Over the past 12 months, America has had front row seats for a real-life experiment with across-the-board wage hikes.
In January of last year, a grinning Doug McMillon appeared in a video message posted to Wal-Mart’s website to announce that the world’s biggest retailer was set to implement one of the “largest single-day, private-sector pay increases ever.”
Now first of all, McMillon and the rest of the executive suite probably should have reread the statement in quotes above and asked themselves whether that sounded like something that was likely to turn out well. Wal-Mart employs a whole lot of people, and giving everyone a raise is the kind of thing that can end up having unintended consequences – especially when your business runs on the thinnest of margins.
But Wal-Mart pressed ahead anyway and almost immediately, things started to unravel. First, Bentonville moved to squeeze suppliers by forcing them to plow their excess cash into savings rather than in-store advertising. Next came storage fees and eventually, Wal-Mart even tried to compel vendors to pass along any savings they might have recognized from the yuan devaluation.
But squeezing the supply chain proved inadequate to make up the money spent on higher wages and so, Wal-Mart did what anyone with any common sense knew they would end up doing: they fired thousands of people and closed hundreds of stores. Or, visually:
A valuable lesson was learned by all. Or maybe not, because over the weekend, California lawmakers and labor union reps struck a deal to raise the statewide minimum wage to $15/hour.
“The deal was confirmed Saturday afternoon [and the] compromise ends a long debate between Democratic governor Jerry Brown and some of the state’s most powerful labor unions,” the LA Times writes, adding that “for Brown, it’s political pragmatism; numerous statewide polls have suggested voters would approve a minimum wage proposal — perhaps even a more sweeping version — if given the chance.”
Here’s how it will work: the statewide minimum will rise from $10 an hour to $10.50 on Jan. 1, 2017, with a 50-cent increase in 2018 and then $1-per-year increases through 2022. Here’s more from the Times:
Sources say the Legislature could vote on the wage compromise as soon as the end of next week by amending an existing bill on hold since 2015. Its passage would place California ahead of a minimum wage increase now being considered in New York, and would probably add fodder to the raucous presidential race. Both Sen. Bernie Sanders of Vermont and former Secretary of State Hillary Clinton have endorsed the goals of a nationwide campaign to raise wages to $15 an hour, and advocates say swift action in California could force both Democratic candidates to embrace what would be a more aggressive plan of action.
In January, Brown warned of a $4-billion-a-year increase in state budget expenses if public-sector care workers — who are paid the minimum wage — were to receive $15 an hour. The gradual ramping up of wages and benefits in the new agreement is more aligned with Brown’s larger budget philosophy.
“Raising the minimum wage to fight income inequality has cropped up on many Democratic candidates’ agendas ahead of the November presidential, congressional and state elections,” Reuters wrote this morning. “But the idea has drawn fierce opposition from conservatives and some business groups, who have said a higher minimum would harm small businesses and strain the budgets of government agencies forced to pay more to workers.”
Yes, this could “harm small businesses.” Businesses like the Marmalade Café which has seven locations. “First, you have to raise prices, otherwise you’ll be out of business,” owner Selwyn Yosslowitz told the Times. So higher prices for diners. That’s “first.” We imagine you can guess what’s “second.” “We will try to re-engineer the labor force,” Yosslowitz said. “Maybe try to reduce the number of bus boys and ask servers to bus tables.” In other words: “Maybe” we’ll fire some folks and the people who keep their jobs will have to be more efficient.
Yosslowitz also worries about the dynamic we’ve discussed over the course of documenting Wal-Mart’s experience with wage hikes: namely that you have to preserve the wage hierarchy. You can’t hike wages for the lowest paid workers and then expect those further up the pay ladder to be satisfied with what they made before. “The other big worry [is] that employees already making $15 an hour will demand a raise as well”, Yosslowitz said. “It’s a chain reaction.”
Indeed, the problems with haphazard wage hikes are now readily apparent even to those who stand to benefit the most from the new legislation. Take Miguel Sanchez of Highland Park who works two jobs making tortillas. “It’s good for workers, but I imagine this is not going to be good news for employers and small businesses,” he says. “Will the cost of things go up?” he asks. “Are employers going to cut back hours because they can’t afford it? I worry.”
So even tortilla makers get it, but like Wal-Mart, “some folks” will need to actually see the layoffs before they’ll concede that you can’t cheat economic truisms and that’s really a shame for the people who will lose their jobs in the meantime.
Of course how much you earn and even whether or not you have a job at all only matters to the extent that “shit” costs money, which is why it might be a good idea to just go ahead and vote for “A Future To Believe In”…
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