A Living Wage

I entered the workforce at 16 years old, I made minimum wage at Arby’s restaurant on Ann Arbor Rd. As a note, this is where I met my wife, she was my trainer for the first few weeks I was there. The training continues. Anyway, the year I started this job was the very beginning of 1991. Something happened that year, I don’t really thing about that much, but I was pretty excited about at the time. The minimum wage went up.

Becky, the store manager called an all team meeting, which in later years would be used to do surprise drug testing, but this was before any of that. This was to explain that the minimum wage was going up and all employees would be getting a straight increase of the amount added. I tried to look this up and it looks like the Federal Minimum Wage went from $3.80 to $4.25, but I don’t remember it being quite that much. I thought for us it was 15 or 25 cents. Anyway, this was the kind of announcement pretty much everyone was happy with. Do you want an extra few bucks on your paycheck? Why, yes I do!

I didn’t think about the cost of overhead to Sybra (the company that owned our Arby’s), nor did I think about the impact to cost of food, operation costs, availability of overtime, or any of that. My focus was on me, how much money extra I would make. My penitence was after all so small compared to how much the company makes, right? I also didn’t think about the hours to enact and enforce such a law and how much in taxes that probably meant, nor did I consider any of the political leanings one might have to decide if this was a good idea or a bad idea. I was going to make more money and I hadn’t even been there a year! That was it.

Seattle, Washington recently passed a law which will increase the minimum wage in the city from $9.32, which is Washington state’s current minimum wage to $15. This is not all at once, it takes place over seven years, but it seems to be driving this discussion of a living wage. There are questions of if this increase should be national. The part of me that is still that 16 year old Arby’s worker fantasizes about such a thing and that same youthful vibe exists in much of the pro-increase media and comments.

Most of me, though, has grown past that, I have broadened my horizons and deepened my understanding of the way these things work. If a business has an increased cost, no matter where is comes from, there has to be a correlating either separate decrease in cost or a way to increase the income to offset it. Based on a quick Google search, it appears the largest segment of workers getting paid minimum wage are food preparation workers. So, let’s look at my first employer, the place where I was a food preparer. Today, without any changes the minimum wage in Michigan is $7.40, just a little higher than the Federal minimum. It is estimated that 30-35% of the operating costs of fast food restaurants is payroll. Lastly, if I was to order a Beef and Cheddar combo and then add a Jamoca shake as I walk out the door it would cost me about $9.38.

Now imagine for a moment that all of those young employees jump from $7.40 an hour to $15 an hour. The celebration would be huge, but perhaps short lived. See their gross pay would go up 203%, which is no small thing and likely they, like me, would not have much consideration for the impact on the company, but that impact is bigger than they might be thinking. See, that translates to an overall operation cost for Arby’s of around 61%. They can’t serve their customers if they cut hours, they don’t want to diminish the quality of their product, any more than it might already be, so they have to add this back into the cost of the food. So, remember my simple meal and sweet shake. Well, it is no longer going to cost $9.38, instead it is going to $15.08.

Now, you might be tempted to think that while this is not as good as you had hoped it still works out better for that minimum wage worker. After all, her can work fewer minutes to pay for that meal, and you would be right. The problem is a little bigger for them. See, the average person spends about 9% of their paycheck on food. So, if they make $1000 they spend $90 of it on food. A minimum wage worker, though, spends about 12% on their food, so $120 per $1000 earned. If all food goes up by 61%, and you should expect it to increase by some amount if you increases minimum wage, as grocery stores and mass producers of foodstuffs also have a large number of minimum wage workers, than that 12% of money spent on food becomes about 20%. So, the living wage could easily become unlivable.

So, who would want this, I mean other than 16 year old me who has no vision of the future? Well, let’s think.. Who makes more money if people have bigger checks? Who makes more money if the prices of things go up? See, there are winners in this situation, but they are not who you think they are.