Bob Meade - Be careful what you wish for

  • Published in Columns

I think we need to make politicians pass some sort of common sense test before they're put on a ballot. There are a few "givens" they must recognize. First is that American people are addicted to low prices, for everything. Everyone is always looking for the next sale or the best deal they can find. That addiction has led to jobs being moved overseas where less costly labor markets are available.

In my lifetime, jobs have migrated from New England to various southern states because of a less costly labor market. Then, those jobs in the south lost the labor market competition to other countries . . . Guatemala, Bangladesh, China, India, and others. For the most part, the quality of the products didn't suffer as many foreign providers followed the quality control processes of W. Edwards Deming and Joseph Juran. (The outstanding contributions to society of these two men may appear in a later column.)

The stimulus in creating job migration to other labor markets is easy enough to understand . . . it is the cost of producing the finished product. And, as we all recognize, the single greatest contributor to the cost of producing a product is the cost of labor. Labor, in this country, also includes the cost of matching Social Security and Medicare taxes to be paid by the employer, along with the employer's contribution to health benefits, a variety of employee "perks" such as holidays, sick days and vacation, and, of course, either employer provided retirement plans or employer contributions to the employee's 401K plans.

We recently read that Seattle, WA, is going to implement a plan to raise their minimum wage to $15.00 per hour. While that may make some people jump for joy, their joy will be short lived. Before going into the various consequences of such an action, let's look at the numbers.

If the minimum is $15.00 per hour, that is $600.00 per week, $31,200.00 per year. The employer then incurs these other costs:

— The employee and the employer each must contribute 6.2 percent of that amount for FICA (Social Security), and 1.45 percent for Medicare; $45.90 each per week; $2,386.80 per year.
— The employer benefits may include a two week vacation, five or more holidays, and perhaps a sick day allowance of five or more days; $2,400.00 per year.
— Under the new health care laws the employer must offer and contribute to the employee's healthcare insurance. A fairly modest plan may cost about $500.00 a month, or $6,000.00 per year. At 60 percent, the employer's share would be $3,600.00.
— Many employers provide matching funds for an employee's 401K retirement savings plan. As an example, if the employees contribute 6 percent of their salary, and the company offers a 3 percent match, the employer would incur another $936.00 in benefit costs.

These costs amount to $9,322.80, which is to be added to the $31,200.00 annual minimum wage . . . 30 percent more in costs to the employer.

The minimum wage was intended for entry level jobs, not for skilled labor. Young people get paid to "learn to earn" so they can develop their skills and move up the compensation ladder. The consequence of demanding the so-called "living wage" for entry level jobs will result in a further migration of jobs to other countries . . . where that additional $9,322.80 in costs would not be incurred, nor would the gross wage of $31,200.00 be paid. And part of that is because Americans demand their addiction to low prices be satisfied.

Another consequence will be an increase in automation. Companies will find that there are some jobs being performed by unskilled labor because that is less costly than making a capital investment in machinery or equipment that could perform those jobs. With higher wages and overhead costs, companies will re-look at their options and, in many cases, will make decisions to automate, not hire.

An additional likely consequence will be that companies will expect, demand, more maturity and more productivity from their workers because the minimum wage in cost and benefits will exceed $40,000.00. The days of high school kids being paid to "learn to earn" will be a thing of the past.

The truism is, if you make something cheaper, or if you make it easier to do, more of it will happen. The corollary is that if you make something more expensive, or if you make it harder to do, less of it will happen.

Be careful what you wish for.

(Bob Meade is a Laconia resident.)