How minimum wage costs jobs

Raising the minimum wage paves the way for kiosks...

Published on April 4, 2004 By Draginol In Politics

The economy is a complicated thing. That is, as a general rule, I don't like politicians of either party monkeying around with it. The average politician has virtually no understanding about economics. Often times, it's worse than no understanding -- often they have no common sense about it.

Let's use the minimum wage laws as an example. To help those who make relatively little money, some people argue that we need to raise minimum wage. So let's say we raise it to oh...$9. Now, I'm not going to bore you with statistics about the fact that most people who make low wages are employed by small businesses who would simply hire fewer people. I won't point out that such things help encourage outsourcing or hiring illegal immigrants. I won't point out that in the cases where it doesn't cost jobs it instead raises costs which are then passed on to us all in higher prices which put us back at square one. These are all interesting but ultimately too debatable.

Instead, I'm going to use an example that most people, I think, can recognize the truth in. Fast food. McDonalds, Burger King, and other fast food restaurants employ approximately 12 million people. That's a lot of people. Most of them make between minimum wage and $8 per hour depending on where they live.

So let's say suddenly minimum wage jumped to $9 per hour. That's a huge cost increase for those restaurants. So what do you think they'd do? I'll tell you one likely solution: Kiosks. Been to a grocery store lately? Checkout lines at grocery stores were one of the first victims of the last minimum wage increases. At some point, a threshold is crossed and it becomes cheaper to have customers enter in their orders/purchases onto a friendly looking computer kiosk.

A typical shift at McDonalds consists of 10 people. Of those 10, half of them are dedicated to various degrees to taking orders. Next time you're at a McDonalds, look at it again. How many of those people do they really need? I mean, how many could be replaced by a kiosk where people would simply enter in their orders, receive a print out of what they ordered and an order ticket, and wait for their order to be fulfilled? I'd get at least 2 of those people could be replaced by kiosks. Probably 3 eventually as people become more comfortable with ordering via kiosks.

That's a 20% reduction. Spread across the entire industry and you're talking 2.4 million lost jobs. Now, you might say that I'm over-reacting. But mark my words, raise minimum wage and that is what you're likely going to see. A wholesale movement to kiosks in the fast food industry. It may happen anyway -- eventually. Like ATMs. Like what is happening at grocery stores (courtesy of the last increase in minimum wage).

Minimum wage jobs are for entry level positions. Most of those positions are very low skill. Their competitors are other low skilled people but increasingly also from machines. Businesses will automate at the point where automation costs them less than hiring low-skilled workers. It's a very simple calculation for them.

Comments (Page 3)

jeblackstar

on Apr 05, 2004

Thanks for the support Brad and Crash.

Cheers

JeremyG

on Apr 05, 2004

I think we can all agree that the world would be a little bit better if some of the McDonalds's of the world ran into some trouble and had to close their doors

Aaron Brandt

on Apr 05, 2004

I'm agreeing Jeb here too, I'm also agreeing with Brad like I usually do. Unlike what Saint thinks, there is a horrible work ethic today. People work for money and they do as little as possible. Will these people work harder if minimum wage is increased? No. They will drag their companies down with them. I'd like to say that a lot of people, I'm not saying most, put little more than minimum wage effort into things.

Now, while I'm not in love with rich people, lets think about this. The less money rich people make, say because they are paying their each of their employees 3 dollars an hour more, the less money they have and therefore the less taxes they pay. Considering government isn't going to spend less, taxes will have to be raised across the board. The wealth distributed to the middle class by the increased minimum wage won't make up for what the wealthy lose since the wealthy would have been paying a much larger percentage of the same money in taxes. Besides, the wealthy also support businesses which produce luxury items other people can't buy, therefore a decreased upper class would destroy these jobs. I'd like to once again say that I'm not a huge fan of the rich, they are mostly spoiled selfish people, but the more you think about it, the more we need them.

Finally I want to go back to an issue Saint brought up....the rising cost of elections. Whenever people comment on these things they act as if that money dissapears. Isn't that money actively being spent and therefore aiding the economy? Correct me if I'm wrong.

I wish the world were a more ideal place, but it's not, we need to get over that. Forcing American businesses to pay more will cause them to further automate, make current labor work harder, and most of all...outsource. I don't care how compassionate they should be, most companies aren't. This doesn't mean I'm not compassionate, if I owned a business my employees would be paid as much as I could afford to give them.

I hope this slightly disordered post causes some thought and not just attacks on me.

Stubb

on Apr 05, 2004

Saint wrote "about that hypothetical welfare dependent who decides to rebel against human nature and pursue a career of laziness." Any other time of my life I would agree, but I spent last week (and spring break, no less) doing habitat-for-humanity-esque work in rural South Carolina. Met a lot of people there who rocked my suburban-sprawl world. Anyhow, the one thing I noticed was that a solid half of the people there appeared to live in complete apathy to their surroundings. Living in relative luxury that I do, I found it hard to understand this, don't they know it could be better? But when one considers that many of the people in this certain community are third- and fourth-generation welfare recipients, what other source of income do they know to look for? Yes, it's good to be compassionate to the plight of the poor (forgive the cliche), but anybody claiming compassion for them has got to examine whether they're being so for the poor who have a roof over their heads or for the untouchable-class that does live in this nation. And "broad social observation" is wonderful in many cases, but said observation can easily overlook those people who need to be observed, and helped, the most, especially if they don't inhabit a very large portion of America's population.

Not considering those content on welfare, other people I talked to were positively ecstatic about a Piggly Wiggly opening up 5 miles down the road. Yeah, 50 minimum-wage jobs sure looks paltry to me, but it will turn out to be a big kick in the pants for this community. Just goes to show that it's all about perspective.

Geoff Howland

on Apr 05, 2004

Just to throw in my 2 cents, I think companies will do this regardless of whether or not the minimum wage level is high. It's just cheaper, there are no sick days, they dont have to worry about lawsuits, and sometimes its faster and more convenient than dealing with a person. Especially when a lot of the people who can afford to take the job may not care to do a good job (cause theyre getting paid zip) or dont speak english well.

And some people wont like all these Kiosks, and will vote with their feet and not eat there. And so they will have to bring some people back (at the new-higher wages!) to regain these customers.

Economics is a complicated thing, but beyond that PEOPLE still need to be able to live off the 40+ hours they put into their job. But maybe they should all have to have 2 or more jobs to live, which will undoubtedly help their children grow into the best they can be with the non-existant parental figures around.

Or maybe, 1-2 bedroom apartments are really supposed to house 15 people, and then they only need 1 job to live comfortably!

Saint Ying

on Apr 06, 2004

I noticed that Saint Ying made the claim that the Middle Class has an 'increasing tax burden.' What stats have you been looking at? The rich currently foot >50% of the bill, and even if there's not enough income some of them buy bonds too, in addition to their income taxes.

I realize I wasn't very clear about my stats. Stats don't stay in your head, but the facts and realities behind them do.

I will quote Pulitzer Prize winning financial reporter David Kay Johnson:

"The 400 highest-income people in America made $174 million each on average in the year 2000. The top tax rate was almost 40 percent. What did they pay? Twenty-two. Twenty-two cents on the dollar. And had the Bush tax cuts been in effect, they would have paid 17 1/2 cents. Everybody else in America paid, on average, 15.3 cents.

Now, in 1992, the top 400 taxpayers in America paid 26 cents. Four cents more out of each dollar. And the rest of us, we paid 13 cents. Two cents less. So. Our tax burden has risen. Those at the top, it's come down. We are shifting the tax burden, through a whole variety of strategies, off the wealthy, and onto the middle class and the upper middle class in America."

This is taken from a transcript from Bill Moyer's NOW. The whole thing can be read here: http://www.pbs.org/now/transcript/transcript307_full.html

Deference

on Apr 12, 2004

First, I would like to thank Saint Ying on his wonderfully funny, yet poignant, kiosk post.

Now to address a few points:

* Businesses will continue to cut their operating costs no matter if there is a minimum wage, a living wage, or no wage paid. Could we all agree that any good business will continue to streamline to the nth degree to remain relevant in the American economy?

*Yes, there was an opportunity for generations of welfare recipients to exist at one point, but after welfare reform in the mid nineties (see: Gingrich and the Contract with America), there is NO way for any person living in the United States to live off welfare for more than a TOTAL period of five (5) years within the entire span of their life.

*People who are poor employees exist at all levels within the economy, the wages paid to an individual are not necessarily indicative of their worth. Simply because Kenneth Lay was "earning" exorbitant amounts of money did not prove him any more of a boon to the U.S. than a certain hardworking dishwasher I know who is certainly not reimbursed properly for his contribution.
To flog this point: Not all low wage earners are scum and not all high income earners are worthy of their compensation.

*American companies are outsourcing "white collar" jobs today as well. A few weeks ago, the news was abuzz with the fact that India was receiving I.B.M. customer support jobs and programming jobs, this ties in with my first point (seen above). Because the government has (willingly and purposefully) allowed huge corporations to abuse our current economic regulations, their costs to operate are plummeting at the expense of the American taxpayer, a burden he cannot afford. Consider offshore accounts, where a corporation moves their address out of the U.S. to avoid tax. Consider overly creative accounting procedures such as those practiced within Global Crossing. Consider "closed door" proceedings, where huge energy companies such as Enron get access to their own ex-employee (no wait, BOARD MEMBER) Dick Cheney to help draft U.S. energy policy.

*Finally, let's look at this whole ugly "living wage" idea. Someone already mentioned that minimum wage is below the poverty line (poverty line being $18,000 / year), here in Missouri, min. wage is $5.15 / hour. This means that if one is lucky, hardworking, never sick or injured and never is released from the min. wage job that that individual will earn $10,712 in one year. With this small sum, that individual must pay for FOOD (50 / week = $1100), HOUSING (excluding electricity, water, sewage, etc, 200 / month = $2400), TRANSPORTATION (lets say the car is paid off, how about gas 20 / week = $1040), CAR INSURANCE (liability only 40 / month = $2080), and HEALTH INSURANCE (typical policy, say $2000 on average, if you're lucky) simply to make it to their next year of ardous labour.

That leaves exactly $2092 left of disposable income to spend on either turning on your electricity, water, and sewage utilities as well as pay your taxes or drinking yourself retarded in the dark at a rate of one twelve pack a day (6 bucks, you're poor, buy cheap) which wouldn't even last you a full year (348 days to be exact).

Now hopefully you read all that and can now soberly consider shifting the tax burden back onto the top 1% who don't need it (what are they going to do, buy another yacht? And yeah, Kerry's got a yacht too) and giving just enough to minimum wage earners so that they can keep the lights on and maybe buy an outdated computer to wack off to instead of drink themselves out of their next minimum wage job. This isn't about compassion or empathy, it's about common sense, a happy America is a productive America and, ultimately, a better one - kiosks be damned.

Aaron Brandt

on Apr 12, 2004

I agree with you Deference, but how will increasing the minimum wage keep jobs in the US? It won't. Unfortunately, in this global economy, we can't expect to keep demanding higher wages and have companies gladly give them without outsourcing jobs. Until the general global economy is better, I don't see how we can stop this from happening. Even think about a caring company who pays their workers plenty and employs mostly people from the US. That company will struggle to compete in the global market where prices will generally be lower than what they are capable of charging. This is an incredibly tricky situation we are in, and even though some answers seem right or obvious on the future, if you go through the effects of it in your mind it isn't quite the miracle solution. There is no great solution for this problem, if someone has one, they should run for a high political office NOW!

xr700

on Apr 12, 2004

Saint Ying, the problem is that people don't say it as accurate as you did. Kudos to you for providing precise stats. Most people I know who talk about this sort of thing will only say that there has been, and I quote one of my friends, "an incredibly massive increase of taxes on the middle class," and when people say it like that, it's obviously crap, but thank you for providing accuracy in a world of generalizations. I also enjoyed your article because it made me think.

Welcome Guest! Please take the time to register with us.
There are many great features available to you once you register, including:

Richer content, access to many features that are disabled for guests like commenting on the forums.
Access to a great community, with a massive database of many, many areas of interest.
Access to contests & subscription offers like exclusive emails.
It's simple, and FREE!