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My Daughter Got A Raise Yesterday

July 25th, 2008 . by economistmom

Not my “allowance trust fund” daughter, but my Baskin-Robbins daughter–as Virginia “observes” the federal minimum wage, which went up yesterday from $5.85/hour to $6.55/hour.  With the 15-20 hours/week she works, that’s at most $14 extra/week, which is still nothing in terms of the “true value” our family places on her B-R employment from getting that family discount on the ice cream…and even the occasional flubbed-up ice cream cake we get for free!  Which goes to show you that sometimes the biggest work incentive effects–perverse or otherwise–are unrelated to the wage rate.  ;)

(By the way, that’s not my daughter in the costume, but she’d definitely wear one of those if they boosted her wage rate another 70 cents or just hired more fun people to wear such costumes with her.)

UPDATE:  That’s my daughter, Allie, in comment #3 and the photo below (…wow! she’s making good money this week…the $400 is her guess for two weeks work)… She’s the one in the middle here:

14 Responses to “My Daughter Got A Raise Yesterday”

  1. comment number 1 by: Brooks

    Not to be a party pooper, but any thoughts on the possibility/likelihood that Baskin Robbins and/or other employers will have fewer lower-level employees (laying some off or hiring fewer) at the higher minimum wage?

    Put differently, is that wonderful raise causing some other kid somewhere to cry his/her eyes out like a 4 year-old who just licked the top scoop of ice cream off the cone and onto the sidewalk?

    And if so, how does that all scoop out…er, I mean net out?

  2. comment number 2 by: Bruce Webb

    If there remains a market for ice cream cones and Big Macs employers will staff up their stores. There is exactly nothing in real life that supports the idea that burger flippers or hotel maids employment possibilities ride right at the level of marginal productivity.

    Can minimum wage increases drive inefficient operators out of business? Well probably. But the evidence that that translates to job losses rather than just squeezing profit margins is a little thin on the ground. That crying teen might cheer up some hen she figures out her next minimum wage job pays more than the last.

    I call this the ‘Jimmy the Stockboy’ fallacy. If dozens of people get a raise at the cost of Jimmy’s job we need to look at the net gain to all workers plus adding in how much unemployment Jimmy is eligible for plus figuring in the fact that if supervisors do have to cut someone loose they are likely (if they can) to cut the least productive worker who will when they get a new job be getting paid at the higher wage.

    Feel sorry for Jimmy? Buy him lunch. The notion that the whole crew should reject a raise to save a job ffor poor Jimmy is to confuse the notion of securing wage increases against protecting the bosses profit margin.

    Frankly the notion that opponents of minimum wage increases are deeply concerned about Jimmy or some weeping teen is simply crocodile tears.

  3. comment number 3 by: allie

    actually i worked 40 hours this week that’s a full time job if i did it again next week it would be like a $400 pay check maybe more
    and
    all our prices went up and hes sometimes putting fewer people per shift. also it upsets the old workers who already got raises to $6.25 because now they make the same.
    so it sucks for jeff more than its good for me because i dont need the money but other places its probably good because people need the money and at places where they dont need the money like nielsons and coldstone and the bookstore and tropical smoothie, they dont pay minimum wage anyways so it doesnt matter.

  4. comment number 4 by: Brooks

    Bruce,

    You seem to be contradicting yourself.

    You say:

    If there remains a market for ice cream cones and Big Macs employers will staff up their stores. There is exactly nothing in real life that supports the idea that burger flippers or hotel maids employment possibilities ride right at the level of marginal productivity.

    ok, so you’re saying (counterintuitively and contrary to theory) that, in the case of burger flippers or hotel maids (and presumably you’re using them as examples and making a general statement about minimum wage jobs), people will not lose their jobs even if the cost of their labor is artificially increased (by mandate rather than market forces), because equilibrium demand will not be lower even with higher costs of production for suppliers.

    But then you say:

    Can minimum wage increases drive inefficient operators out of business? Well probably.

    Oh, so now you’re saying that some people WILL lose their jobs (unless you’ve found a way for businesses to go out of business while maintaining the same payroll in perpetuity, and if you have, I see a nobel prize in economics in your future).

    And you say:
    if supervisors do have to cut someone loose they are likely (if they can) to cut the least productive worker who will when they get a new job be getting paid at the higher wage.

    And then you say:

    But the evidence that that translates to job losses rather than just squeezing profit margins is a little thin on the ground.

    So, to recap what you’re saying:

    - Increasing the minimum wage won’t lead to anyone losing their jobs because demand won’t be reduced; all that will happen is that suppliers’ profit margins will be reduced.

    - This reduction in profit margins will drive some businesses out of business, but somehow that won’t mean people will lose their jobs.

    - Oh, but those who DO lose their jobs, not that anyone will, but those who DO, will get jobs at which they will be more productive than they were at the inefficient businesses AND they will make the higher wage.

    Well, in addition to apparently contradicting yourself, you seem to be overlooking a lot. For one thing, has it occurred to you that their are potential businesses at the margin (e.g., a potential new McDonald’s unit in some location) that may not be created if the projected margins are insufficient, thereby not creating jobs? Same deal with opening/expanding other businesses, closing marginal businesses, dropping product lines/services/customers/etc. from an ongoing business, increasing automation or other use of technology to make production/service delivery more capital intensive and less labor intensive, or outsourcing offshore. While I realize there is legitimate debate over the magnitude of the impact on jobs of raising the minimum wage (it’s even possible that it’s negligible, although I’m not saying that it is, and I suspect otherwise), it certainly seems likely, intuitively and theoretically, that much more happens at the margin than you are acknowledging, and that a substantial increase in the minimum wage (which, by the way, impacts wages above it and beyond entry level positions), as an artificial increase in the cost of production (in particular, variable costs) would cause people to lose their jobs.

    By the way, is there some point at which raising the minimum wage would, in your view, cause people to lose their jobs and do so in a way that you would disapprove of? How about $10/hour? $15/hour? $20? Why not keep raising it. No one will lose their jobs, right? Or if they do, they will just end up being more productive in a new job and earning more, right?

    (1) Is there no limit to the benefits of increasing the minimum wage?

    (2) If there is, what’s the ideal minimum wage, and why not higher?

    Lastly , you say:
    Frankly the notion that opponents of minimum wage increases are deeply concerned about Jimmy or some weeping teen is simply crocodile tears.

    Try to get a handle on your tendency to be obnoxiously presumptuous in assuming that everyone with a particular position on an issue (or who even questions a premise of yours) is being insincere. If I express a concern about people losing their jobs, it’s genuine, notwithstanding your self-righteous paranoia. I’m not saying everyone is sincere, but you really should stay away from such inappropriate sweeping generalizations.

  5. comment number 5 by: Patrick R. Sullivan

    Nicely done, Brooks.

    allie:

    ‘…all our prices went up and hes sometimes putting fewer people per shift. also it upsets the old workers who already got raises to $6.25 because now they make the same.’

    Your Mom should be proud of you for being such a good economist. Those are good insights.

    Managers have many more options open to them to deal with increased labor costs than just laying people off. In addition to more careful scheduling of the workforce, there’s the option of more intensive monitoring to squeeze more productivity out of the suddenly more expensive less experienced workers.

    Of course there is the question of, if management was already paying the more experienced workers more without being forced to by government, why is a minimum wage law needed?

    If the law suddenly reduced the legal minimum to $1.00 per hour what do you think would happen?

  6. comment number 6 by: coberly

    how can you talk to someone when you counter Their intuition and counter Their theory?

    my intuition, and my theory, says that raising the minimum wage will raise the amount of money the working people have to spend, resulting in more jobs and higher profits.

    what my theory has going for it is about seventy years of experience… contrary to the theories churned out by think tanks paid…at more than minimum wage… for by people who need excuses to live by.

  7. comment number 7 by: Brooks

    coberly,

    Forgive me — I didn’t realize that the theory of supply and demand* was part of the vast right-wing conspiracy. I also didn’t realize that you are the investigative journalist of the century for discovering this fact. So now Bruce has a Nobel Prize in economics coming his way and you’ve got a Pulitzer coming your way. And something tells me one of you will soon win an Olympic gold medal in gymnastics* *.

    * Increase in cost of production shifts supply curve left, lowering quantity supplied (and increasing price), ceteris paribus.

    ** verbal

  8. comment number 8 by: Brooks

    allie,

    I agree with Patrick’s compliment of you.

    And let me say that your mom seems to be the world’s coolest economist. And in case you think that “coolest economist” is a low bar, believe me, it’s a meaningful compliment. And why should you believe me? Because I’m a managment consultant, and we’re the coolest people on the planet. Even cooler than that music star you kids listen to — you know, Snoopy Dog. (See, we’re hip, too) In fact — and I know you’ll think this might be saying too much — we’re almost as cool as…….The Fonz. And I know kids know that The Fonz is to cool what Baskin Robbins is to flavor variety: he defines and epitomizes it (or at least did until he jumped that shark).

    (ask your mom about the “Fonz” references. And keep on scoopin’. You’ll need to save a lot of money to pay for your mom’s — and my — Medicare in a couple of decades)

  9. comment number 9 by: coberly

    Brooks

    you have a charming ability to think just as far as it takes to reach the conclusion you wanted in the first place. and then to take a mightly leap (these things work in dreams) to the idea that once you have said ’supplyndemand’ you have said everything.

    you really do have to connect the links. or not, since “economics” is the art of creative leaping from simple models to policy decisions that don’t work because that damned ceteris paribus keeps getting in the way.

  10. comment number 10 by: coberly

    oops

    i overlooked the Medicare crack. you are paying your own damn medicare. and allie will pay for hers, if people like Peterson and you will let her. otherwise she will have to take her chances on being one of the haves…with good medical care… or one of the have nots… old people dying in cheap hotels of illnesses that could have been treated fairly inexpensively.

    and all because brooks and the tortise cannot understand “pay in advance” and why that turns out to be the same as “pay as you go” when done on a national scale.

  11. comment number 11 by: coberly

    sorry

    i just noticed the “analytical rigor” self-advertisement at the head of this blog.

    i nearly choked.

  12. comment number 12 by: M Gilleland

    coberly,
    per your math, any given annual cohort of retirees, say those retiring at the ripe old age of 65 in 2017, will have completely pre-funded their entitlement benefits via the payroll taxes they already paid (as a group)?

    If this is the case, then why is it projected to be necessary for workers in the year 2017 to have to pay higher payroll taxes less so for their own projected higher entitlement benefits but rather to pay promised entitlement benefits to retirees in 2017?

    The trust fund “assets” only represent required additional taxes or borrowing — that money has already been spent and must be repaid to help make those entitlement benefit payments.

    It doesn’t seem fair to me that younger generations are going to have to bear the burden of prior generations’ inability to sufficiently save and invest for what has been known for over twenty years now — a demographic bulge and increasing life expectancy.

    You say that the money will come back to these current workers but at the cost of little to no standard of living increases — they’ll be working mainly to pay for current and future necessities.

    Had our federal government leaders not failed us in the stewardship of these programs we wouldn’t be faced with trade-offs between giving future generations the opportunity to enjoy higher standards of living and being able to take care of the poor and elderly. Obviously the latter is a higher priority (by most accounts). It is this mismanagement by government that has created this situation and has undermined my faith in government. I find it insane to entrust ever more of our productive capacity and livelihood to their care.

  13. comment number 13 by: Jacob

    You show me an employee worth $10 an hour and I’ll show you an employee getting paid $10 an hour. You show me an employee getting paid $5 an hour, you got yourself an employee worth $5 an hour. Minimum wage increases hurt small business not because they are inefficient but because they are forced to increase labor costs by 12% while keeping the same sorry employees. I’ve been on both sides of this argument and I can tell you, the more valuable an employee I became…. wait for it… the more I got paid.

  14. comment number 14 by: Rebecca

    I mean… at some point, the minimum wage does have to be increased — otherwise, there could be some kid out there making 1.19 an hour or something. This isn’t a huge increase - get over it. Besides, minimum wage jobs are aimed at teens, etc. - most teens don’t really *need* a job. The businesses are going to have to suck it up and pay the 12% (wow - 12% on a 5 dollar base) - increase.