Minimum wage growth
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Besides its underwhelming job growth, there was another problem with July’s jobs report: the quality of new jobs. Roughly 60% of the 162,000 were in low-paying industries like retail, restaurants, home health care, and temp jobs (many of which have seen real wages decrease since 2008).
This jobs report coincided with a week of strikes by fast food workers in several cities around the country, many of whom walked off the job demanding an increase in the minimum wage to $15 from $7.25. Some legislators are paying attention: the Fair Minimum Wage Act of 2013, currently circulating through both the House and Senate, proposes an increase in the federal minimum wage to $10.10 by 2015, indexed to inflation. It’s wildly popular with the public (80% support it, according to a recent poll), but in reality, it has little chance of passing in the Republican-controlled House.
Economists are divided on the exact effects of raising the minimum wage. In the short-term, though, several studies have found that an increased minimum wage does not affect employment. Still, there are also studies that do see an uptick in unemployment as a result of raising the minimum wage — Dylan Matthews has a great roundup at Wonkblog. A July working paper by Jonathan Meer and Jeremy West of Texas A&M found that raising the minimum wage did hold back the creation of new jobs.
Researchers debate in circles about the effects of the minimum wage, but it might be more practical to consider how much low-paying employers can afford to raise their wages. In the New Yorker this week, James Surowiecki writes, “the combined profits of all the major retailers, restaurant chains, and supermarkets in the Fortune 500 are smaller than the profits of Apple alone. Yet Apple employs just seventy-six thousand people, while the retailers, supermarkets, and restaurant chains employ 5.6 million”. Ryan Chittum estimated that doubling the minimum wage for McDonald’s workers, “would mean menu prices would have to rise 24 percent—and that’s assuming such price increases wouldn’t hurt sales, which they would”.
But there may be some middle ground. Daniel Gross has a great round up of a group of fast food restaurants — California’s In-N-Out Burger, Seattle’s Dicks Drive- In, and Detroit’s Moo Cluck Moo — that pay their workers more than $10 an hour, with benefits, and stay profitable. “Pay more upfront and you’re likely to see better customer service, and you may save more in the long run on training or absenteeism”, says Gross. — Shane Ferro
On to today’s links:
How to profit from insider trading, even if you buy the wrong stock – John Hempton
The Rhode Island pension system’s huge bet on hedge funds – Providence Journal
Ackman tells regulators Soros may have broken insider trading rules – CNBC