Saturday, July 25, 2009

Increase in Minimum Wage = Decrease in Hours

HUNTSVILLE (WATE) -- The federal minimum wage has gone up to $7.25 an hour and in a county that already has Tennessee's highest unemployment rate, a grocery store has to make some changes.

Scenic Foods sits just off of Highway 63 in Scott County. It's the kind of store where you can get a little bit of everything, including a down home feel. But owner Bruce Posey isn't exactly happy about the 70 cent minimum wage increase. "It is hard on a small business to absorb this."

Starting Monday, the 12 part time employees making minimum wage will have their hours cut. "If we don't cut hours, it could add as much as $400 to $500 per week to the pay roll," Posey explains.

As I pointed out recently, increases in the minimum wage are guaranteed to have adverse effects on employees that will NOT necessarily be reflected in increases in the teenage unemployment rate. In the case above, none of the minimum wage workers at Scenic Foods have lost their jobs because of the minimum wage hike, but they have all had their hours reduced. These workers and thousands of others like them whose hours have been cut, will still be counted as being employed by the BLS, and the teenage unemployment rate won't necessarily change.

Bottom Line: The demand curve for unskilled workers, like all other demand curves, slopes downward. At higher wages, the number of hours demanded for unskilled labor decreases. Period. Unskilled workers are harmed by increases in the minimum wage, even those who manage to keep their jobs like the employees at Scenic Foods.


At 7/26/2009 12:36 AM, Anonymous Anonymous said...

Nice work Mark.

At 7/26/2009 1:10 AM, Blogger KO said...

I'm no expert, but based on some economists I've seen on tv, price increases only decrease the usage of bad things like cigarettes, sugary drinks, and CO2 producing things. For good things like labor and income, they have no effect.

No one's actually said that in the same interview, I'm just extrapolating by their views on different legislation.

Maybe if I could live with such contradictions, I could be an economist on tv too.

At 7/26/2009 4:38 PM, Blogger PeakTrader said...

Using one store to imply that a rise in the minimum wage has a powerful effect on employment, and to dispute the economic literature, is a poor methodology.

In China, a few years ago, there was a shortage of factory workers. Many found they were better off not working than working for low wages.

In the U.S., about 99% of the workforce has a reservation wage above the minimum wage, given slightly over 1% of the U.S. labor force works for the minimum wage.

A Walmart rolling in to eliminate the 12 part-time minimum wage workers at your store would be an improvement.

Moreover, I can present real examples how higher wages reduce accidents, injuries, and employee turnover, while increasing productivity and profits.

Chinese factories struggle to hire
By Paul Wiseman, USA TODAY

DONGGUAN, China — The unthinkable is happening in China: This country of 1.3 billion can no longer find enough people willing to work long hours for low wages churning out cheap consumer goods for the export market.

Entrepreneur Johnny Jiang, who owns a plastics factory in Dongguan, says workers used to be too frightened to make demands. Now, they'll walk out if he doesn't boost pay.

Yau...says he just quit his factory job. After two years, he is tired of earning less than $75 a month from an employer who withholds pay when workers don't meet production quotas. Yau plans to get some technical training and join the army.

In January, entrepreneur Jiang visited Hunan recruit engineering graduates. He borrowed an office and waited at a desk for applicants for two hours. No one showed up.

Workers are increasingly knowledgeable about the job market. Local governments in the Chinese hinterlands are trying to keep rural workers informed about job conditions in the booming coastal areas. And migrants themselves are trading information about which factories are good employers and which are stingy and cruel.

"Factories in China have been spoiled," says economist Chi Lo, author of The Misunderstood China. "They still want to pay cheap wages."

At 7/26/2009 4:50 PM, Blogger PeakTrader said...

Also, I may add, an analogy is a baseball team. You can pay rock bottom wages for rock bottom players, or pay a little more to attract better players and become competitive (of course, some businesses don't have to be competitive, or are charity cases).

At 7/28/2009 12:19 AM, Anonymous Anonymous said...

I ran across a 1974 newspaper and guess what all the scare stories that we read and hear about today were the same as yesterday. In 1974 minimum wage went from $1.75 to $2.00 and all the big money people were crying then and trying to scare us. I have a suggestion for that Grocery store, cut six employes instead of hours and make the employes do the work of two people. Keep working them like dogs and try to justify that minimum wage is for teens and the unskilled. The sooner more people get that mentality the sooner we will see a resurgence of unions and we won't need the Free choice act either.

At 7/30/2009 11:11 AM, Anonymous Anonymous said...,0

At 8/03/2009 8:28 PM, Blogger moneybagzz said...

I came across this the other day:

Long on ideology; short on proof.

I love it when people bash free-market ideas and reply with blather against conservatives.

Peace out!



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