Congress' New Minimum Wage Bill: A Jobs Killer?
Aug 16th 2012 3:20PM
Updated Aug 16th 2012 4:00PM
Do you love your job? Would you love it just a little bit more if the boss gave you a 35% raise? If some members of the U.S. Congress have their way, you just might get your wish.
Last month, Rep. George Miller (D-Calif.) introduced a new bill to the House of Representatives, aiming to raise the federal minimum wage from the current $7.25 per hour to $9.80 per hour by 2014. The upshot: Three years from now, the kid you hire to mow your lawn could be raking in the hourly equivalent of a $20,000 salary. And if that seems generous, then get a load of this...
Papa John doesn't know the half of it
Last week, the Twittersphere was all a-quiver over a comment by Papa John's (NAS: PZZA) CEO John Schnatter warning that Obamacare could add $0.14 to the cost of a large pizza at his delivery chain.
And yet, $0.14 is small beans compared to what the Fair Minimum Wage Act of 2012 could do to prices at sit-down eateries. Even as it hikes headline "minimum wages," the FMWA would also increase the amount that restaurant operators must pay their waitstaff.
Currently, "tipped workers" can be paid as little as $2.13 per hour in base wages, plus tips (typically anywhere from 15% to 20% of the cost of a meal). Not all patrons tip, however, and not all of those who do tip well. In a worst-case scenario, waitstaff on a slow night at a restaurant could earn just the $2.13 base salary -- a mere 29% of the regular minimum wage.
That scenario doesn't sit well with some members of Congress, who think waiters should get a base salary at least 70% of the overall minimum wage -- so at least $5.075 per hour, and eventually, $6.86 per hour. The law aims to move rapidly toward this target by bumping up the base wage for tipped workers by $0.85 per year, every year, until it hits 70% parity.
Pause for reflection
After the legislation was introduced, Congress promptly pulled up stakes and went on a five-week vacation. As a result, we have a little time to think this over and ask ourselves (and our representatives): Does this make sense?
If you're a minimum-wage worker, trying to provide for a family of four on an income of less than $15,000 a year -- or a Democratic member of Congress, running for re-election in a stagnant economy -- the answer's probably going to be a resounding: "Yes! More money for me, without any extra effort or more hours worked to earn it? Gimme!"
But turn this picture around, and the answer's not so clear.
Higher wages, pricier pies
For one thing, the Employment Policies Institute estimates that fewer than 10% of minimum-wage workers are single parents supporting children. (Most are teenagers, or married to better-paid spouses.)
For another, consider the case of the Pizza Hut patron. As the teenager slinging his pie begins pulling down $100 a night (assuming $55 in base wages, eight tables worked in an eight-hour shift, $40 a table, and 15% tips), the price of a night out with the family is likely to rise substantially.
Or consider the employer. Up in Michigan, Ford (NYS: F) is hiring new workers at hourly wages that average $14. If you own a 7-Eleven, you may wonder why Congress thinks you should pay $10 for an unskilled worker to man your cash register and load up the Twinkie stand, when just up the road, Ford pays skilled machinists just $4 an hour more.
Meanwhile, Ford itself will soon face questions from a workforce demanding: "Hey! I'm a skilled machinist! Why am I making just $4 more than the Twinkie-jockey down the road?"
So much for the industrial revival
Faced with demands for higher wages, it's entirely possible that Ford, General Motors (NYS: GM) , and other manufacturers will rethink their decision to "re-shore" jobs they had previously offshored. As wage inflation hit China in recent years, more and more American manufacturers have found the cost advantages of offshoring evaporate, and decided to shift production back home. Introduce wage inflation here, though, and this trend could short-circuit.
Alternatively -- but just as bad for employment -- more companies could go the route of Amazon.com (NAS: AMZN) . Trying to juice its 0.7% net profit margins, the company recently bought a company that makes robots -- and is putting them to work in its warehouses. Result: More jobs for robots; fewer jobs for Americans.
And when you get right down to it, if you don't have a job, it doesn't matter much what the minimum wage is -- $7.25 an hour, $9.80, $100. Multiply any of them by "0 hours worked," and the result is still zero.
The article Congress' New Minimum Wage Bill: A Jobs Killer? originally appeared on Fool.com.Motley Fool contributor Rich Smith holds no position in any company mentioned. The Motley Fool owns shares of Ford Motor and Amazon.com. Motley Fool newsletter services have recommended buying shares of General Motors, Ford Motor, and Amazon.com, as well as creating a synthetic long position in Ford Motor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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