Minimum Wage doesn't Matter

Or, at least, it's a distraction.

In Chris Rock’s legendary HBO special, the wise sage makes a salient argument.

“I used to work at McDonald’s making minimum wage. You know what that means when someone pays you minimum wage? You know what your boss was trying to say?

“Hey if I could pay you less, I would, but it’s against the law.”

In my entire career, the only times I made minimum wage, I was working as a student worker. Working at McDonald’s I earned $5.25, 10 cents above the 1997 minimum wage. High Roller. The federal minimum wage today almost 30 years later, is an amazing $7.25. I sincerely hope no one thinks an hour of their life is worth $7.25.

Some places pay unskilled laborers $15, $20, $25 starting wages. That’s actually getting to be reasonable money. In Minnesota right now, I’m seeing $13 as the average McDonald’s wage. Less than double what I made.

So clearly, with how expensive labor has gotten menu prices must have gone up too. A Big Mac back in the late 90s was about $2.50. Today my local Micky D’s charges $5.39. Money ain’t worth what it used to be. And that makes sense, material costs more, real estate, utilities. It’s sad that the average McDonald’s wage didn’t keep up, but sucks to be them, right? Well let’s actually look at that math.

Looking at the Math

Let’s say this morning the minimum wage was $5, and this afternoon it was $15. Cost of material, utilities, real estate hasn’t had time to adjust, so we can assume those are constant. And let’s say to be competitive we want a 33% labor cost.

If I make $5 an hour and only make 1 burger during that time than that burger has to cost $15 just for my labor. Oof. But I’m a hard worker: I can make 10 burgers in an hour. Suddenly my cost per burger is 50 cents and our burger only needs to cost $1.50 to get our labor ratio.

But now this afternoon, my wage has tripled! Eat the rich. Suddenly my labor is $1.50 for those 10 burgers. So with our overhead, that burger has to cost $4.50.

Makes sense right.

No.

Why does our labor cost have to be 33%?

Yes, my labor is three times more expensive, but material, costs, profit, utilities—none of that has gone up. We multiplied instead of adding. Naughty naughty.

To make the exact same profit, we only need to add $1 to my labor. Our burger should cost $2.50.

But it didn’t happen in one day; everything has gone up

Truth. Everything gone up.

Except wages.

But you can raise mine, hint hint.

Over the last 5 years Big Macs have gotten about $1 more expensive: roughly 20%. Staff wages went up 40% in that time. Blamo, you got me.

Uh, uh

I make 10 burgers an hour remember. So while my salary went from $10 to 14, my per burger only increase from $1 to $1.40… 40 cents. And you added a whole dollar. Shame on you.

Especially since an average make time for a sandwich is 30 seconds—they are making not 10 burgers an hour, but 120. So, yeah they make $4 more an hour, but that only amounts to 3 cents more per burger. And you added a whole dollar. Shame on you.

Now, I fully admit, burger workers can not create a sandwich in 30 seconds for their entire shift. Obviously. Not only would that be a Herculean labor—there isn’t even demand for those burgers. But that’s not the point.

The point is that it’s not the increased wages that are raising the prices.

So why doesn’t the minimum wage matter?

Clearly, it does. Minimum wage goes up, companies have to compete for the same labor pool, so wages above the minimum wage also go up. But then they just jacked up the price so buying power didn’t change at all. Dumb.

Minimum wages only matter if they improve quality of life through increased buying power and reduce income inequality. In order for that to happen, we would have to penalize companies that jack up prices in lock step with wage increases. Or, more fun answer, we could just riposte to rising prices with even higher minimum wages until one side blinks. I feel like some time before the minimum wage is up to 100 trillion dollars the owner-class will make a move to stop that inflation.

So what’s the actual solution?

Tips! The Solution to everything!

Eliminate the minimum wage and replace it with a guaranteed minimum income.

Now you are free to pay me $1 an hour to make a burger and I am free to tell you where to put it. The only way your business model works now is that people will literally die destitute in the streets if they don’t have some job, so we work, no matter how demeaning, draining, dangerous, or boring the job is in order to survive.

As long as my income is not sufficient to satisfy my every need, the lure of money will still get me to work. I like the idea of living in a comfortable house, eating good healthy fresh food, and buying the things that make me happy.

But my liberty is worth more than $1 an hour.

I can’t say how much my liberty is worth, but I can speculate.

Let’s say making burgers is the absolute worst job I can imagine—it’s not, so we could replace it with any odious occupation—I just want to keep using the same example.

Imagining that my Universal Minimum Income is $40k and I live with my wife, we’d need to find about $20k to maintain our current lifestyle. $20k divided by 50 (2 weeks vacation as a minimum!) means we’d need about $400 a week to break even—I’ll let my wife make her own decisions and absorb that whole workload.

$10/hour just to maintain where we’re at now. Would I do burgers for $10 an hour and have no improvement over my real non-hypothetical life now? No. But I bet you’d find someone with a lower cost of living willing to do that job for you at that rate. It’s like double what the average McDonald’s team member makes now.

I kind of like my current job. It’s challenging, interesting, and occasionally I even feel like I improved someone else’s life. I’m a little underpaid right now compared to the market, but I’d do it for $40k a year if my wife and I are getting $40k each in minimum income.

It’ll never happen, Naomi.

See, you just gave up. That doesn’t mean I’m wrong.

In my last post, I explained how it could be financed. I recognize that there isn’t the will politically and countervailing winds are incredibly strong, but they don’t have to be. It’s a choice.

We’ve allowed the owner-class to determine what is possible, as if they were the ones actually creating value in the world. All of us down here doing the work choose to give them what they earned even though they didn’t do any of the work. I mean, they won the born-rich lottery: they deserve it.

Cept, they don’t. They’re doing there darnedest to make us think so, though.