business news in context, analysis with attitude

Got the following email from MNB reader Craig Espelien:

I have read with both interest and dismay the minimum wage discussion/debate over the past couple of weeks on MNB.  As an economist by training and a business person because I need to pay bills, the challenges around minimum wages are broad and varied.  Wages is the single largest controllable expense most businesses have – and forcing an increase in a service environment will simply drive up the cost of the product and likely negate any benefits the new minimum might bring.  The same thing has happened in the production space – we saw it in the meat industry years ago and in the car industry more recently – where labor was able to negotiate (through their unions in the cases of meat and autos) ever increasing wages right up until the companies that agreed to pay those wages could no longer compete.  We made the choice as industries and as a country to encourage and support off-shoring to stay competitive with wages that were below those common in the US (in countries where the standard of living was much lower allowing wages to be lower).  If we go down the same pathway in the services industry, we will put an even greater number of folks at risk in a couple of ways.  Food safety cold be compromised as these retailers turn to ever cheaper sources for ingredients as the next piece of expense they can control (we have seen how well that has worked out).  Also, the move to more part time work with no health care may leave more people worse off than before the minimum wage increases.

In a free market economy, minimum wages are set to prevent abuse on the low end (see table service restaurant workers and the odd pay low and force wage support onto the customer in the form of tipping – an entire kettle of fish on its own) not provide the right wages to survive.  I have lived in several areas around the country and remember when fast food restaurants in the Minneapolis suburb of Eden Prairie could not fill their ranks at $8.00+ per hour (when the minimum wage was somewhere near $4.50) due to the lack of people available or willing to fill those jobs.  With the economy pushing folks from more full time work in their fields into part time work where minimum wage comes into play, we need to be cautious that we do not mandate a fix to a problem that is likely to be more temporary than not (even though more part time work and fewer really good jobs is likely our new normal without some form of industry coming back to our shores).
 
So, this is not a Liberal or Conservative issue (although on this issue our divisive tendencies are obviously coming out) but rather an economic issue.  If the wages are not to your liking – don’t take the job.  Jobs typically command wages commensurate with the amount of workers with similar skills available and the amount of value created by the position.  Artificially mandating what that value is seems somewhat wrong to me as I am a huge supporter of free markets and the freedom to choose your own path.  I have worked minimum wage jobs in my past – and often worked multiple jobs to keep the $$$ flowing in.  I am not saying that is the best choice – but unfortunately it may sometimes be the only choice.
 
A final note – if we continue to push up the minimum wage on relatively low value jobs, we run the risk of taking away the aspirational nature of work:  by working hard, showing loyalty and dedication I can advance both in responsibility and compensation (whether inside my current employer or by attracting the attention of a potentially better employer).  An ever increasing minimum wage is another form of entitlement – you get more by bitching and complaining than by actually creating value.
 
You may not want to post this – your choice – but wanted to weigh in as I value your insight but also get concerned when emotion over runs reason on some of these issues.


There is very little in your email with which I disagree. I'm really ambivalent about the idea of forcing up wages through legislation that only impacts certain kinds of businesses (like Walmart in DC), though I disagree with some of the people (I don't think you are suggesting this) who think that even minimum wage laws represent the end of western civilization as we know it. And I agree completely about the aspirational nature of work and rewards.

My feeling has been that there are plenty of examples of business leaders and companies where there has been a recognition that one way to develop a committed and loyal workforce is to deal with the issue of pay disparities, and to create a rewards system that makes people at every level feel like they have skin in the game ... because employees who feel that they have a stake in the company tend to act as if they are owners, which makes them both more productive and efficient. Is this easy? No. Can it be accomplished quickly? Of course not.

But if I were trying to build an organization - or re-engineer one that needs a culture transplant - I think that these are some of the issues on which I would focus.

A friend of mine who is a CEO likes to say that "the more you give, the more you get." I think the corollary to that is "the more you allow people to earn, and empower them to perform, the more powerful an organization is likely to be."'

And legislation won't be required.
KC's View: