Minimum wage hikes impact a work in progress

[TexasTowelie]

The minimum wage increase that took effect in Colorado at the beginning of the year is having a minimal impact so far on the south metro Denver business community, according to several proprietors and industry experts.

While some employers are evaluating how to best account for the added expense of paying workers nearly an additional $1 per hour, the bigger and more common quandary is how they will absorb the cost as the minimum wage rises an additional $2.70 over the next few years.

On the retail and fast food fronts, many locations in the south metro area — which has a higher cost of living than much of the state — already pay a market rate above the new minimum wage of $9.30 per hour.

In Parker, the Twisters Burgers and Burritos restaurant starts employees at $10.25 or $10.50 per hour. District Manager Gary Hatfield said that in other locations, he can fill positions at minimum wage.

Read more: -http://coloradocommunitymedia.com/stories/Minimum-wage-hikes-impact-a-work-in-progress,242675

[napi21]

1. I don't know those locations or the volume of business they do, but it seems to me if you added

5 cents to several items, that increase should be able to be recovered easily.

[TexasTowelie]

2. For a fast-food restaurant I believe that for each $1 increase in the minimum wage

it takes about 50 cents for each unit sold. For a restaurant there is going to be a crew of 4 to 6 people working at each shift (cook, cashier, manager, extra counter help, cleaner). So for that extra $1 per hour in increased wages, the business will likely pay about $5. In addition to the extra money paid directly in wages there are also additional overhead costs paid by the business for payroll related expenses such as workers compensation premiums and payroll taxes so add another $1 per hour to the direct costs so the business will pay $6 per hour. That expense increase will be paid whether or not any product is sold so a restaurant will also have to consider prep time before opening and cleaning time after closing.

Take that $6/hour and divide it by 50 cents and it will require 12 units of whatever to be sold. If a business decides to increase their prices by only 5 cents then it will require that 120 units be sold. If you have ever been stuck at a drive-through line, do you believe they actually sale 120 units per hour and do it constantly?

These are very rough numbers of course, but it gives a better idea of how the wage increase will be passed along to customers. That trip through the drive-through lane will probably cost a dollar more each time the minimum wage is raised a dollar. For people that eat out frequently it could easily mean $30-$50 per month more spent on food.

Finally, I've only looked at a small portion of the overall economy which is the food sector, it does not include other expenses such as paying for transportation or for other services they receive from other businesses that have minimum wage increases.

While I believe that people should be paid a living wage, it should also be noted that the people hit the hardest by inflationary wage increases are those with fixed incomes or no income. Minimum wage increases sound great if you are able to work for the money and also able to control your expenses (which sounds easier than it is), but with about 3 our of 8 people not working because they are retired, disabled, caring for children or unwilling, it makes it more difficult to get by.

[napi21]

8. I was going to just accept your calculations, until I realized THAT DOESN'T MAKE SENSE!

If you assume for every $1 increase in pay the product price must increase .50. If that's so, how do you account for so many items now selling for $1.00 or even less? I suspect the real increase required to cove4r any P/R raise is more likely a % of cost.

[TexasTowelie]

9. It's good marketing to have a $1 menu

The restaurant may or may not distribute the percentage increase in costs evenly across all items being sold. Some items may not receive a markup for marketing purposes. Therefore the dollar menu items could remain even if those items are sold at a net loss. However, the usual trick to avoid losing money is to reduce portion sizes.

There aren't that many places selling items at $1 each though (mostly breakfast items) and they are analogous to free bread that is offered by more upscale restaurants. The $1 items are usually small portions, low quality, and require very little prep time. The businesses use the $1 items to lure in customers so that they can sale other items that are more profitable. Even if you only buy the $1 item on this visit, the restaurant owners know there is the opportunity to be entice the customers to eat something that will generate more profit in the future.

Speaking from past experience when there were increases in the minimum wage, I noted that the prices of hamburgers/sandwiches normally went up about 50 cents when the minimum wage increased. A soft drink would cost a quarter more. The price of fries/chips would also increase by a quarter. The typical burger, fries and drink meal would go up by $1.

I think that the question is whether the price increase needed to support a $1/hour in the minimum wage is closer to 5 cents per item or 50 cents per item. I suspect that it will lie at the higher end of the scale based upon past experience. I realize that I should have been clearer that the 50 cent increase was applicable to the main entree and that other items will see smaller increases.

[PoindexterOglethorpe]

3. I live in a city with a living wage.

Santa Fe, NM. And trust me, it has not adversely impacted quality of life here.

For those of you who know nothing about history, let me tell you about Henry Ford and his decision to pay $5.00 per day, when all the other car companies were paying about half that. You recall the outcome, right? Ford went out of business and the lower wage prevailed. Wait, that's not right. Okay, deep breath. What actually happened? Ford prevailed. He paid his workers enough money so that they could afford his car (and if you come across the idiocy about why Boeing doesn't pay enough for their employees to afford to buy an airplane, you can ignore those things) and created the middle class as we know it.

At the beginning of my working life, minimum wage was $1.25/hour. Which is what I made. It enabled me to live a subsistence existence. I could pay my rent. I could buy food. I could buy clothing. I was never going to be able to save very much money, but I could survive. At the time I was 18, 19 years old, so a family or saving for retirement wasn't really on my horizon.

Then the minimum wage went up to $1.40, and not long after to $1.60. I was in hog heaven. A year or so later I got a job where my hourly wage was $2.50, and I was practically rich.

Here's the point. The more money I made, the more I could spend. And THAT'S exactly why minimum wage needs to be a living wage. If you have money, you spend it, especially at the lower end.

[TexasTowelie]

4. I certainly agree with your point that if you have money, then you spend it

which is the argument for increasing the minimum wage. It certainly is fine if you are employable and capable of getting that job. It's when you are not employable for some reason (disability, age, being a caregiver or parent) where that argument is no longer true. With 3/8ths of adults not in the workforce the increase in the minimum wage makes products is less affordable and the people that have little or no money see their purchasing power diluted--instead of being able to go out and eat 5 meals during the month it gets trimmed to 4 meals per month.

The argument about whether to increase the minimum wage is dependent upon each individual's circumstances. For those that have the ability to work then it could be advantageous if what they receive in wages exceeds their expenses. For those that are not able to increase their income it works against them.

Instead of people having a livable wage the issue becomes whether should have a livable income, regardless of their employment status. The decision as to whether to be employed should be to enhance that base amount of income.

[PoindexterOglethorpe]

5. Excellent point about livable income.

I am 68 years old, not currently in the work force, although I keep on considering rejoining it. I have the good fortune to be in excellent health, and could easily hold an entry level job, although I REALLY hate getting up before 9am or so. I have an adequate income, and it will actually increase in years to come as I start taking my annuities, and the increase in SS that I anticipate. I do recognize that I'm unlike most seniors in this respect. However, I am mightily frustrated at how many choose to take SS as soon as possible, rather than holding off and working a few more years.

But that does not take away from your point about a livable income. It can be a bit depressing to live in a country that seems to think it's perfectly okay that its citizens don't have decent health care and don't have an income that at least insures basic survival.

[Sherman A1]

6. It's only been in place for

about 6 weeks. I really don't think you can evaluate any program such as this based upon 6 weeks of data, particularly in the Winter. As the weather moderates, the days get longer I suspect that their business will increase and that the affects of this wage increase will tend to work itself out. Yes, more is coming for the business operators, but people need a decent wage upon which to live.

We need to remember that the money has been being made all along, it's just been funneled up to the top dogs and very little of it trickles back down to the common folks.

[TexasTowelie]

7. I agree that it is too early

and thus far only the first phase of wage increases have occurred. There area number of factors that come into play as to whether the wage increases can be absorbed into the local economy such as whether the adjacent areas are even more costly than that one area. However, there may be a point where the cost of goods compared to what people earn gets flipped that people will change their lifestyles or go elsewhere where their incomes will stretch farther. It will be interesting to follow up on this story two or three years from now to see what the people think and what impact the wage increases have on the participation in the labor market. Will more people jump back in the labor market if they earn more income? I'll try to keep an open mind until we see the results.