Letters: Minimum wage, a well-kept secret

When it comes to the idea of governments raising the minimum wage, politicians are fond of pounding their chests and proclaiming that if only others would allow them to raise the minimum wage that poverty among their constituents could be eradicated. They pat themselves on the back in satisfaction that they are the heroes we’ve been waiting for. History and actual math versus emotions tell a different story. In fact, that story is a well-kept secret.

Out of kindness, we could give the politicians the benefit of the doubt and say they are well-meaning. However, after about 85 years of history of the minimum wage since 1938, they should know the truth. The truth is, the economic laws of supply and demand work better when bureaucrats and self-aggrandizing politicians stay out of the way of the free market system.

One of our local City Council members is already trying on his cape and hero outfit. He has managed to get a second Council member to help get the idea of a minimum wage on a future agenda. The emotional thinking of being the person who solves poverty in South Lake Tahoe has overcome the facts. However, that goes against historical data and sound economic theory. Still, it’s necessary to have a minimum wage for trainees and untrained workers, especially when unsound national policies drive up inflation. Our local economy is in danger because of this well-meaning but backward thinking.

Since restaurants are the business, I know best having owned and or managed in the industry for over 35 years, I'll use that as an example. When we first opened Happy Steak here in Tahoe in January of 1975, a steak sandwich with a baked potato was $1.89 and coffee was 10 cents. The minimum wage was $2.00. In 1988 the minimum wage was $4.25. That same steak sandwich cost $9.99. When the wages went up, to stay in business, we had to adjust our prices. Our employees had to pay more for all the goods and services and meals they purchased. Nothing was gained against poverty. Only a prosperous U.S. economy can do that.

As a point of reference, for restaurants, up to 30 percent of the cost of the meal you eat is labor and another 30 percent is the cost of the food the restaurant purchases. The rent is usually eight percent and ten percent is a hoped-for profit. In addition, all the other expenses are affected by the cost of labor to produce and transport the other products to the business. A brief list could be napkins, silverware, cleaning supplies, gas electricity, water, sewer, linens, phone charges equipment repairs, liability, property insurance, and many more that involve labor to produce and or deliver. That all comes out of the 32 percent left out of each dollar received in sales.

The minimum wage is meant for trainees and young people entering the job market. IT IS NOT AND HAS NEVER BEEN MEANT TO BE A "LIVING WAGE." The average cost to train a restaurant employee is $1,250. That is when they hopefully can start helping the business make money versus costing to train them. Our servers were tipped to make a disproportionate amount compared to, for instance, the cooks or dishwashers, yet they all earned the same base pay. We had to pay our back-of-the-house cooks etc. much more than the minimum wage so we could keep them in those positions. Some servers present day can make $200 in tips in a six-hour shift. Yet the government requires that they be paid the same base wage as non-tipped employees. When the government gives the workers a raise, they take away a key tool that managers have in rewarding and encouraging their employees. We paid more to keep employees. We had several wonderful people who were like family that stayed with us for over 14 years. It was a free market competitive decision.

As minimum wages go up it causes rises in the pay of those employees who are already being paid above that wage. Businesses cut work hours and look for automation. In our case, we worked more hours ourselves to stay competitive in our prices. It pained me to cut hours but having the business fail would mean everyone would lose their jobs. When I had 75 employees, I paid more than the minimum to our workers who helped us make a profit but if we could not profit, we could not feed our own family. Currently, in Tahoe, there is a shortage of employees, most businesses here are paying much more than the minimum already without overreaching local government interfering in the decisions made. A trip to the grocery store or a restaurant tells the real story. That is that higher wage costs mean higher prices for food, goods, and dining out for locals. It’s a zero-sum game.

So, what might happen if our Council unilaterally and arbitrarily raised the minimum wage in our city?

*It might push some family's income into a higher tax bracket causing the loss of state and federal aid including Medi -Cal, Welfare, and WIC. I had a few employees turn down raises because it would cause them to lose their benefits.

*It could cause the loss of free and reduced lunches for school children.

*Local Seniors and those on fixed incomes would not be able to adjust to the higher local prices resulting This decreases the volume of customers which causes the loss of work hours or business failure.

*It would raise the price of all the goods the workers buy locally. We recently ate at a popular franchise restaurant in Provo, Utah. The server told us that their servers make about $2.37 per hour plus tips. However, an exceptionally large, portioned breakfast was only $9 versus $17 here in Tahoe.

*Because the proposed raise would be in the City of South Lake Tahoe only, it would give a competitive price of goods advantage to our neighboring Placer, El Dorado County, North Shore, and Nevada businesses because they would have lower labor costs.

*It would induce the loss of new investments in Tahoe.

*Union workers would demand higher pay to keep the current level of separation in pay.

*How would our city administer such a tax and how many new finance department employees would be needed?

*Less young people would be hired because older more experienced workers would be hired.

To determine if an idea has merit you simply take it further. FOR INSTANCE, IF $25 PER HOUR WOULD HELP SOLVE THE PROBLEMS AND DECREASE POVERTY, WHY NOT GO TO $50 PER HOUR AND END POVERTY IN AMERICA? The answer is that the mathematical proof would show that millions of jobs would leave for other countries instead of the thousands that go to other countries such as India and China each time wage increases go into effect. A prime example of a bootstrap attempt is in Australia. Their current minimum wage has dramatically gone to $21.38 per hour. Yet their poverty rate of one percent has not changed from the one percent it has been for many years. The price of goods and meals rose dramatically.

Despite the actual evidence, local advocates including at least one City Council member from New York, propose increasing the minimum wage inside the city limits to alleviate poverty among the working poor. However, it is a mistake to equate minimum wage workers with the working poor.

The CBO report estimates raising the minimum wage would result in increased earnings for low-wage workers. However, only 19 percent of the higher earnings would go to families below the poverty threshold. Stated differently, 81 percent of the higher earnings would benefit families who are not poor; in fact, 29 percent of the higher earnings would go to families earning over three times the poverty threshold. Teenagers make up a sizable part of this group. The Bureau of Labor Statistics estimates that 24 percent of minimum wage workers in 2012 were teens. Low-wage jobs provide a key opportunity for inexperienced workers to develop valuable skills and work experience, a crucial rung on the ladder of success. However, the income earned is not likely to be sufficient to support a household. While raising the wages of workers seems like it might be a good solution, the proposal makes the mistake of equating minimum wage workers with the working poor.

Conclusion: National inflation and the shortage of local workers have caused local businesses to raise what they pay on their own as a free market decision, instead of being dictated to in a movement towards socialism that focuses on attacking big businesses but decimates small businesses. It has never been proven to work (see Cuba's economy). The Robin Hood approach of taking from one person or business and giving it to another eventually runs out of other people's money. Businesses are not evil because businesses are comprised of people. A recent survey showed that 42 percent of all Californians are thinking of moving out of the state. In our case, that is easy to do with Nevada right next door. Our Council should concentrate on the reason the city was originally formed by the citizens. Those basic reasons were police, fire, roads, and housing. They should not dramatically change market forces that they obviously do not understand. A low-cost of goods booming economy is what will provide the jobs we need.
Let's pat them on the back if and when they finish the actual job we voted them into the office to do.

Duane Wallace, CEO, ACE
South Tahoe Chamber of Commerce
duane_wallace@hotmail.com

See U.S. Census Bureau. "Poverty Thresholds." Various years; https://www.census.gov/data/tables