Sunday, July 2, 2017

Creating Unemployment 101: Seattle Minimum Wage Case Study


While most people think that ZeroHedge is trash news, they did report on this rather factually.

The University of Washington (located in Seattle, FYI) has been doing a study on minimum wage. They published their findings for Seattle this month, which you can read in detail if you are so inclined, or don't believe me.

Facts:
- Minimum wage per hour was increased from $9.47 to $11 in 2015
- Minimum wage per hour was increased from $11 to $13 in 2016

After the $13 wage:
- Reduction of low wage jobs by 6.8%
- Those who retained their jobs were working less hours (9.4% less)
- Low-wage workers on average saw a reduction of $125 per month (6.6% drop in income)

So summary:
Less people working for less hours and taking home less pay.

Positive intended outcome? Well, I will let you be the judge of that.

You may want to bookmark this page to re-visit at the next GE (and the next, and the next...) when certain *cough cough not saying who cough cough* politicians keep coming back to this notion of minimum wage.


Legislating a minimum wage is the same as legislating unemployment, period.

The minimum wage OBVIOUSLY does not create any prosperity. If it did, why stop at $13 an hour? Why not $20? $50? $100? $1000? Now that question is gonna keep minimum wage advocates up all night.

This is the sad reality that you don't want to hear: Some people's work are not worth $13 an hour. Heck some people's work aren't even worth $5 an hour. In fact, some people can be rather worthless.

Yeah I said it. It had to be said.

"Orh hor, GMGH so facked up, so insensitive." Well, is microwaving burgers and shaking salt on fries worth 13 USD an hour? You tell me.

I don't merely oppose the minimum wage. I detest it. It is forced unemployment and encourages discrimination.

I'm not stupid. I know the arguments for minimum wage. But that doesn't mean that they are good arguments. Every time I talk to minimum wage advocates, I feel like I'm stuck replaying the beginner's tutorial of some shitty economics game.

The idea that business owners should share profits with employees is complete nonsense to me (if businesses want to, good on them, it could be a strategic HR move, but it is by NO means an obligation). An investor gets profit sharing AS WELL as loss sharing. An employee is not an investor, but a stakeholder. Employees still get paid even if the company doesn't sell anything.

You can't be an employee and expect zero downside but all the upside. By opting for salary, you trade away profit and loss sharing in exchange for a stable salary. Not happy with it? Become an entrepreneur / investor and get both the upsides and the downsides then. You can't have everything without giving up anything.

However, from a governmental and social point of view, I understand why it is important not to have unemployment for citizens, especially given the context of a competitive and fluid global workforce. This is especially so if you have citizens that are low-skilled, have high expectations, or the dangerous combination of both. In SG, I think the the government has made very smart decisions by choosing to tackle this through quotas, levies, education subsidies and workfare. Workfare for the low income is the next best thing since kaya toast. It's basically almost like minimum wage, but paid by the government (the people who want it) and not by businesses (who would otherwise find alternatives than hiring these people). I find this a fantastic solution that solves both unemployment benefits and the minimum wage in a very elegant way.

On the topic of competition, just a heads up and friendly reminder that your competitor might not only be from overseas - undercutting your salary and working twice as hard - they might also be faceless and have the ability to work 24/7 at the cost of $0.2072 per kWh.


In case you don't believe me, please visit your local McD's or KFC when you have the time. I wonder how much this terminal costs an hour... How often do you reckon it takes MC or urgent leave on Mondays and Fridays? Last I heard, they don't get called up for reservist or give birth to babies either.

If you can't beat that "damn foreigner", what do you think are your odds against a machine?


Personally, I believe the solution to unemployment is continuous improvement. The Red Queen hypothesis. But you can do whatever you want to do, I'm not forcing my beliefs on you. Just sharing my thoughts.

5 comments:

  1. I'm believer in both Minimum Wage as well as Maximum Wage ... I very fair one. Hahahaha!!!! But only for salaried workers. Many salaried workers like CEOs, CFOs, MDs, CIOs, politicians, MPs, Ministers, etc etc get oversized payments for mediocre results & with golden parachutes. Many also use their status & power to protect or promote their paychecks whether consciously or unconsciously. How often do shareholders block salary payments for CEOs at AGMs?? Even for deteriorating big companies with lousy performance like SPH, former NOL, SingPost, etc?? And for payment of stock options, the rules need to be changed to make it much more onerous for recipients to cash out so quickly.

    For entrepreneurs & business owners, sure, allow them to earn as much as possible, outer space is the limit, coz they'll also crash & burn if the business fails. But of course today's entrepreneurs will usually protect themselves by using OPM & using legal tools to ringfence themselves.

    If want to reward high fliers with "unlimited potential wages", then award with stock options but with minimum 5-yr holding periods before can exercise & sell out.

    The main reason why Seattle minimum wage didn't work is simply becoz too high too fast. Just look at the increase --- 16.2% and 18.2%. In an economy where the median wage was flat or rising at only 1%-2%. If they had left it at $11 or even $10.50, then it will show a different story.

    Singapore practices selective Minimum Wage --- Progressive Wage Model for cleaners, security guards, gardeners/tree cutters --- where mandatory minimum wages are specified for various categories of workers. Over next few years, more & more different worker categories will be added as govt fights to stay popular & retain high votership.

    Before the above mandated minimum wages, govt already had a scheme to socialize Minimum Wages instead of privatizing it to the companies themselves. This is thru Workfare, where taxpayer monies are used to "top-up" those deemed as "below living wages". When first started, "living wage" was set at $1700, now it's $1900 (changed before GE2015). Will definitely be increased e.g. $2200, before GE2020.

    ReplyDelete
    Replies
    1. Hi Anon,

      Funny enough, I do not support both maximum wage as well as a minimum wage.

      Civil servants aside, I believe that if C-suite personnel are able to negotiate for a ridiculous salaries and golden parachutes, then they should get it and it is a rotten deal for shareholders. Unfortunately, minor shareholders have close to 0% say in anything and they are just along for the ride.

      The onus is for the shareholders to come up with packages that is attractive for talent, but also does not reward mediocre results. I like your idea of stock options, but I'd suggest to put it even further that they are not allowed to sell-out until 1 month after they give notice that they are leaving the company. And more of their salary should be variable and based on performance.

      Again, entrepreneurs that can get away with using other people's money are smart people that take advantage of greedy investors. Investors weren't forced to handover money, so nothing is stopping them from walking away from a bad deal. Yet money is freely thrown around in that space.

      I've talked about setting the minimum wage in the past. I believe that setting an efficient minimum wage that isn't harmful to the economy is not only about the speed of the implementation and the changes, but also about the accuracy of the numbers. However, these numbers are "sticky" numbers and usually become wage ceilings if the value of minimum wagers goes up, but the minimum wage number isn't revised fast enough to match it. While an accurate initial wage is a good start, it is almost impossible to maintain and adjust a market efficient minimum wage from that point onwards.

      Yes, I know about the PWM. I don't like it because I don't believe it really brings about "productivity boosts", but maybe I'm just cynical about it. If productivity is really improving and this is the government's "stick" method to force productivity growth, I'll stand by it. Essentially, the gov believes that the market is moving to equilibrium too slowly and they are jumping ahead.

      Unfortunately, I think you are right. Many policies are rolled out based on winning votes. Politics is economics in the real world.

      I still think that Workfare is great and the PWM shouldn't have been rolled out at all. There is nothing wrong with cheap sourcing. However, companies that engage in cheap sourcing should be forced to accept inadequate services by their cheapest contractor that they award the contract to. Ideologically, I think that the PWM is a step backwards from a free-market model and this leads to a slippery slope, especially in government overstep.

      Delete
  2. https://www.bloomberg.com/view/articles/2017-07-10/the-overhyped-seattle-minimum-wage-disaster

    Above comment by Barry Ritholtz on the UoW study.

    Basically the main flaw is that the study overweights mom&pop shops & totally eliminates big and medium enterprises.

    So of course your local Ah Seng Mamashop is going to be much more price sensitive than your NTUCs & Sheng Shiongs.

    UoW could have done a similar study of logistical efficiencies and reached a similar conclusion --- increasing logistical economies of scale leads to stagnating breadth & variety of products .... but only for mom&pop shops.

    What I can agree on is that Min Wage doesn't eliminate poverty or incentivize the bottom 10% to get themselves into the 50% or 60% percentile.

    What is does it merely to provide a conscionable living wage to those willing to put in their fair share of work.

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