is so broadly applicable that you could use it to dismiss almost any idea from almost any group. Don’t believe me? Here’s another one:
“Kim Clarke Maisch, state director of the National Federation of Independent Business, said it is ironic that QuinnIllinois Republican are telling small business owners anybody how to run their businesses when the state budget is a mess they’ve been unable to gain power for so long.”
We’ve just used this argument to effectively dismiss the Governor, the primary opposition party and the state’s top newspaper editorial board from being eligible to offer plans/ideas for state government, who’s left to run the state?
- The Captain - Thursday, Feb 7, 13 @ 11:31 am:
Well that comment would have read a lot better if the HTML strikethrough tag had worked. Oh well.
- How Ironic - Thursday, Feb 7, 13 @ 11:34 am:
@ Dupage Dan,
“And therein lies the key. Henry Ford made a decision about HIS business after looking at the realities of the industry. THe gov’t didn’t force him to do it. Market forces are what determine what is best for the market, by and large.”
Market forces are not always an arbiter of what is good for business or the population that works in them.
Sweatshops are great for the business owner. Would you argue that simply allowing those business to continue to pay whatever wage they can squeeze out of their workers is in the end beneficial to society as a whole? I think not.
It is naive to think that without government intervention that the ‘markets’ will maintain a safe workplace, not take advantage of workers, or not pollute the environment.
- langhorne - Thursday, Feb 7, 13 @ 11:39 am:
once again the governor wants to improve things for one group, by having another group pick up the tab.
this is also a very unnecessary distraction from the MAJOR problems that need to be addressed within state government.
- steve schnorf - Thursday, Feb 7, 13 @ 11:39 am:
This may be an issue upon which I disagree with some of my more progressive peers. I’ve never been a fan of trying to liken the minimum wage with some sort of “living wage”. I’m not even sure what a living wage is. Where? For how many people? Living how well?
The minimum wage in my mind has always been the entry level wage for unskilled entry level jobs, with no expectation one could/would attempt to support a family with it. Normal advice from me would be, unless its a second job, if you are going to be working a minimum wage job you have no business having a family to try to support.
People work at minimum wage jobs, get pay increases, develop work habits and skills, get promotions, develop more skills, move on to better jobs, etc. That’s how it’s supposed to work, and has in the past. Are there people for whom thru circumstances either within or beyond their control the near minimum wage is going to be a longer term experience? Yep. Unfair? Maybe, but so are a lot of other things we can’t cure thru social engineering.
Sorry to disappoint any of you who thought I was a true liberal, but raising the minimum wage isn’t at the top of my list of things we should do to address the problem of poverty. BTW, I don’t think $10 an hour provides income above the poverty level for a family of four.
- Mike Huntoon - Thursday, Feb 7, 13 @ 11:41 am:
I thought that tipped workers had to keep precise documentation for income tax purposes . . . Of course if they don’t claim the income on thier taxes they can’t claim it on a loan application, but that’s more tax evasion than a pressing problem that requires a legislative solution . . .
- Ahoy! - Thursday, Feb 7, 13 @ 11:44 am:
How Ironic,
Very true that the market is not always the answer, however government making arbitrary decisions is not always the answer either.
- Liberty_First - Thursday, Feb 7, 13 @ 11:46 am:
Minimum wage definition: a government law allowing employers to pay you as little as possible and take away any incentive for salary improvement through artificial labor pricing control; an argument that can’t be wone.
- Anonymous - Thursday, Feb 7, 13 @ 11:47 am:
There is a heck of a difference in making a car part versus a hamburger.!!
- OldSmoky2 - Thursday, Feb 7, 13 @ 11:47 am:
Fast-food restaurants are not going to close if the minimum wage is hiked. They are there and will stay there because people want their products. McDonald’s and Burger King are doing fine despite the fact that it’s been a long time since you could buy a Big Mac meal or Whopper meal for anywhere close to $3. And as for minimum wage jobs just being filled by teenagers and college students, think again. Take a look at who’s working next time you’re in a Walmart or McDonald’s. A lot of older workers are forced to take those jobs these days.
- Dazed & Confused - Thursday, Feb 7, 13 @ 11:51 am:
It raises costs for employers on top of increased health insurance rates, higher commodity prices, and other things. It’s death by a thousand cuts.
The problem is that people who have never run a business or made a payroll are trying to tell people how to run their companies.
- titan - Thursday, Feb 7, 13 @ 12:10 pm:
@Dazed & Confused - those running the state make a very big payroll twice a month. Using them as a model, business would just need to raise taxes, not pay their bills from suppliers, float lots of bond issues, and short their pension systems in a criminal fashion (when done by non-government pension systems).
- Cook County Commoner - Thursday, Feb 7, 13 @ 12:27 pm:
This sort of social engineering by government results in real engineering by companies like KuKa Robitics USA. It’s only a matter of time before before a metal thing asks if I want to supersize my meal.
- Third Reading - Thursday, Feb 7, 13 @ 12:35 pm:
We’ve had a federal minimum wage in this country for exactly seventy-five years.
Every time someone suggests an adjustment, it’s flamed as the ruination of the republic. Or something.
Memo to naysayers: Hasn’t. Happened. Yet.
Look. When adjusted for inflation circa 1986, the minimum wage actually has shrunken by about twenty percent.
My authority? Why, those wacky dingbat liberals at Bloomberg. http://www.bloomberg.com/news/2011-12-28/minimum-wage-in-u-s-fails-to-beat-inflation-chart-of-the-day.html
Some states now index their minimum wages to inflation.
So, now, should we.
Then perhaps we can stop shouting past one another every few years about whether we’re (a) bringing businesses to their knees or (b) snatching food out of the mouths of babies.
I’m outta here.
- Small Town Liberal - Thursday, Feb 7, 13 @ 12:35 pm:
- always been the entry level wage for unskilled entry level jobs -
Steve, I don’t necessarily disagree, but are you concerned with the fact that minimum wage in 1968 had the equivalent purchasing power as ~$10.50/hr today? I wasn’t around, but I believe the economy was doing ok in ‘68.
- Happy Returns - Thursday, Feb 7, 13 @ 12:37 pm:
That’s why I have Old Glory Robot Insurance- For when The Metal Ones decide to come for you(r job!)
- Cincinnatus - Thursday, Feb 7, 13 @ 12:57 pm:
Adding to Schnorf:
Furthermore, we need to look at the effects of an increase in minimum wage on the employment picture it affects. I have no reason to doubt that people who have increases in wages (minimum or otherwise) increase their spending, and since we are a consumer driven economy, that appears to be a good thing.
However, we must look at the effects of coerced wage increases having no ties to demand for labor, as this proposal is. If you have a business working at the margin of profitability, increases in labor costs can have only limited effects, price increases or reduced numbers of employees or going out of business. There are few, if any alternatives.
So, ask yourselves which is better, current employees with a higher minimum wages, less employees (lost wages, higher government service costs), less businesses (lost taxes) or higher prices (lost consumable income).
I think that it is better to have more people employed than higher minimum wages and less employment.
- steve schnorf - Thursday, Feb 7, 13 @ 12:59 pm:
stl, I worked for the minimum wage in high school and in college, as probably did most of us on here. It was $1/hr then. I don’t know what it was in ‘68. I was teaching then-started at $4800/yr, which was probably around $3.50/hr.
As to your point, I’m not sure it’s relevant because I think it assumes an apples to apples comparison that no longer applies. The people pushing for this aren’t teenagers working part time for gas, date and cigarette money, it’s people who believe one should be able to support himself and a family on a full-time minimum wage job. I just don’t believe that should be the intent of the minimum wage.
- Anonymous - Thursday, Feb 7, 13 @ 1:25 pm:
=There is a heck of a difference in making a car part versus a hamburger.!!=
Yes, really screwing up either can result in illness/injury and even death.
- Steve Bartin - Thursday, Feb 7, 13 @ 1:30 pm:
The demand for labor is a downward sloping curve for all you legislators and journalists out there who haven’t take a class in economics. None of the top selling college economic textbooks even endorse a minimum wage. Just a reminder. Pat Quinn wants to make it illegal for someone to work for less than $10 an hour. I guess Pat Quinn likes high unemployment.
- Chicago Bars - Thursday, Feb 7, 13 @ 1:33 pm:
Minimum wage increases may or may not drastically cut overall employment. But what they certainly will do is encourage employes to be even more selective about who they hire for entry level positions. If minimum wage jobs are a first step on the career ladder for people, an increase now will just serve to put that first rung a bit more out of reach for more people.
If the tip credit were to be eliminated a large minority of restaurants would fall into the red due to a near doubling of their labor costs. Meantime, the businesses are still required to make sure front of house employees get tips sufficient to get them over (often well over) the minimum wage. Thanks to the explosion in credit card use that’s pretty easy to document at most bars & restaurants.
P.S. If anyone wants to geek out on minimum wage trends, here’s the Department of Labor history for the minimum wage for every state going back to 1968.
http://www.dol.gov/whd/state/stateMinWageHis.htm
- Endangered Moderate Species - Thursday, Feb 7, 13 @ 1:35 pm:
We, as consumer’s, are also part of the equation. We demand low prices more than we demand good quality. Companies like Wal-mart have recognized this attitude and have thrived beating down costs (wages) by suppliers.
- iThink - Thursday, Feb 7, 13 @ 1:46 pm:
—current employees with a higher minimum wages, less employees—
The foundation of this suggests that businesses are operating with extra employees in their workforce; they don’t need everyone to get the job done. In my experience, this simply isn’t so - companies hire to get the work done, they don’t add payroll for the fun of it or to share profits when the going is good. They hire to make money. I don’t think it is automatic that when wages increase, the work pool needs to shrink - people are still needed to get the work done. Now, forcing a marginally profitable company into a failing one is a different story.
- zatoichi - Thursday, Feb 7, 13 @ 2:04 pm:
The state is on a blitz to close all state facilities like Jacksonville/Murray and move people to community based residential settings. In the SOS speech, Quinn called for more people with disabilities being hired in community jobs. Sounds great. Many people living in these new homes need supervised housing and extensive personal assistance. The rates paid by the State for those services often only allows $8.50 to $9.75 an hour. Moving from $8.25 to $10 is a 20% increase. There going to be an annual 5% rate increase to providers for 4 years to cover those real cost increases? Has not happened in the last 10 years. Unemployment among people with disabilities is very high. Why would an employer hire someone at $10 when they are not doing it at $8.25?
- southern illinoisan - Thursday, Feb 7, 13 @ 2:57 pm:
Quinn wants to raise min. wage but he won’t honor legally negotiated wages for state employees. Nice. the theory of paying higher wages attracts a higher quality employee is true. But again look at what Quinn is doing to the state work force. demonizing them for making too much money and running of the best talent. you get what you pay for.
- Meaningless - Thursday, Feb 7, 13 @ 5:06 pm:
Interesting comments today on economic theories and beliefs. I’m sure alot of people could find some good things to say about Communism … in theory. Anyway, I always heard that we’re a “mixed-economy” blending alot of different economic concepts. We definitly want government support for workers working conditions, but how much? As I believe Adam Smith stated, we need competition to “bring forth the best possible product at the lowest possible cost to consumers.” Business definitely needs incentives and a “profit motive”, but how much is enough and when does greed take over? What role should government play in the economy, if any? If anyone ever figures this all out, please let me know.
- Meaningless - Thursday, Feb 7, 13 @ 5:11 pm:
I forgot to comment on Henry Ford. I know I read a quote about Henry Ford somewhere that went something like … “What good would it be for my company to have the capability to manufacture automobiles if no one could afford to buy them?”
- yinn - Thursday, Feb 7, 13 @ 6:22 pm:
Someone asked about what makes a living wage. Although there are many factors, an important one is the goal to be spending not much more than one-third of one’s wages on housing.
Also, it’s incredible to me that so many people work full time and still legitimately qualify for SNAP and other benefits one would normally associate with unemployment. It’s a form of corporate welfare and as long as we taxpayers are picking up the slack for poverty wages, our government should absolutely have a say.
Thirdly, I think that Will Rogers talked about how a buck paid to a poor person gets into a rich person’s pocket before sundown. A rise in the minimum wage would absolutely have an immediate, positive effect on the economy.
- Emily Booth - Thursday, Feb 7, 13 @ 7:14 pm:
I well remember the owner of Dominoes pizza, who collected Frank Lloyd Wright, regularly appearing before Congress to talk about how raising the minimum wage would impoverish him.
What happens when business owners don’t take care of their employees is the taxpayer ends up supporting them thru public assistance programs for cash, medical and food stamps. These programs support the working poor but it’s still a hardscrabble life.
- What is to be done? - Thursday, Feb 7, 13 @ 7:41 pm:
Why stop at $10.00?
- wishbone - Thursday, Feb 7, 13 @ 8:22 pm:
“An extra fifty or sixty dollars per week to a minimum wage earner may not purchase a tank of regular gas.”
That seems like a good reason not to give it to them. Snark.
- Yellow Dog Democrat - Friday, Feb 8, 13 @ 12:03 am:
There’s a few problems with the restaurant industry’s “kill jobs for teens” argument.
First, most people - 75 percent - working minimum wage jobs aren’t teens, they are adults.
Secondly, no one is going to close their Burger King in Chicago and move it to Indiana because we raised the minimum wage, because nobody is going to drive from Chicago to Gary just to buy a hamburger.
Finally, the minimum wage in 1968 was $1.60. In 2012 dollars, that’s $10.56…which means that four years from now, when Quinn’s plan takes full effect, the minimum wage will be below what it was around 50 years ago.
- Bitterman - Friday, Feb 8, 13 @ 8:46 am:
Chiming in late on the topic. Looking at the recent cost of living comparisons in Illinois, one can see that Chicago is double the closest rivals of Peoria and Joliet. Serious thought should be given to allowing only Chicago to raise the minimum wage to $10 plus per hour while leaving the rest of the state at $8.25. San Francisco is an example of this.
- Ruby - Friday, Feb 8, 13 @ 8:55 am:
If the $8.25 minimum wage was adopted in 2003, then raising the minimum wage to ten dollars by 2017 is not an unreasonable increase. Governor Quinn and Sen. Kimberly Lightfoot are acting in behalf of the people on this issue. The increased minimum wage will help boost consumer spending which is 70% of the economy. This is a good thing especially in our current economy.
- Ruby - Friday, Feb 8, 13 @ 9:01 am:
That should have been Kimberly Lightford. Sorry Kim.