Thursday, February 18, 2016

The Maximum Minimum

Those of us in Oregon are more than aware that as of today both the Senate and House of Representatives have passed a bill to increase Oregon's minimum wage. It also comes as no surprise that the governor is expected to sign it, after all, wasn't it her idea anyway? While the overall increase proposed in this bill will take a matter of years to be fully implemented, it will make Oregon's the highest state minimum wage in the United States (assuming that other states don't pass similar increases before then).

What follows here is my opinion, achieved by using logic a common sense, things that are sadly lacking in this world. If you disagree, that is fine. If you are offended or upset, you were warned. Continue at your own risk.

Oregon's minimum wage bills follows on the heels of Seattle's passage of a localized $15 minimum wage, and pushes for such in other parts of the country. Obviously for those pushing for these increases, they are expecting a bed of roses, but I think they are forgetting about the thorns. Here is an interesting article regarding Seattle's minimum wage.

Let's try simple math and logic:
Most businesses exist in order to make money. A business will work to maintain, or increase, it's profit margin by a couple methods. Either they will raise prices of their goods or services, cut costs, or use a combination of the two. [To be certain, there are other methods to protect profits, such as adding new products or services that provide a greater ROI than existing ones. To keep it simple for this, we'll stick with the status quo as it were.]

Increase prices: To make up for the increased labor costs, a business may choose to increase their prices, passing on those costs to the consumers. Those workers who are now earning a higher minimum wage are also now paying more for essentials. This will also result in an effective pay cut for those that are already earning more than minimum wage. They won't get a pay increase, but they are also stuck paying the higher prices.

Reduce costs: Lets say that current minimum wage is $10 an hour (simple round numbers here) and an employer is paying $30 to 3 workers for an hour's work. So, the wage goes up to $15 an hour and the employer needs to maintain the current cost level. Now 2 workers can work for that same $30 an hour. Either 1 of the employees is out of a job, making them worse off than before, or all 3 get their hours cut by 1/3rd and still earn the same amount of money and no one is better off.

Maybe they do a combination, cut a few less hours, raise the prices by a smaller amount, etc.

Oregon's tiered minimum wage:
The newly passed bill provides for 3 different wages bases on geographic location. The Portland area gets the highest wage, and rural areas get the lowest. To me this is the epitome in wage unfairness. Yes, there has been a lot in the news about rent going sky high in Portland, but that doesn't negate the fact that prices are often higher for other things in rural areas. What about gas that's often higher in rural areas, or even groceries due to having less variety of stores to shop from. If someone wants to have access to the variety of stores that might have lower prices, they need to drive long distances, using more gas.

I have more opinion, including at least two different alternatives to a blanket increase the minimum wage, however I will save that for another post. If you agree with me, I'd love to see it in the comments.
Thanks for reading.

1 comment:

  1. As a business owner, I have to maintain my over head. My office rent, utilities, insurance, phones, etc, etc, all keep going up. If I have to pay more wages, without raising the cost of my services, I cannot stay in business and thus everyone loses their job. Several years back, when gas got up to $4 per gallon, we had to layoff our field person. At one point, we had five workers and we tried to keep things the same for our consumers. Now three people have lost jobs, we are down to two people and we can't go lower. When you raise wages, you have no choice but to raise your prices or you go out of business. That is pure common since.

    Marty Hegr