Patterico's Pontifications

6/6/2008

How it Works in the Real World — The Minimum Wage and Unemployment

Filed under: General — WLS @ 2:42 pm

[Guest post by WLS]

Bad news out today on the unemployment front — a big jump from 5.1 to 5.5%.

However, within the numbers are some interesting details.

First, the number didn’t spike due to a big loss of payroll jobs — those declined only by 49,000 in April. That would be only .0004% in an economy of about 138 million workers.

Instead, the number jumped because of a surge of new people who came into the job market looking for, but not finding work. The overall unemployment number is about 8.5 million, and the increase last month represented about 860,000 new job seekers — only 49,000 of whom had lost a job elsewhere.

Further, the unemployment rate for the 16-24 age group was up dramatically compared to other groups. Unemployment in that group rose 2.4%, compared to increasing by only .4% in the group of workers 25 and older.

ftportfolios.com

Who does this age group represent? How about high school and college students coming into the job market for the summer.

And what do many such job seekers get paid? Minimum wage –which Congress increased last year from $5.15 to $5.85, and which will increase again next month to $6.55, and then again next year to $7.25.

Here’s a personal case study in how that works to squeeze workers out of the minimum wage job market:

My parents own an ice cream shop, and rely heavily in its operation on eight 16-20 year olds working part-time schedules of 16-24 hours a week, along with one full-time manager who is assisted by my parents in their free time. Over the course of a 7 day work week, they typically employ the part-time workers for a total of about 340 hours a week.

Raising the minimum wage by .70 increased their straight wage expense by $240 a week, or about $1000 a month. But it had collateral consequences as well, as their worker’s comp. and unemployment insurance costs rose in relation to their payroll, as did their payroll tax contributions. The combination of wage increase and the various increases that spin off that wage increase was about $1500 a month. This is against a total wage expense for the part-timers of about $8000 a month.

Now, the ice cream parlor business is somewhat inelastic from a price stand point — people won’t continue to pay higher and higher prices for an ice cream cone when the alternative is simply to do without. So, that increase in operating expense could not, in total, be passed on to the customers. Instead, my parents worked a few more hours themselves and trimmed back on the hours they had the part-timers working. When one of the part-timers quit, they didn’t hire a replacement for her.

Now, the same thing is going to happen next month — another increase of .70 per hour, totaling about $1500 a month in additional operating expenses is going to kick in. This will come on top of significant increases over the past year in product costs — multiply the increased cost of milk you are paying at the supermarket several times over and you get a feel for the increased cost of buying ice cream on a large scale for a business establishment.

They will raise the prices a little, but not enough to cover the total increase. They will cutback on the hours the part-timers work, and work a few more hours themselves. And if they lose another worker, they probably won’t hire a replacement.

My parents are both in their late 60s, and they don’t want to work 60 hour weeks at an ice cream parlor they bought on a lark after they retired.

But they aren’t going to operate it as a money loser either.

When Congress increased the minimum wage, for many many small business operators such as my parents, Congress took the profit from the business right out of their pocket. I’d be surprised if my parents’ shop made more than $3,000 or $4,000 month in profit — with them taking nothing in terms of a wage for themselves. If they had not cut-back their part-time work force payroll, the minimum wage hike would have taken every bit of that profit away.

Now they are working more than they want, and for a very modest annual return on their labor and investment.

And two fewer teenagers will be employed by them this summer than was the case last year.

The other six should have their resumes up to date.

– Guest Poster WLS

98 Responses to “How it Works in the Real World — The Minimum Wage and Unemployment”

  1. Sensible parties had suggested that the minimum wage increase not apply to teenagers or first-time job holders, but no, the unions and Dems forced it upon everyone.

    Something similar happened back in the 90s when Congress raised the minimum wage from $3.35 to $4.25 per hour. A gentleman in my hometown had a summer lawn-mowing service where he would hire local high school kids and send them out to do the work. The city leaned on him and pushed him to pay the higher wage (he had a contract or two with the city), and the upshot was that he had to raise his rates and a significant portion of his customer base dropped the service. All that happened is that a bunch of middle-aged men started mowing their own lawns, and a bunch of teenage boys no longer had a summer job.

    JVW (78155f)

  2. JVW — the dirty little secret that not a lot of people know about is that most labor contracts that pay prevailing wage rates are, in reality, tied to the minimum wage rate. The contract provides that the “prevailing wage” is determined on a mathmatical formula tied to the minimum wage. So, if the minimum wage increases, prevailing wage rates for union workers increase as well.

    Unions couldn’t care less about minimum wage workers or the working poor. Their interest in hikes in the minimum wage is tied directly to it being the ratchet which drives up their union wage rates.

    A couple hundred thousand teenagers can’t find a summer job? Too bad — SEIU’s happy because it just got an 11% wage bump without having to negotiate for it. [That number is hypothetical and included merely for demonstrative purposes]

    WLS (68fd1f)

  3. A great lesson in small business economics, WLS.

    Newton’s law that for every action there is an equal and opposite reaction applies here as well.

    vnjagvet (d3d48a)

  4. The magical appeal of “giving” people more money without a corresponding effect is rooted in the same thinking that begets flying unicorns and Barry O.

    The global and local markets always correct themselves. Would you pay $24.00 for an ice cream cone? Neither would anybody else.
    (Except in New York City)

    What happens when the markets correct? Chaos! – Then the government has to step in to “save” things.

    Unless there’s a reformation-like increase in economics education, we are all well down the road to serfdom.

    Apogee (366e8b)

  5. Doesn’t matter what the economic results might be; all that matters is that Obama’s Law of “Fairness” prevails. Increased capital gains tax results in lower overall taxes collected? LOi siento much- gotta be fair and gouge the “rich” more, even though actual revenues dip. I wonder what would be happen if we had the old Japanese 0% tax on capital gains? Afterall you already paid taxes on the money you invest.
    What would be an actually “living wage” be? Those teens are at home and paying little or no rent. Why not just have an executive order that minimum is $20 an hour? Wouldn’t that also stimulate demand for goods? And a rise in prices? Tough noogie- everyone else would get bumped also. Change! Hope! Oceans receding! Planet healing!

    madmax333 (1eb03c)

  6. it’s actually .0355 percent. you divided to get a decimal, but in order to convert it to percent, you have to move the point two spaces to the right.

    assistant devil's advocate (b1152f)

  7. WLS – I think your parents should automate or send the jobs overseas, just like the big companies do in response to rising labor costs.

    daleyrocks (d9ec17)

  8. furthermore, i wish to inform you that i would never patronize an establishment such as your parents’. i’m whiffing a sweatshop mentality here, a regret that an hour of a hardworking teenager’s time costs as much as a gallon and a half of gas. i belong to the party of the working man and was once, long ago, a hardworking teenager myself. now i make all my own ice cream in an electric bucket unit with valrhona couverture from chocosphere.com, madagascar vanilla beans and organic cream, half-and-half and eggs, finishing the custard before chilling with a slug of grand marnier. bon appetit!

    assistant devil's advocate (b1152f)

  9. ADA, so you make your own ice cream and guarantee that the teenager has no job.

    How egalitarian!

    SPQR (26be8b)

  10. ADA # 8 — you sound like the middle-aged guys in #1 mowing their own lawns.

    WLS (68fd1f)

  11. “i belong to the party of the working man”
    Would that working man be George Clooney or Bruce Springsteen?

    On TMZ Ben Jones who played Cooter on The Dukes of Hazzard did just announce that he supports Obama. Could be a turning point.

    Jack Klompus (b796b4)

  12. i disagree with the conclusion in the final sentence of #1. more likely, the teenagers canvassed their customers and signed them up on a more lucrative individual basis. some of them probably expanded their territories against their lazier fellows. i’m proud to support young workers in their first conflicts with bosses. when i was 16, i took earl scheib to the california labor commissioner and won, and that was back when you could have any car painted any color for $29.95.

    assistant devil's advocate (b1152f)

  13. Jack — and the party of Al Franken.

    “Unable to say exactly how it happened, DFL Senate candidate Al Franken acknowledged Friday that his personal corporation wrongly failed to provide employees with workers’ compensation insurance in New York for nearly three years.

    According to campaign manager Andy Barr, the accountant for Alan Franken Inc. (AFI) who investigated the case for five weeks was unable to figure out “the exact circumstances that led to the oversight.”

    However, the accountant “has determined that, in fact, AFI was not in full compliance during the period in question,” Barr said in a statement. “Therefore, no further attempt will be made to contest the resolved judgment.”

    WLS (68fd1f)

  14. Another point lost is that as the Min Wage goes up, the cost of training new workers becomes a more significant number. Many of us have seen summer-jobs that used to be the province students become filled by full-time/year-round workers (documented or not) who don’t have to be replaced in the Fall by new faces that need to be trained.

    Somehow, I think that if “93′s” target was Capitol Hill, it was unfortunate that it missed its’ mark. They muck-up the country, and face no recourse for their actions.

    WLS, wouldn’t your parents be better off if they actually took a paycheck? If they can’t afford to pay themselves, they can’t afford to pay anyone.

    Another Drew (8018ee)

  15. Dew — their paycheck is simply the net profit at the end of every month. But when that net profit begins its descent towards zero, it’ll be time to close the doors. They’ll go back to traveling and living on their retirement savings and SS.

    WLS (68fd1f)

  16. I realize what they’re doing, but as an ex-small business owner who operated in the same manner, I can tell you that my biggest regret was not paying myself up front so that I could show positive SocSec gains, plus use that money for a leveraged retirement plan. When I closed the door, there was nothing left, and their was nothing put away. I enjoyed the run, but it was poor planning on my part.

    Another Drew (8018ee)

  17. “there” not “their” (penultimate sentence).

    Another Drew (8018ee)

  18. TANSTAAFL, baby.

    N. O'Brain (9056e2)

  19. You mention 8 teenagers, working 16-24 hours a week, then say that over a 7 day work week the part timers are typically employed for 340 hours a week. That would mean they were all working 42.5 hours a week. I thought perhaps you meant 240 hours per week, but between 8 workers that would still mean 30 hours per week each.

    Of course, since most people are paid bi-weekly, it might be that your folks told you they employ part-time labor for a total of 340 hours over every 2 weeks, which would be 170 hours, for an average of 21.25 hours a week – which seems much more consistent with ‘part time worker’. Seems like you might want to revisit your figures – all of them.

    Your stated previous monthly spend on part-time workers (at $8000 when minimum wage was $5.15) implies that each is costing the business $1000 per month; if they’re working about 85 hours per month, that means each hour they work costs your parents almost $12. Really? I find it hard to believe that these kids were getting $5.15 and hour in pay but costing an additional $6.61 per hour in employer’s deductions. Looks to me like you did way too much extrapolation from that 340 hours per week figure, wherever you got it from.

    Now, if you’re going to make economic arguments, I think you ought to start by checking your figures. It’s too bad that it’s biting into your parents’ bottom line, but in case you hadn’t noticed the current rise in food and energy costs is not the result of congress tinkering with the minimum wage. And it also seems to have escaped your attention that the teen part-time employees are also having to pay more for things even if they live at home. Perhaps you think that doesn’t matter. Nice attitude, considering that these teens’ social security contributions are part of what funds your parents’ social security checks.

    So, if profitability slides towards zero the ice cream parlor may close. That would suck, but maybe it’ll reopen to sell something more profitable than ice cream.

    Eddy Robinson (67c5e0)

  20. When my kids were teenagers, I insisted they get summer jobs. I wound up having to drive them to and from work, but it was better than paying for teenager’s on my auto insurance. But I didn’t want them to have summer jobs for the money, which they were allowed to keep except for the $10.00 a week I charged them for the gas. I wanted them to have a summer job because of what it taught them; punctuality, responsibility, having money and learning that it doesn’t go as far as they thought mine did. Both of them has service jobs, such as those who work in the ice cream shop. That also teaches those who are going to be entering the employee world full time in just a few years how to be polite and how to answer to a person that signs their paycheck. You have a job to do and if you don’t do it, you’re fired.

    How much is a kid with no experience worth? Farm kids learn quick that there is no such thing as a free lunch as most of them work on family farms before school, after school and during the summer.

    Kind of striking that these kids are, as a rule, the ones that never wind up in jail or on drugs.

    retire05 (488bfe)

  21. That’s a rather typical Democratic critique that Eddy gave us. Recall HIllary’s response to a small business owner complaining about her attempt to burden him with her grandiose health care plan: “I’m not responsible for undercapitalized businesses”.

    SPQR (26be8b)

  22. #18 – N. O’Brain,

    I second that. Heinlein knew whereof he spoke.

    Missed It By THAT Much (dfa803)

  23. As a small time operator I’m familiar with this whole equation. People who have never tried to keep a show running have no idea of all the hassles and costs involved. As in the example above an extra $1000.00 a week in wages costs $1500.00. Crunching the numbers(1500/8000), that is an increase of almost 19%.

    Some folks think that the notion of profit is evil, based on greed I suppose. Every business needs profit to survive, remove sufficient profit and eventually that business will disapear along with the goods or service it supplied. So how does that add to the public good?

    Amused Observer (07635c)

  24. 1971-72, I was a freshman in high school. I worked in a gas station for $1.25/hr. Three p.m. to eight p.m on weekdays, Eight a.m. to eight p.m. on Saturdays and Sundays.

    I carried a gun, that I had bought on the street with my own money, on the job and on my way home. I still have it.

    I got a raise to $2.00/hr when I threatened to quit. I was fired three months later when someone was found who would work cheaper than me.

    I have not worked for anyone other than myself since 1986. I have taken cases where I did not even get $1.25/hr.

    Whatever.

    nk (0e7da1)

  25. What a great example. The ice cream shop.
    One problem though. Most Democrat politicans aren’t smart enough to run an ice cream parlor.
    They make their money the old fashioned way.
    They TAX you. The Democrat mind has no idea about how the economy operates. In fact most Democrats and Democrat voters believe that GOVERNMENT IS THE ECONOMY. All monies not confiscated or otherwise transferred by GOVERNMENT fiat, can be spent by you.

    gus (5845e3)

  26. current rise in food and energy costs is not the result of congress tinkering with the minimum wage

    No, it’s the result of Congress “tinkering” by locking up all domestic crude/natural gas, stopping the building of refineries, refusing to allow nuclear energy, pushing the ill-thought biofuels (hell, why should farmers engage in raising persnickity popcorn for 8 cents a bushel when junk corn will bring 22 cents for biofuel?).

    Heck, who wants to invest in domestic oil when a member of congress threatens on camera to nationalize it?

    yeah, THAT won’t have any affect on energy and food prices.

    Darleen (187edc)

  27. My parents are both in their late 60s, and they don’t want to work 60 hour weeks at an ice cream parlor they bought on a lark after they retired.

    Having grown up in the small food service business and run a small deli myself, I could have told you parents that a single shop is never an “investment” and should never be run on employees.
    Had they decided to run it themselves with less operating hours, they’d be better off.
    Family also ran a Carvel shop for years. They needed the income however. They were the 12 hours a day seven days a week unless their children gave them a break. Eventually became too much. The pay off came from the sale of the business. I use the phrase “Pay off” advisedly however. Uncle still had to go work for Off Track Betting for ten years to secure a retirement.

    paul from fl (bacb61)

  28. #26 well said except that lib Congress and the trolls here will say its all Bush’s fault. They’ll tell you anwr is a pristine wilderness with very limited oil potential (except no one knows since exploration is forbidden).

    Not only did Hanoi Jane betray her own country with her Vietnam shenanigans, she helped put nails in nuclear industry with the China Syndrome Propaganda. How come all those nuclear plants are fine for the French? How come its ok for Chinese to drill for oil in Caribbean? There is surely something rotten in Denmark and DC. Still, it is a bit amusing that gasoline is $10 a gallon outside Paris. Let’s sacrifice so Edwards and Gore can swill energy and get those carbon credits things down pat. Don’t blame me, I drove less than 80 miles last month at about 30 mpg in an old Honda. But in honor of the goracle I’m restoring a 40 y.o. rocketship type sports car.
    But I digress. No doubt windfall profits and edging toward nationalization of oil will make it all right for the ordinary citizen. Yes, works so well with the Venezuelan oil industry. I suppose when everything goes completely to hell in a handbasket it won’t be Urkel’s or lib Congress fault, but all those crackers obstructing the legacy of the great Messiah?

    madmax333 (9ee303)

  29. Eddy Robinson: the author may have some problems with his math, but YOU missed the larger point. How sad

    Cate (9d9b60)

  30. Minimum wage is another artificial vote grabbing gimick. How do they come up with this thing? Wages should be determined by the market. The employer should pay a wage they are willing to pay for amount of work produced. If the employee doesn’t feel it is fair they should get another job plain and simple. I love the argument that the minimum wage needs to be set to a level that people can live on, what a joke. A entry level usually young person with little or no skills should automatically be paid a living wage right? What is a living wage these days anyways? Does a living wage mean a roof over your head and something to eat? Nope, these days cell phones, cable tv, high speed internet, video games, ipods, cds, movies and three kids to different partners is what is expected. These poor people can’t earn a living wage, we better artificially raise the minimum wage so everyone will have a “fair” shake.

    rudedaddy (03ffb5)

  31. Increasing the minimum wage is done so that illegal aliens with anchor babies can afford to bring their village to the USA. After importing 10-20 million illiterate peasants, the Democrats will “discover” a huge problem. Democrats will then impose many, many special programs for those millions of “American’s” left behind by the hateful capitalists who run ice cream shops.

    Perfect Sense (b6ec8c)

  32. Eddy – The math seems to work out from 340, the only issue I see is potentially the number of employees and hours per employee. Are you quibbling with the mechanics of calculations flowing into the overall expenses – wages, payeoll taxes, workers’ comp against a potentially elastic customer demand curve? I’m not sure I understand what point you think you are trying to make.

    daleyrocks (d9ec17)

  33. Eddy also might not be working off the correct number of hours the place is open each day…

    Scott Jacobs (d3a6ec)

  34. And I thought the unemployment rate was going up because of the layoffs of at America’s Worst Newspaper.

    The Tribune Co. announced another round of firings just today. Light a cigar and raise a toast

    PrestoPundit (ff5e16)

  35. After Obama is elected, the ice cream parlor will be taxed out of business so to send those kids to college (without having to pay any student loans).

    I think they should close the parlor now before it is too late.

    Alta Bob (53a695)

  36. At one time I had a little roadside nursery. One of my employees was from the Easter Seal Center

    He could water the plants rake up the lot and hold boxes for little old ladies to fill up with bedding plants, but that was about it.

    I didn’t pay him the miniumum wage for the time, I paid him the same as the others above MW.

    But I did give the matter thought and realised should the MW go up too much I would be forced to buy some piping and drip water extension so I could water the shrubs by turning on a faucet and maybe rigging up some automatic watering system for the bedding plants so I could use my forced salary increases on someone who could also run a cash register and wait on customers.

    Liberals just flat do not care what the effect their policies have on working folks

    Dan Kauffman (3c9c17)

  37. As in the example above an extra $1000.00 a week in wages costs $1500.00

    Hmm workman’s comp per diem for using machinery in the workplace when I had a small business was about $20/hundred dollars payroll and that was in KY about 15 years ago

    Let’s see Adjusted for inflation be close to $300, matching SSI would be $76.50 Now I don’t know what the Workman’s Comp Insurance Premium or the Unemploymeent Insurance Premium increase but
    we are looking at about $1375 plus

    ASSUMING California does not have lower Workman’s Comp rates than Western Kentucky.

    Paterricos claim that $1000 increase in payroll increases costs by $1500 sounds about right to me.

    Anyone who disagrees? I have one question have YOU ever tried to run a business?

    Dan Kauffman (3c9c17)

  38. Dan – Don’t forget about the employer portion of social security, medicare, and any unemployment taxes.

    daleyrocks (d9ec17)

  39. “That’s a rather typical Democratic critique that Eddy gave us.”

    What, using real math and, you know, facts? What’s the Republican critique?

    Stephen (ab5e9d)

  40. “Liberals just flat do not care what the effect their policies have on working folks”

    No, they just don’t put the interests of business owners ahead of the interests of their employees — they consider them equally.

    Stephen (ab5e9d)

  41. “stopping the building of refineries”

    Congress didn’t stop this. Oil companies did. They can build a new refinery anytime they want to — they just don’t want to! Keep supply low and prices high …

    Stephen (ab5e9d)

  42. So, from what I can tell, your parents’ problem seems to be that they sell a product which is rising rapidly in price with a business model that either results in poor accounting or double pay for minimum wage employees.

    How did the minimum wage cause either of those things?

    Jesse Taylor (2468e2)

  43. You mention 8 teenagers, working 16-24 hours a week, then say that over a 7 day work week the part timers are typically employed for 340 hours a week. That would mean they were all working 42.5 hours a week. I thought perhaps you meant 240 hours per week, but between 8 workers that would still mean 30 hours per week each.

    He mentioned 16-20 part-time workers on the clock for about 340 hours a week. That’s 17-21 hours per employee per week.

    Now, if you’re going to make economic arguments, I think you ought to start by checking your figures.

    Now, if you’re going to attack someone’s figures, you ought to start by reading them properly

    Steverino (1c8079)

  44. We should set the minimum wage at zero. The market, not Congress, should set prices. Likewise, if a corporation wants to pay its CEO based on market share, growth, cash on hand, the color of his shoes or any other criteria the owners want to set, it is not up to Congress to interfere.

    However, there seems to be a double standard here. If you accept a government contract, you must certify that your proposal is “current, accurate and complete.” You are spending the taxpayers’ money. An army of government auditors will examine every detail of your price. If there were a less expensive item available and you were unaware of it, your price will be reduced and you may be fined for not knowing. Company officers can go to jail for “defective pricing.” Since they are also spending the peoples’ money, shouldn’t we hold Congress to the same standard?

    When Congress, with the support of hundreds economists, drafts a bill, they should examine all the consequences. If raising the minimum wage costs 300,000 students their jobs, say so. If it also causes small businesses to close, say so. If ethanol mandates drive up food prices without improving mileage or reducing imported oil, say so. If drilling in ANWR will add a million barrels per day to our domestic oil production, say so. The rationalé behind every law should be laid out unambiguously in plain English, certified by government economists and signed by its sponsor. What is wrong with telling the truth, the whole truth, and nothing but the truth?

    arch (58be0e)

  45. Remember “Santa’s Village”? It was a small Top of the World amusement park that for two generations delighted children and their parents from across the Southland. Then the Democrats raised the minimum wage and it had to close down.

    Or there is this example. My first job was at a gas station for $2.00 an hour. I arrived early every time, swept the grounds during my shift, cleaned the toilets and always tallied up my sales correctly at the end of the 10 hour shift. Most of the other teenagers who worked there did half of what I did. After two years and three raises I was making only $.05 over minimum wage, because the minimum wage went up. One day the old man who owned the mobile home park next door hired me away with a $1.15 an hour raise. The other workers at the gas station were not offered jobs. To this day I over-tip waiters do a good job.
    I didn’t stop working hard, I stopped believing in the minimum wage, and liberal economics.

    tyree (e24364)

  46. If the minimum wage were set to zero, we would have more working people on welfare causing either our taxes to rise or deficit to rise, further devaluing the dollar. If you throw them off of welfare, crime will rise.

    Big business has shown time and time again they squeeze their workers any chance they get so CEOs can make more millions.

    PeteC (acadf0)

  47. Perhaps the Democrats could end this debate by illustrating how much additional goods and services we can buy with the minimum wage since 1974 when I worked for $2 a hour.

    tyree (e24364)

  48. Pete C….
    Read up on Ben and Jerry’s Ice Cream and their attempt to find someone to run their company at 10 times the average wage. It didn’t work, and they eventually sold it off to a French firm, where the top guy makes considerably more than 10 times the average wage.

    tyree (e24364)

  49. Big business has shown time and time again they squeeze their workers any chance they get so CEOs can make more millions

    Pete C. – If thet’ve shown us time and again, perhaps you could show us some examples.

    daleyrocks (d9ec17)

  50. So, from what I can tell, your parents’ problem seems to be that they sell a product which is rising rapidly in price with a business model that either results in poor accounting or double pay for minimum wage employees.

    Jesse – You obviously suffer from the common liberal disease of misunderstanding of business if that is what you took away from the post.

    daleyrocks (d9ec17)

  51. Pete C:

    This is America. Corporations have fiduciary responsibilities to their stock holders and contractual responsibilities to their customers. Profits are an indication that the company is offering a product that is in demand at a price customers are willing to pay. Management’s job is to balance these two responsibilities.

    In an introductory speech to senior management, our new Chairman stood at the whiteboard and in the upper left hand corner, drew an oil derrick. In the lower right corner, he drew an oil drum, then he connected the two with an arrow beside which he put a dollar sign. “This,” he said pointing at the oil well, “is you. And this is me” pointing at the barrel. “So long as this flow continues as planned, everything will be fine. However, if it slows or, God forbid, reverses, your successor will have an opportunity to correct it.”

    Who are the owners? In most cases, we are. If you have a stock portfolio, pension plan, IRA or 401(k) that contains stocks and mutual funds, you own IBM, MicroSoft, Apple and Exxon/Mobil. You probably also own mortgage underwriters, utilities and transportation companies. The class warfare Marxist ideas no longer apply.

    arch (58be0e)

  52. Now, if you’re going to attack someone’s figures, you ought to start by reading them properly

    ahem.

    …and rely heavily in its operation on eight,/b> 16-20 year olds working part-time schedules of 16-24 hours a week…

    tristanheydt (b88897)

  53. Steverino #43: I’m afraid it’s you who needs to read a bit more closely — WLS mentioned eight workers between 16 and 20 years of age.

    kenB (88b394)

  54. the ice cream parlor business is somewhat inelastic from a price stand point — people won’t continue to pay higher and higher prices for an ice cream cone when the alternative is simply to do without

    I think you meant somewhat elastic, not inelastic.
    If it was completely inelastic, demand would not change at all as prices rose.

    TomHynes (6c3e12)

  55. Liberalism believes that wishing real hard will both make Tinkerbell live, and make the laws of economics go away.

    SPQR (26be8b)

  56. Re # 25–most Democrat politicians couldn’t run an ice cream shop? You goofed! ROTFLOL. You should have said “couldn’t run a cookie shop”. John Kerry’s “investment” in a cookie shop in Boston failed in the late 70′s or early 80′s so he went out and got a “real job” as a US Senator.

    As for Stephen in #41? The oil companies could build a new refinery any time they wanted to? What green world do you live in? You first have to get the permits to build a refinery. The first new U.S. refinery in 30 years is going to be built in South Dakota–maybe. They’ve got their initial permits, but those are being challenged according to a Wall Street Journal article reporting on the prospects for the refinery this week.

    Heck fire you can’t even reopen a closed refinery.
    There’s a big refinery in Santa Fe Springs California. It closed in about 1994 because the cost of modification to bring it into compliance with newly imposed regulations was too great. The refinery had been in that location for more than 60 years. Various investors, including the Reverend Pat Robinson, have been trying to get permits to get it reopened since 1998. They have not been able to get permission from the local regulators to do so; and the people who live next to the refinery are also having a case of Not In My Backyard.

    The people who love increasing the minimum wage also love increasing the amount of regulations. It’s a disease, and it threatens our economy.

    Mike Myers (31af82)

  57. The hit and run comments by the economically illiterate Pete and Stephen were quite informative.

    Jack Klompus (b796b4)

  58. most Democrat politicians couldn’t run an ice cream shop? You goofed! ROTFLOL. You should have said “couldn’t run a cookie shop”. John Kerry’s “investment” in a cookie shop in Boston failed in the late 70’s or early 80’s so he went out and got a “real job” as a US Senator.

    Uh, no — the cookie shop is still in business today. Kerry sold his share at a profit when he went into politics in the 1980s.

    Of course, it’s the Communist sympathizers at Money magazine and the current owners of the store who say that Kerry made a profit, and I’m sure you understand capitalism much better than those hippie freaks.

    Mnemosyne (ab1415)

  59. Sorry, mistake on my part — the link above is from Fortune magazine, not Money magazine. Those goddamned hippie bastards at Fortune, always trying to overthrow capitalism.

    Mnemosyne (ab1415)

  60. There’s a big refinery in Santa Fe Springs California. It closed in about 1994 because the cost of modification to bring it into compliance with newly imposed regulations was too great. The refinery had been in that location for more than 60 years. Various investors, including the Reverend Pat Robinson, have been trying to get permits to get it reopened since 1998. They have not been able to get permission from the local regulators to do so; and the people who live next to the refinery are also having a case of Not In My Backyard.

    It seems a mite unfair to blame that on Congress. Blame it on the legislature and the voters of California; its our system which has created that problem, not the nationwide one.

    aphrael (db0b5a)

  61. The economic impact always left out of these discussions is the effect that raising minimum wage has on non-minimum wage employees. The discussion and analysis only is applied to the minimum wage workers themselves.

    However, what do you think happens to the guy who has worked his way up above minimum wage at this business? WHen the summer kids get a mandatory pay hike as the min wage jumps-do you think he will work for the same pay? Suddenly he is back at minimum wage. So he has to get a bump or he will go elsewhere. Same up the line-so the real impact on a business is much greater than the lefty pundits want us to believe.

    I wish for once a Republican in Congress would steal the issue-advocate a minimum wage increase of say-$10 per hour. Then watch the Dems have to vote against that. Obviously, other Republicans would vote against it-but the Dems who are such advocates for the “working poor” would be in a position of either implimenting an economy killing policy-or of admitting that raising the minimum wage does have consequences and should be left to the businesses themselves to determine.

    Octavio (36a7c3)

  62. Here’s an alternate version of the Kerry cookie store story:

    Get new major postings to this weblog via email — free.
    Click here to sign up!
    KERRY’S EXCELLENT COOKIE ADVENTURE A PHONY: WSJ The front page of the supposedly conservative Wall Street Journal runs a front page puffer on John Kerry’s effort to portray himself as pro-business. Included is Kerry’s often-repeated claim that “He helped found a Boston cookie company that still survives, and he invokes his background as an entrepreneur.” In an accompanying interview available online, Kerry expands,
    I started my own small business once… A tiny little deal. (A cookie store in Boston’s Fanueil Market.) It’s still there. it’s still there, exactly as I created it. I could have franchised it across the country… I had had this idea about combining it, taking it nationally, putting it into malls and supermarkets. I could have been Mr. Kerry instead of Mrs. Fields… It was great fun. I did everything. I did the layout. I did the purchasing and the equipment… I must have had, I don’t know, 35 part-time employees. And I learned a lot about paperwork, about leasing, about the burden of the health inspections, and the laws you have to live up to, the withholding tax issues, just, you know, how difficult it is as a small business…
    Yeah… yeah… you coulda been a contenda. But the truth turns out to be quite different. Sadly, you have to pay the Journal an extra fee to get it. In today’s edition of “Political Diary,” the subscription-only daily email service run by the Journal’s op-ed star Holman Jenkins reveals that no only did Kerry steal the cookie business he supposedly founded, but then later tried to sell it back to the person he stole it from:
    It turns out that the founder of the David’s Cookies chain says Mr. Kerry is a phony and ripped off every element of the store from his blueprints… last January, Sam Dealey reported in “The Hill” newspaper that Mr. Kerry had been bragging so frequently that David Liederman, founder of the David’s Cookies chain, finally decided to call him on it. “The bottom line is he just stole it from me,” Mr. Liederman, now a New York restaurant owner, told The Hill…
    Mr. Liederman says the Kerry version of reality is half-baked. “Some guy who called me up was John Kerry, in ’79 or ’80,” he recalls. “He said he wanted to come down and talk to me about franchising. He came to the office and said he had an incredible space in Boston, which was Faneuil Hall. He said he needed some plans and some layouts and all sorts of things to get the approval of the landlord.

    “So I gave him the layout, the package, and he went back and I didn’t hear from him for six or seven months.” Then someone Mr. Liederman knew called to tell him that a David’s Cookies store was operating in Faneuil Hall. “It was a direct, 100-percent knock-off of David’s Cookies,” he told The Hill, from the appliances to the shop’s design to the cookies themselves. “If you had walked into a David’s Cookie’s store in Manhattan at the same time he opened ‘John’s Cookies’ in Boston, you couldn’t tell the difference.”

    Mr. Liederman wrote in his 1989 autobiography that he once challenged Mr. Kerry on the Fanueil Hall store: “I told him he had stolen my idea, and he replied: ‘You’re absolutely right. I am a politician; I shouldn’t be in the cookie business, so let me sell you my store.”

    Posted by Donald L. Luskin at 1:02 PM | link

    daleyrocks (d9ec17)

  63. ***snark alert***

    arch @ #44: You’re such an idealist!

    Another Drew (8018ee)

  64. aphrael

    CA refineries have to comply with federal regulations in addition to CA regulations.

    Ethanol in gas is a Fed requirement for reformulated “cleaner” gas.

    Darleen (187edc)

  65. Drew:

    Politicians were not always human waste products. I think we, the electorate, should raise the bar. Why would that be bad?

    arch (58be0e)

  66. Arch, I agree. But, to do so would be a feat that Sisyphus could never accomplish. And, I think he was working in an ideal world (comparatively), where we have to deal with a stacked deck (pun intended).

    Another Drew (8018ee)

  67. Posted by Donald L. Luskin at 1:02 PM | link

    Comment by daleyrocks

    Now that’s the blind leading the blind.

    luther blissett (15a175)

  68. To all of you jerks who are whining about having to pay people a few more cents per hour to do the scuzz work – I challenge you all to a) put up with having do do a job of that nature yourself & try to make a living on minimum wage. Things weren’t this sucky eight years ago.

    C. Witham (6e4547)

  69. *Sigh* Okay Professor of Economics and Political Science Witham, if you are not just some drive-by Kos-sucking child. Have you even read the number of anecdotes from posters here about their youthful employment history?

    “Things weren’t this sucky eight years ago.”
    Your intellectual insights are on heights too staggering to even comprehend. How are you NOT tenured in a prestigious think tank?

    Jack Klompus (b796b4)

  70. #19 — Eddie Robinson:

    Nice comment wiseass.

    Actually, the numbers are that they employ 10-12 kids in the summer and 7-8 during the school year. The shop is open two extra hours a day during the summer and naturally its busier in the summer than in the winter, so they have more counter help. In the summer they have as many as 8 different kids working each day in overlapping shifts from 10:00 to 10:00. In the winter they have 4-5 kids working each day, primarily between 4:00 and 9:00 during the week.

    The weekly hours of the part-time kids fluctuates from 300 to 350, depending on the availability of the kids to work. Sometimes they’ll call an extra kid in on a Saturday when its busy even though he/she’s not scheduled to work.

    But the bottom line is just what I said — the min. wage hike last year increased their labor costs about $1500 a month. I know it was because I sat right down and did the math with them.

    They had to make a decision about whether it made sense to them to keep the shop open, or convert the building into commercial office space and rent it out, which is what most of the surrounding properties are. The rental value — when you factor in the value of their time which they now spend working but would not if they were merely landlords — is greater than the revenue of the ice cream store. They like running the ice cream store because of the social aspect, but they aren’t going to run it for free.

    None of the kids are working there to support a family. For many its their first job, and for others its more for the social interaction than it is for the money they make.

    From you comment about the teens paying the SS, should I guess it would be your view that my parents should operate the business at a loss merely so they can continue to contribute 15% SS for the kids which my parents then get back in their social security checks? Is that how it works in a socialist utopia?

    Why wouldn’t they simply rent the space to an accountant, collect the rental income, continue to collect their Social Security and let the Dems who created the system figure out a way to keep it afloat with small businesses shutting down.

    wls (0ee728)

  71. Hey CW, I slopped a mop in a lot of toilets while going to college in a Galaxy Far Away, too long ago to think about. Plus, working a loading dock on the graveyard shift. So, I don’t want to hear this whiney crap from the likes of you, if you haven’t put in your dues.
    Plus, now that I am officially a fossil, if I have to to generate a little additional income when needed, I am not adverse to repeating the janitorial bit – don’t think I’m physically up to a loading dock anymore.
    Plus, my first job (during the summer after 8th-grade) I had my choice of working for MW ($0.75 then), or piece-work. Took piece-work – it paid more, but you had to stay busy. Something that only illegals seem to be able to do today.
    Just remember one thing:
    You can’t have employees, without employers.
    When the business stops generating a profit,
    ALL the jobs disappear.

    Jerk!

    Another Drew (8018ee)

  72. C. Witham, when you say that “things weren’t this sucky eight years ago”, you establish that either you are a liar and/or you are as ignorant as Levi. Eight years ago, the tech bubble had collapsed, and we were just a half year away from the recession that Clinton had left.

    SPQR (26be8b)

  73. WLS you’re right on. I’ve owned my own small business for 15 years now. For all those people out there who’ve never started a small business, had to make a payroll, before you tell me how to be ‘socially conscious’ or any of that other stuff, tell me how long you were in business and how you ran your small business.

    We have six employees, the newest a high school grad at 4 mos earns $11.50 per hr. Try hiring someone at less than $10. who doesn’t have a felony record or who can pass a drug test.

    Have you checked out the starting rate and bene’s at 7-11 lately? We provide 100% paid BC/BS insurance for each employee, they pay for dependents. (Check out those costs). Then the state lege. starts wanting to mandate what additional options we should cover!!! (Autism in this state OK)

    As far as I’m concerned the biggest unrecovered cost to my business is the government. I have to be careful what I ask when interviewing, hoping you discover any major problems in the first 90 days.

    Hire somebody who has child support and pick up more paperwork.

    I value everyone of my employees, without them I don’t have a business, and I am well aware that our little business supports 5 families and one single trying to get on his own.

    Yes I earn a decent living, and so do our employees, but I’m sure as hell not getting rich.

    Oh, like Another Drew I’m offically a fossil, but I still work 50 hrs a week and get to pay income taxes on the SSI.

    Buckshot (ffb8a2)

  74. Buckshot – I salute you and all small business owners. Those of you on this thread who are in that category are plain and simply the real “bread and butter” of this country.
    I always had the question for those who take it as religion to scoff at the profit motive: AT what level of success does a toiling, honest businessperson officially cross into the ranks of the heartless capitalist lampooned and scorned as the source of all the ills of our society?
    At what level of success is it considered noble for the politician to target you as something to be “fixed” or “changed” by the anointed class seeking to take the reins of power?

    Jack Klompus (b796b4)

  75. “Actually, the numbers are that they employ 10-12 kids in the summer and 7-8 during the school year. The shop is open two extra hours a day during the summer and naturally its busier in the summer than in the winter, so they have more counter help. In the summer they have as many as 8 different kids working each day in overlapping shifts from 10:00 to 10:00. In the winter they have 4-5 kids working each day, primarily between 4:00 and 9:00 during the week.

    The weekly hours of the part-time kids fluctuates from 300 to 350, depending on the availability of the kids to work. Sometimes they’ll call an extra kid in on a Saturday when its busy even though he/she’s not scheduled to work.”

    Hold on.

    You’re paying more kids for more hours, and complaining about the increased cost?

    Jesse Taylor (2468e2)

  76. At what level of success is it considered noble for the politician to target you as something to be “fixed” or “changed” by the anointed class seeking to take the reins of power?

    I believe it happens you hire someone to work for you in a profit-making enterprise. Domestic servants and hookers are OK, though.

    Rob Crawford (b5d1c2)

  77. You’re paying more kids for more hours, and complaining about the increased cost?

    Increased costs over last year is the point.

    Rob Crawford (b5d1c2)

  78. You see, Jesse, you take your Dollar Cost of Labor, divided by your Gross Sales, and that is your Labor Cost for unit of Sales.
    If it costs you more this year v last year as a percentage, your costs have gone up, and your Gross Profit Margin has gone down.
    But of course, as any small-businessman/woman knows, that’s just the first step in seeing if you’re still profitable; you’ve still got to figure in your back-of-the-store costs, and fixed overhead, etc.

    Another Drew (758608)

  79. And yet the Dems, and somewhat the Reps, insist this increase helps the little guy. It won’t hurt an employer like Microsoft; it will kill the average small business. Your parents will see less profit; corporate CEOs will not feel a thing.

    Patricia (f56a97)

  80. “Increased costs over last year is the point.”

    It would be the point if he could ever get the numbers right.

    At this point, I’m starting to fear last year’s books were done in Toys R Us gift cards.

    Jesse Taylor (2468e2)

  81. Since coming home from college my son has put over 20 applications into all sorts of businesses, looking for summer work – he’ll take anything. He has good work experience, good grades and makes a good appearance. No one has even called back. Not one.

    Vita (a78307)

  82. Vita – My middle son just finished his freshmen year, screwed up by not committing to his job from last summer so he had to find a new one. He filled out applications from school, did some phone interviews from there and in person interviews when he got back and got two offers within a week. He’s making a lot more than last summer doing something he likes as well. Luck of the draw I think.

    daleyrocks (d9ec17)

  83. Jesse – Don’t believe everything you think. You’re wrong.

    daleyrocks (d9ec17)

  84. daley – Well Jesse does link to Pandagon, one-time blogging home of Amanda Marcotte, former darling of the Edwards Campaign, so how could he possibly be wrong in his astute, sober, and well-crafted insights on economics?

    Jack Klompus (b796b4)

  85. The example given by WLS is one reason why I don’t necessarily buy into frequently given explanation that businesses don’t pay tax increases, consumers do. Not all businesses face inelastic demand curves for their products and can raise prices in response to cost increases. They may have competitors with different cost structures which make pricing flexibility more limited. I think it can hold for both small and big businesses. There are certainly businesses where cost increases can be passed on to customers, but there are others where it cannot. What Congress fails to mention in its press releases regarding minimum wage increases is the immediate additional cost increase due to the employer portion of payroll taxes and insurance related premiums which WLS laid out above.

    The open border supporters among the political classes also fail to see how that adds to pressure to keep entry level wages lower than they might otherwise be in the absence of federal intervention. The odd combination of union support for minimum wage increases and open borders candidates smells fishy at best and suggets a motive as outlined by some of the commenters above.

    daleyrocks (d9ec17)

  86. After skyrocketing oil prices, the foreclosure fiasco, the dropping dollar, and rising food prices – blaming the rise in unemployment primarily on the raise in minimum wage seems a bit shortsighted doesn’t it? If you google ‘raising minimum wage increases employment’ you’ll find a NYT Letter on this argument, noting that, ‘ After 50 years of minimum-wage coverage, only once – during the 1974-75 recession – did unemployment increase.’

    thehipi (06f126)

  87. hipi – The rise in minimum wage has been shown to be a contributor to unemployment. Where is anyone arguing that it is the primary cause and how do you propose that any single one of those things in your list is a greater contributor to rises in unemployment?

    Jack Klompus (b796b4)

  88. Yet another liberal who has never been involved in managing a business chimes in to make unrelated arguments.

    daleyrocks (d9ec17)

  89. ” I don’t necessarily buy into frequently given explanation that businesses don’t pay tax increases, consumers do.”

    Eventually either the customer does or the company folds. Not every small businessman is an astute operator but the math grinds away regardless. Profit is the lifeblood of a business. Remove sufficient profit and the business dies.

    Amused Observer (db1712)

  90. for years, i had a second (sometimes 3rd) job delivering pizza for a guy who owned his own shop. paid under the table, at $5 an hour (but no taxes!), and $1 a run
    minimum wage went up… of course, so did many other things. cheese and milk and pepperoni and gas…
    he didn’t raise our wage (although he DID raise the amount per run as gas rose). he raised prices a bit (which is harder than you think – pizza prices don’t change much). he mostly raised the delivery fee. so of course people stopped tipping, because they were paying 2 bucks for delivery, and don’t delivery drivers make $13-15 an hour? (at least according to all the signs that advertise for delivery drivers)

    i don’t work there anymore; i can’t AFFORD to work there.

    break it down: $500 a month for rent, $300 for bills (basic bills – electricit, water, gas – the things you are required by LAW to have) food is around $200 a month, gas for the car, if you are frugal, as another hundred, and so is car insurance. don’t get sick. don’t ruin your only pair of shoes, or rip one of your 4 pairs of pants; you can afford NONE of these things. no cable, no phone, no movies, no books or games or dates or anything but the gerbil wheel of minimm-wage work.

    or even slightly-more than minimum wage work.

    denelian (ea5fb1)

  91. I really enjoyed reading this. Great anecdotal evidence of the dangers of tampering with the small business model. Which is growing more fragile every year.

    I wish that people could understand that while Microsoft/GM/IBM and the like get the notoriety, there are many many more small businesses that provide the backbone of employment in America. I think the figure is something like 90% of businesses in America are defined as small businesses.

    So punishment, erosion and vituperative attacks on small business owners will eventually hurt all Americans. What happens to that 90% of the part of the economy that provides the vast majority of employment?

    Stew (f854db)

  92. cracks have appeared in the parable of the mom-and-pop ice cream parlor, admittedly bought “on a lark” for their retirement. perhaps they thought it would be a standalone, self-sustaining money factory. how could they possibly have failed to write their names in the ice cream pantheon alongside ben, jerry, baskin, robbins and the inscrutable mr. haagen-dazs? did they work hard enough to succeed? did they bring any new ideas to the table? did they consider branching out into gelato and frozen yogurt? did they consider giving their youthful workforce raises and positioning themselves in the local market as a fair-wage establishment? did they make the best ice cream that they possibly could and charge a fair price for it, reflecting the cost of labor and ingredients, or did they use high-fructose corn syrup instead of sugar and buy the cheaper eggs/dairy at the end of their shelf life? we can’t tell from this record, but we’re asked to choose which to honor more; the disposable capital of wls’ parents, or the sweat of a young worker. that’s a no-brainer for me and most of my fellow democrats.

    assistant devil's advocate (46360c)

  93. Yes, it is because it is a “no-brainer”, ADA, that Democrats’ economic policy is such a joke. Democrats apply “no-brains” to economic policy – falling for emotional arguments that ignore economic reality.

    SPQR (26be8b)

  94. yassuh, our own watermelon jake. the workers are the victims and should share equally in fruits of their labors. Those damn owners of small business always taking advantage of the underclass with indentured-servitude conditions. To each according to their needs indeed. Works so bloody well in Cuba and Venezuela. That’s why Oliver Stone, Kevin Spacey, Naomi Campbell and scuzzy M. Moore are abandoning filthy lucre of capitalism and relocating along with Susan Sarandon and others who have been harshly punished by the Bush regime.
    Work hard and accumulate some assets and the dem/socialists/marxists want to redistribute to the more needy who may well play the ant role in the grasshopper and ant parable. Cause I’m the tax man and what’s yours is mine.

    I can see how many of us would be ticked off at the exorbitant executive priveleges given out. Maybe private industry is one thing, but why are local government’s paying very lucrative perks to administrators? Just curious as to how they rate or what they do behind the scenes to warrant the rewards? And the whole PC lib racial card thing is so amusing. Blacks are apparently ready to get even with whitey. Boy, Oprah, OJ, Tiger and Urkel sure are suffering from the bigots against them. Ken Chenault, boss of American Express made $50.13 last year. Bet that black man must be sorely undercompensated compared to whites, eh?
    Maybe it just seems that the youth think they deserve to start out making mucho dinero. They cannot all be sports or rap stars with big bucks shoe endorsements? Bet most of us here worked our asses off at one time for less than minimum wages. Now there’s an apparent culture of entitlement.
    I don’t know what the minimum wage should be or what supply and demand would seem to dictate.
    If my days at minimum wage from 40 years back were extrapolated to today’s numbers I suppose the minimum could be $12.50 an hour? Figure a new Corvette was $4000 then, a furnished room could be had for $10 a week, a haircut maybe 90 cents and many diner meals around $1. What can you buy today even with $12.50 an hour? Just wondering what the answer is. Government meddling only exacerbates the situation, no? How about if we started deporting the cheap illegal labor? Won’t happen with Urkel or McCain.
    I reckon best thing for wls’ parents is to rent out the property and forsake all the other headaches.

    madmax333 (9429a9)

  95. ADA your argument is foolhardy at best and plain ignorant of math and money at worst. That argument is the reason that the US experienced stagflation in 70′s and 80′s. Sweat is worth NOTHING, disposable income is everything. If the ice cream store is not turning a profit then your workers will have no job. You seem to have also forgot that this particular ice cream store was not out to compete with companies like Ben and Jerry’s. Its market is small and price and demand so closely linked that a small change in either can mean disaster.

    And the people that they are employing don’t need living wage, they are in high school living at home with their parents. As are most of .4% who were added to the unemployment roster. All the minim wage has done is make it harder for people with no skills or working experience to get a job.

    So you can take you egalitarian ideology and flush it down the toilet the hopes that those kids had at getting a summer job and some work experience.

    Friedman_ worshiper (56bf45)

  96. TomHynes says: I think you meant somewhat elastic, not inelastic. If it was completely inelastic, demand would not change at all as prices rose. The post reads: “inelastic from a price stand point.” I don’t know how well that maps to economists’ usage, but clearly we’re not talking about demand.

    sierra (dfb2fa)

  97. Online shopping is now a easy way of buying anything which they want by using the internet.

    Laura (36b094)


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