by Alan Pryor
At last night’s City Council meeting a contingent of low wage workers, students, and union representatives spoke during Public Comments in support of a Living Minimum Wage in Davis. In addition to discussing their own financial plights, they asked the City Council to follow the leads of Seattle, San Francisco, and Los Angeles and implement a gradually rising minimum wage to reach $15/hour. This follows a similar but unsuccessful attempt to raise the minimum wage in Davis last year. The speakers argued that increases in the minimum wage paid in Davis would bring many working poor out of poverty in addition to stimulating the local economy.
Many objections were raised against such a move both in this digital publication and in the Davis Enterprise when this proposal was discussed last year. Most objections, however, were based on political philosophies rather than objective facts as is discussed more fully below
Myth No. 1 – The $15/hour number was picked out of thin air without any objective basis
In fact, $15/hour is objectively determined to be even less than most workers must earn working full-time (2,080 hr/yr) to support their family as a sole provider in Yolo Co. without government subsidies. This determination was made through an online tool developed by Massachusetts Institute of Technology (MIT) economist Dr. Amy K. Glasmeier, (see The Living Wage Calculator – http://livingwage.mit.edu/counties/06113) using official US Census and Department of Labor statistics and information.
Living expenses used in the calculations were specific to each County and include food, housing, transportation, medical, child care, and miscellaneous expenses such as for clothing. Not included are any additional educational or recreational expenses or savings for emergencies or retirement. It is truly a no frills, paycheck-to-paycheck budget analysis based on actual living costs in every county in the US.
According to the Living Wage Calculator, are the following minimum wages are necessary to meet this Yolo Co.-specific living standard:
The estimated hourly minimum Living Wage for purposes of the proposed increase in the Davis minimum wage was determined by averaging the calculated minimum Living Wage for
1) one Adult ($10.42),
2) one Adult and one Child ($20.83), and
3) two Adults ($15.17)
This average equals $15.47 or $15.00 rounded down. Using any other combination of three other different family sizes produces an even higher required minimum Living Wage for the wage earner to meet living expenses without government subsidies.
We also note the the Living Wage Calculator is the most conservative of the the commonly used tools to estimate minimum incomes necessary to raise a family in different locales. The Economic Policy Institute (EPI) has developed a Family Budget Calculator which similarly uses local price data to estimate living costs and minimum wages necessary to meet those living costs (http://www.epi.org/resources/budget/).
On average the minimum income required to raise a family as estimated by the Family Budget Calculator is approximately 23 – 60% higher than that deternibed by using the Living Wage Calculator depending on the family size, as shown below.
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Myth No.2 – The minimum wage only affects uneducated part-time workers and teenagers living at home. It is not meant for people actually trying to support themselves and a family.
Such claims have never been substantiated by detractors of increased minimum wages.
The demographic impact of the gradual minimum wage increase to $15 overwhelmingly approved by voters last year in San Francisco was analyzed in a study, San Francisco’s Proposed City Minimum Wage Law: A Prospective Impact Study, (Center on Wage and Employment Dynamics, UC Berkeley, August 2014 – http://www.irle.berkeley.edu/cwed/briefs/2014-04.pdf),
According to this analysis, 97% of workers affected were in their 20s or older; 63% were in their 30s or older; and 26% had a Bachelors degree. San Francisco’s minimum wage increase also greatly increases pay to minority workers as 71% of minority workers in the City would see pay increases under the increased minimum wage approved in San Francisco.
Further, according to the US Department of Labor, 88 percent of people earning minimum wage nationally are age 20 or over and over half of people paid at minimum wage work a full-time schedule, In other words, minimum-wage work isn’t just supplemental employment. Many households are relying either fully or substantially on full-time, minimum-wage work to pay the bills. For tens of millions of agricultural workers, fast food workers, and retail workers, the minimum wage is what they depend on to survive.
To further illustrate this point, the following two graphs show the nationwide percentage of workers affected by a possible increase in the federal hourly minimum wage from $7.25 to $15 /hour as well as current average wages in Yolo Co. for different industrial sectors.
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Myth No. 3 – Minimum wage increases will cause prices of everything to skyrocket
There is no doubt that increasing wages will result in price increases if corporate and business profit margins are otherwise maintained at current levels. However, many economic studies have shown the the magnitude of expected price increase can be quantitatively determined and are anticipated to be far less than claimed by detractors of minimum wage increases.
The level of price increases necessary in any industrial sectors necessary to maintain existing profit margins are a function of the total labor component of a product’s or service’s final price times the average wage increases that would result from an increase in the minimum wage to $15 per hour.
For instance, the current cost structure for different industrial sectors that would be most affected by increases in the minimum wage is graphically shown below.
(Source: Dr. Chris Benner, Professor of Community and Regional Development at the University of California, Davis based on Bureau of Labor Statistics Current Population Survey (CPS) 2011 udated to 2014)
The anticipated effect on total payroll of different industrial sectors caused by a national increase in the minimum wage from $7.25/hour to $15/hour is shown below:
With this information, the expected average national price increases in different industries caused by an increase in the minimum wage from $7.25 to $15 per hour can thus be calculated.
The higher end product or service costs produced by the increase in the minimum wage =
Percentage higher labor costs produced by the increase in the minimum wage times
Percentage costs of labor component in the final product cost
Using the agricultural industry as an example:
19% total higher labor costs x 8% labor component in the final product cost = 1.5% total product price increase
When this methodology is applied across the most affected industrial sectors, the following price increases are anticipated nationwide assuming the same profit margins for the companies or businesses are maintained:
Local increase are expected to be less (particularly in the restaurant and retail sectors because the minimum wages are already substantially higher in California ($9 moving to $10 next year) compared to the rest of the nation.
Even so, I don’t believe an increase in the price of a local pizza from $8 to $8.70 or less is going to seriously impact local business sales especially because there will be a concurrent huge increase in the number of local low wage workers who can now afford to eat out a little more often offsetting any loss of sales due to higher prices. Nor would we expect a flight of pizza eaters from Davis to Woodland because the price of gas would eat up any potential food price savings (if a low wage worker could even afford a car) and Woodland eateries do not deliver to Davis.
Nationally, Dr. Chris Benner of UC Davis has indicated that he calculates the average cost to a family of 4 caused by a nationwide increase in the minimum wage from $7.25/hour to $15/hour affecting 56 million workers across 52 industrial sectors will be less than 40 cents per day. That’s a cheap cup of coffee a week which is a very small price to pay to bring millions out of poverty.
(Source: Dr. Chris Benner, Professor of Community and Regional Development at the University of California, Davis based on Bureau of Labor Statistics Current Population Survey (CPS) 2011 udated to 2014)
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Myth No. 4 – Increases in the minimum wage will put companies out-of business and adversely affect the local economy
It is commonly argued that raising the minimum wage will hurt businesses by making them less profitable and decreasing their value to owners and shareholders. But that’s not necessarily the case, as the classic comparison of Costco and Walmart proves.
Costco and Walmart are two of the largest retailers in the United States, but they have far different philosophies regarding employee compensation. Costco’s starting wage for employees is $11.50 an hour, and their average wage is nearly $21 an hour. Walmart, meanwhile, announced earlier this year that it would raise its starting wage to $9 an hour—and its average wage is $12 an hour, far lower than Costco’s.
Given the large discrepancy in employee compensation, one might expect Costco to have much lower profitability and be worth far less on a comparative per share basis – but this isn’t the case. If you invested the same amount in both Costco and Walmart in 2005, your investment in Costco would be worth 4.5 times more right now than a similar investment in Walmart. (Sources: http://finance.yahoo.com/q/hp?s=COST and http://finance.yahoo.com/q/hp?s=WMT)
How can this be? Well it seems the driving factor behind this is customer satisfaction. Better-paid employees tend to be more satisfied in their jobs, which means they tend to take better care of customers and that makes customers want to come back more often. Happier employees are also less likely to have unexcused absences or quit which reduces employee turnover and training costs.
Smart business people recognize that salaries and benefits are not only expenses on an income statement but that human talent is a valuable resource in the increasingly competitive business world. Skilled employees working under the right incentives can generate enormous benefits for companies via increased productivity and customer satisfaction.
Perhaps the most succesful industrialist of the 20th century, Henry Ford, put it best when he stated in 1934, “No one loses anything by raising wages as soon as he is able. It has always paid us”. This was 20 years after Ford doubled workers salaries in 1914 which helped cut employee absenteeism from 10% to less than 1% and boosted sales 63% in one year (Source: Time Magazine, March 9, 2015)
There is other recent evidence that such increases in minimum wages do not adversely affect local business development and employment. San Francisco first raised its minimum wage in 2004 to $8.50/hour (a 36% increase at the time) and later added paid sick leave and health benefit requirements. They saw only a 2.8% increase in restaurant prices in the first year after implementation. Possibly as a result of the additional $1.2 billion in additional personal income generated by newly higher paid employees in the City from 2004 – 2011, food service jobs grew faster in SF (+18%) during this time period than in other Bay Area counties (+13%) over the same time period.
In 2013, San Jose increased its minimum wage by $2.00 per hour over the state minimum wage. In the following year, registration of new small retailers increased by 19%, unemployment decreased by 1%, and over 4,000 new jobs were created in the Restaurant & Hospitality sector
(Source: Economic & Equity Outcomes of a $15/hr Seattle Minimum Wage (Study commissioned by City of Seattle), Puget Sound Sage, April 2014)
Last year the Seattle City Council approved a gradual rise in its minimum wage to $15 per hour with the fist step occuring on January 1 of this year. According to data released last week by the Washington Employment Security Department, King County’s unemployment rate has since reached a low not seen since April 2008 (3.3%) compared to 4% in March and 4.1 percent in April 2014. It was acknowledged that it will take many years to fully sort out the full impact on employment (if any) of Seattle’s phased-in $15 minimum wage but these results certainly demonstrate there was not an immediately adverse impact on jobs and businesses as some feared.
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Myth No. 5 – The minimum wage is as high as it has ever been so there is no need to increase it further until inflation heats up or workers start producing more
Technically, the first part of this myth is correct. The current minimum wage of $7.25, last raised in 2009, is the highest numerical value the minimum wage has ever achieved. But on an inflation-adjusted basis, the real value of the minimum wage has dropped by 25% since 1968 as shown in the following chart.
Nor has the minimum wage kept up with continual increases in worker productivity over that time period. If it had, the current minimum wage would now be equal to $18.48/hour
(Source: http://www.epi.org/publication/charting-wage-stagnation/)
There appears to be no good reason not to increase the federal minimum wage. It will help the economy, help workers, and even help businesses. And it is the moral thing to do to reduce income inequality.
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Alan Pryor is Treasurer of Davis Citizens for a Living Wage
Actually, the objections I have seen are based on an understanding of basic economics. I remember a very good article by the owners of Woodstock’s Pizza that explained the negative consequences for low skilled and beginning workers as well as organizations that employ these workers.
Do you mean where they called the Raise The Wage Davis people communists?
Actually it was a very well reasoned article that explained why a drastic minimum wage increase would not be a workable idea for employers like Woodstock’s and their employees.
This makes literally no sense, even as an after-the-fact rationalization. The SEIU is demanding the same $15/hour everywhere, so clearly this campaign has nothing to do with the economic situation in Yolo County. But even so: employers don’t ask, nor is it any of their business, whether the employee has a child, nor whether the adult lives with another adult. Employers hire one adult. And as the calculator shows, that “one Adult” needs $10.42 as a living wage in Yolo County.
I’ll also ask you again, Alan: Who are the officers of Davis Citizens for a Living Wage?
Yes, the whole discussion of “living wage” makes no sense. The author does not understand that the “living wage” rate is irrelevant to someone who is priced out of the market. How does it help a low skilled individual who is unemployed if the wage rate is $15 per hour?
Moreover, using the link that Alan Pryor provided — http://livingwage.mit.edu/counties/06113 — we find that in a household with 2 adults who both work the living wage is $8.89.
The officers of Davis Citizens for a Living Wage are all grass roots activists. We are students, social justice advocates, workers, business owners etc. We are not staff for unions, much less SEIU. Quit your rumor mongering and stick to fact based analysis. This is a matter of justice. Either you think that people who work full time deserve to live in poverty or you do not. Which are you?
Would you name any of them, please? Not a single member of DCLW has been identified except for Alan Pryor. He apparently refuses to identify the members of your organization, as do you. The SEIU is the driving force behind the living wage ordinances everywhere. The head of the Sacramento labor council is on record on this issue locally:
We have three individuals identified over time with this issue locally: Alan Pryor, Bill Camp, and Bernie Goldsmith. Bernie has apparently disappeared from the organization and from Facebook entirely. So that leaves Alan Pryor and a labor official.
Why do you post anonymously? Why don’t you register under your own name and stand behind the things you’re saying?
I pay my workers a living wage and they don’t live in poverty.
I commend you for paying your workers a living wage. Bernie Goldsmith has not been affiliated with the campaign for almost a year due to personal issues. Bill Camp was never on the steering committee, although he has been a tireless advocate on our behalf (as he has for working people everywhere since his work in the civil rights movement), along with much of the labor community. Our officers are regular people. We are workers, students etc etc. Not paid political operatives, not union staff or anything like that. Those folks are our allies, but they do not call the shots. We do. We started this movement, we make the decisions. We are an inclusive organization. Anyone who wants to participate to bring fair wages to Davis is welcome. We do not hide from anyone. We are not against sitting down and talking to anyone, even if they disagree with us. Dialogue is how we move forward in society, and that is one of our principles.
Is someone referring to an Alan without specifying which one, again? Dammit.
I and “the other Alan” couldn’t be more far apart on this issue, and apparently on the environmental effects of mega-solar as well.
I am not a fan of the $15.00 minimum wage. Not because of any of the above myths, but because it acknowledges the basic concept of arbitrary assignment of the value of an individual’s worth to a company based on their title. I see contribution differently. And apparently so does at least one CEO.
http://money.cnn.com/2015/04/14/news/companies/ceo-pay-cuts-pay-increases/
Mr. Price is making a bold move. He is acknowledging that without the efforts of all of the employees of his company, whatever their title may be, the customer does not get served. It is interesting that the amount chosen ( brief article does not specify how it was picked) is very close to the number $75,000 beyond which in one study from Princeton there is no more “happiness” derived by the addition of additional income.
http://content.time.com/time/magazine/article/0,9171,2019628,00.html
It will be of interest to keep an eye on the ongoing outcomes of Mr. Price’s experiment in compensation equality.
I’m glad to see that you oppose the minimum wage rate rise to $15 per hour.
Wage rates are determined by several factors, but the most important is that rates are based on the value of the work that an employee provides to the organization and how much labor is available to do that work. In general, employers pay higher skilled individuals more than lowers skilled ones. There are, of course, many exceptions to this general concept and there are many anomalies and distortions in the labor market. We can see clear examples of this just by looking at the wage rates of some City of Davis employees.
I tend to favor letting the free market work to set wage rates. Higher skilled employees can command higher wage rates. In strong economic times when there is high demand for labor, rates will rise. In areas of the country with strong economic activity (the North Dakota oil fields in the past few years for example) wage rates will rise and workers will move to those areas.
If we, as a society, wish to help our most disadvantaged and least skilled individuals; we need to make sure that they can find work even if it is at $9 per hour. This will provide them with opportunity to learn work skills that will allow them to move up to higher paid work as they become more skilled. It doesn’t make sense to demand that the least skilled individuals in society should be priced out of the labor market.
TopCat
“I’m glad to see that you oppose the minimum wage rate rise to $15 per hour.”
I am quite sure that you would not be so glad about the reason why. I do not believe it goes nearly far enough.
I am sorry that you glommed onto the least important element of my post and made it the bases for putting forth a mini lesson on “how we do things now” and “trickle down economics works best” and “it’s fine for people to be making $9.00/per hour”…..presumably as long as I don’t have to live off that. Please correct me if I am wrong, if you earn $ 9.00 or less per hour, I would be interested in your take on how and why that is ok ?
What you ignored was everything else that I said. I know what we do now. But I do not believe it is set in stone. I believe that there would be better approaches that we certainly could choose. The link I posted was just one example of someone seeing, and choosing an alternate route for his company. That looks like real leadership to me.
This article is nothing more than cherry picking data and supposed facts to come to a pre determined conclusion.
How many hours do you think he worked on putting that together?
TopCat
“the objections I have seen are based on an understanding of basic economics”
The objections that I have seen are based on an understanding of one side of basic economics, and a willingness to ignore the other side of the coin. A minimum wage of $15/hr will obviously benefit some and harm others. This is what neither side seems willing to acknowledge. The question is what is the net gain or loss to any particular community ( not any particular teenager looking for entry level work, or any particular small business which may lose or gain depending on whether or not increased sales by those who can now afford to purchase offset increased costs) ? What I see happening is an unwillingness of either side to acknowledge the points made by the other, and try to find solutions. Merely restating oft repeated canards does little to move the conversation forward.
“This article is nothing more than cherry picking data and supposed facts to come to a pre determined conclusion.”
And for a perfect, concise and clear demonstration of my point. A condemning statement backed by no specifics, no elucidation of which are “supposed facts” and no statement about why other points of view are superior. The timing could hardly have been better.
Yes Tia, a drastic rise in the minimum wage does benefit some and harms others. The question is whether we, as a society, are willing to accept the harm? As I have pointed out before, those that are harmed the most are the most disadvantaged people in society who are priced out of the market.
Personally, I think it would be better to have more low skilled people employed in legal work rather than unemployed. I understand that the unions that support a drastic rise in the minimum wage don’t care about the people that will be unemployed by such a move.
TopCat
“The question is whether we, as a society, are willing to accept the harm? As I have pointed out before, those that are harmed the most are the most disadvantaged people in society who are priced out of the market.”
Well some of you certainly seem not to mind that harm that is currently being done to those on the lowest rungs of the economic ladder. I think it helps to pretend that they will all be able to move up if they just are smart enough, or work hard enough, but I am pretty sure that most of us know that this simply is not true.
Yes, the “Raise the Wage” supporters do not have any answer to the question of what happens to the most disadvantaged and least skilled people in society who would be priced out of the job market by a drastic increase in the minimum wage. I guess that they expect the people on the lowest rung of the economic ladder to fend for themselves when they can’t find jobs.
The data relied upon does an analysis based on the federal minimum wage and not the California minimum wage which is higher. It would seem that many of the assumptions made are not accurate for California.
I am opposed to a city by city approach to this issue. It is one that traditionally done at the state level and should not put businesses in Davis at a disadvantage. It would be interesting to see what percentage of workers who currently receive less than $15 per hour who are not UCD students live in communities outside of Davis. In other words would that extra income be spent in Davis or some other community. I see no need for Davis residents to subsidize increased worker spending in Dixon or Woodland allegedly by raising prices in Davis to cover the wage increase.
One aspect not covered is that most employers have a wage range for employees based on job description and experience. Increasing the bottom rungs on the ladder all of the wages incurring greater costs for the employer beyond those for employees who make less than $15. Our family owns a small business in this community and an increase in the minimum wage would impact the expectations of all employees to include those who well exceed the proposed $15. If one employee is getting a 25% raise based on the increased minimum wage then the one who is making $20 will also expect a 25% raise after all that would only be “fair”. This will only further increase costs and thus the authors argue the prices. There are many businesses were revenue is capped by federal and state governments or private companies such insurance companies. All you need to do is look at the medical field and you have Medical rates, obomacare and insurance companies all capping what they will pay for services. Someone has to eat the difference and that becomes the small business owner. Often we look at cutting or reducing employee hours to keep the business profitable. That is something we have done in the past by making what had been a full time position part time and increasing the expected productivity of the current employees.
Yes, I agree that a local rate that is higher than the surrounding communities would have negative consequences for Davis.
“Someone has to eat the difference and that becomes the small business owner. Often we look at cutting or reducing employee hours to keep the business profitable.”
And this is one excellent reason for separating the provisions of health care from employment. There are many other good reasons to separate this completely and permanently.
So we can have health care at the same quality level and wait times as England?
“So we can have health care at the same quality level and wait times as England?”
If one has to wait for elective care longer, while everyone gets preventive and routine care sooner while paying much less for prescriptions and doing statistically better on most major indices of health, yes, certainly.
Tia, I think you asked me about this on another thread. Comparing us to Finland, Switzerland, or Norway doesn’t wash. We aren’t comparable countries for numerous major reasons. I believe we have great medical services and doctors / nurses, but our lifestyle is screwed up. You can’t blame the doctors for our overeating or poor lifestyle choices. (I’m not perfect.)
Do you know what the knee replacement center is for Canada? The Cleveland Clinic!
No, I don’t think we do statistically worse than the EU or Japan if you were to compare them to Palo Alto, Saratoga, and Mill Valley.
I am in complete agreement that providing health care should not be linked to employment. There is a tremendous amount of waste and inefficiency in our current patchwork system.
The minimum wage should be abolished.
These alternate economic theories do not change reality.
They are based on fantasy and “I really really want it to be so”.
Ain’t so.
But there is no arguing with this way of thinking.
So I’m done.
Bye.
Alan
We make our world, one decision at a time. There is not a God in the sky who laid down the economic law. This is a system designed by humans and therefore changeable by humans.
Nope. There’s a God in the sky that laid down economic law. Humans just F—-d it up.
Costco and Walmart are not a good comparison as they have two different business models. Costco is much less labor intensive than Walmart, they have half as many employees per square foot and therefor can afford to pay their employees more.
http://www.bloombergview.com/articles/2013-08-27/why-walmart-will-never-pay-like-costco
I shop at both Costco and Walmart, so what does that make me…”high-socioeconomic status” or “low-income”? In either case, Davis is not getting the sales tax revenue because we don’t have those stores here. Oh yes, and I have to use carbon based fuels to get to those stores so I’m probably upsetting the “Cool Davis” folks 🙂
When I go to Costco I rarely see an employee where I do the actual shopping. Costco likes to move their products around so I have to do a lot of searching because there’s no employees on the floor to ask for help. I don’t shop at Costco or Walmart because of the employees, I shop at Costco due to the bulk pricing and I shop at Walmart do to they have everything and it’s less expensive. It has nothing to do with being better taken care of or satisfied employees.