A childlike man is not a man whose development has been arrested;
on the contrary, he is a man who has given himself a chance
of continuing to develop long after most adults have muffled themselves
in the cocoon of middle aged habit and convention.
Aldous Huxley
The Minimum Wage Kerfuffle
Don Boudreaux of Cafe Hayek has posted a series of articles (e.g., here) getting into the weeds of economic research; in yesterday's post, I summarized some of the methodology problems of an anti-GMO foods study published last year. Among other things, Boudreaux points out a critique of a 1995 book revisiting a 1940's dispute over minimum wage and seeking to buttress the case of a pro-union economist; I don't want to get involved in an arcane discussion here except to note that there are issues as to whether the 1995 authors cherry-picked studies, adequately justified meeting the assumptions of the statistical tests being used, and there were questions as to the validity and reliability of a questionnaire used relating to the aspects of the minimum wage (e.g., other studies producing contradictory results).
Let's be clear here; labor is a cost to business. A hamburger restaurant faces a number of costs, including various commodities (produce, beef) and higher value items (buns). In part, it can control costs by choosing vendors in the marketplace. But it also sells in a competitive market: one way of controlling costs is through higher productivity of existing workers: e.g., fewer checkout lines.
Large companies often engage in division of labor by specialization. . For example, I worked for an IBM acquisition that provided a one-stop shop for ERP databases; it operated as a sort of utility. It maintained the hardware, software (including all routine patching). We had a team of DBA's in India whom during non-peak hours overnight did fairly standard tasks like cloning/refreshing development/test databases, some routine patching, etc. We even had a group of DBA's whom did nothing but backup/recovery. The American DBA's on both coasts were responsible during peak business hours and were assigned as primary or backup DBA's to a small number of American clients (many of whom deployed a large number of database servers) and a related job ticketing system (e.g., if a production database went down, we had to address the issue within 15 minutes). (We had software constantly probing for database problems.)
Now contrast that with a Japanese chip-testing manufacturer which in the mid-90's relocated its American subsidiary corporate headquarters from the Chicago suburbs to Santa Clara to be closer to certain key customers like Intel. Given the business we were doing, we had a skeleton IT staff, maybe 15 FTE's. Their sole ERP DBA had resigned in mid-1999, and I agreed to take a 5-week contract commuting out of Chicago while they attempted to hire a permanent replacement Apps DBA in a seller's market in Silicon Valley. But here's the point: it was more than a DBA role, I also handled database server Unix system administration (two different operating systems) and certain NT user administration responsibilities (e.g., report system access); I had two colleagues whom were system analysts/project leaders, but when it came to development, I'm the guy whom wrote code and fixed old reports. I even had to deal with the company's check printer problems every couple of weeks when the machine would go offline in the middle of cutting checks.
In contrast, I've seen clients whom would split ERP DBA responsibilities into separate ERP Administrator and DBA roles. When I started there (the production Apps DBA had given notice and he did not have a backup DBA), the very first thing the controller said to me was effectively, nothing personal, but my first responsibility is to get rid of you. (It turned out my agency was marking up my rate almost double; however, the agency account manager collected his bonus on my placement, soon after quit, and let's just say there were transition problems; the controller had offered the vacant IT manager position to a former Tyco IT manager and handed my boss the invoices for my service.) But HR was in a state of denial about the market at the time. My new IT manager rationalized extending me a month as an Indian colleague went on a month-long vacation to India. They rehired the old DBA whom had been fired by his new employer (apparently he had claimed some specialized skill/experience he didn't have); he was not a happy camper because his reason for quitting was they didn't promote him to the IT manager role. I had recently upgraded all the out-of-date ERP software, so my boss wanted to keep me in charge of the ERP system until I transitioned over at month end. The other DBA planted a false rumor that I told him the manager intended to make me an offer. In fact, my subcontract had a no-compete clause. It is true that the IT manager hinted a couple of times he wanted to hire me but I sidestepped the issue, saying I had no desire to work in California. It turned out the IT manager got wind of the rumor and believed it; he screamed at me that I had just scotched his attempt to work an offer through the system. It was like being in Wonderland; his flirting never went beyond hints like how great it was to live in the area of the IT center of the universe.
The old DBA abruptly resigned his first week back; the real story was a former employer offered him stock options. The accounting manager who got him rehired blamed me for his leaving. HR had no luck hiring a replacement, so my boss extended me another month. Then the last weekend of September I was about to leave for SFO, when my boss stopped me and said, "I want you to go perm. If you don't accept my offer now, don't come back Monday. We'll have you come back for when we do the upgrade of the Apps for 11.0.x". I protested I had a no-compete, but my manager laughed, saying he had leverage over the agency (there were errors in the invoicing of my services). He gave me a salary range, eventually coming in at the bottom of the range; even at that, the HR manager was balking, demanding to see my pay stubs. The offer was below market, way below the salary equivalent of my rate. What I was looking at was I didn't have a job waiting for me in Chicago and there had been zero discussion since he renewed at the end of August. I assumed he would give notice once they hired a replacement. I kept my expenses very low: a round trip under $500; I rented a subcompact, I got a $43/night room at Extended Stay in Morgan Hill, and instead of eating out, I billed local groceries.
In hindsight, I should have called his bluff. The accounting manager (who got the old DBA rehired) hated me with a passion. Among the little things, she went around telling everybody how much it cost to relocate me to California--wildly unethical. The agency went ballistic (I got blistering emails, threats, and "Benedict Arnold" was one of the tamer things they said). For the layman, I had never worked for the agency before, they didn't have a gig for me to go to that Monday, I had two major extensions to a 5-week contract, and they had made mistakes invoicing for my services. If the client didn't extend me, the agency would have invoked at will, and I would probably have never heard from them again. In fact, they would have probably assumed I had been let go for performance reasons.
Granted, my little war story probably confuses people: what does all of this have to do with minimum wage? Actually quite a bit: part of the reason they hired me at the salary, which was more than they wanted to pay for a DBA was because I was more than a DBA. For example, they didn't have pay $3000 to hire a freelance developer for a week to fix reports or Oracle Consulting $10,000 to fix their fixed assets technical issue. I made a flat salary and worked 70 or more hours a week, including holidays, nights and weekends.
One of the things Boudreaux mentions in his posts is a productivity trade-off for raising the minimum wage. Going back to my cashier line example, maybe the manager can put a trainee on the fifth register at a lower minimum wage, but otherwise he might expect each of the remaining 4 cashiers to pick up the slack.
If only a few workers earn a minimum wage, what difference does it make? It does particularly for low-skill, inexperienced workers like teens.
What's really happening is an employment mandate is an implicit government tax on business that doesn't hit the government's financial statements. Suppose, for the case of simplification, $7 is the minimum wage and $9 is a so-called living wage. Rather than raise the minimum wage, the government could simply make up the difference for heads of households, i.e., $2/hour, an earned income tax credit. This way teens don't lose starter jobs because $9 is too steep. Notice there still is a moral hazard problem: the household head is guaranteed $9/hour, but the private sector will only pay him $9 when his productivity (and/or labor supply/demand) warrants $9. Do you think that Obama wants to fight for that $2/hour? If he simply mandates a raise, he transfers the burden from the state to business.
The best policy is simply to eliminate the minimum wage; it's a deterrent to hiring people. So are all the other transferred costs, like ObamaScare.
Entertainment Potpourri
- American Idol On Its Last Legs? Even Drudge has links to articles of falling ratings. To the few not familiar with the series, AI conducts tryouts in various cities, this is a first cut of contestants where the object is to win a coveted ticket to the next stage, Hollywood. Hollywood trims down selections to a quota of 20 guys and 20 girls. Then comes the Vegas round, which I believe results in a final pool of candidates eligible for fan voting. The goal is to thin the Vegas survivors into roughly a dozen or so finalists, and then one elimination weekly through to the championship face-off.
This past week was Hollywood week which includes multiple rounds, including the notorious group rounds. In past seasons the groups were self-organized, and you typically had the odd boy or girl out trying to find a group not full up. This season groups were assigned (thumbs up), which swerved a number of contestants. I think it's very interesting to hear how singers harmonize with each other; it tells me a lot about their timing and other vocal nuances (e.g., a falsetto; when I was in high school choir, I sometimes would shift from my natural tenor to a baritone), adapting for the sake of the performance.
Why have ratings dropped to the point a couple of CBS middling sitcoms Thursday beat the unveiling of the top 40? More to the point ratings are eroding in the key young adult rating category. I'm not in the key demographic, but to give an example, I've been emailing one of my nieces for years about AI, and she hasn't written me a single time so far this season. I think part of it is singing reality show burnout (I didn't watch the finales for The Voice or X Factor); in part, I don't like the judge panel, and Ryan Seacrest is seriously overexposed. Other than the occasional single or two, only two winners (Kelly Clarkson and Carrie Underwood) have had sustained commercial success, and it's been a while since a winner had a #1 hit; perhaps some of that has to do with poor original songwriting (Phillips' Home is an exception; I heard it repeatedly during Olympics coverage), or the ready, instant availability of performance tracks on iTunes; a lot of times anticipation would drive sales, e.g., say if the BeeGees hadn't released an album in 3 years... I remember reading one of the Gibb brothers say they knew they were overexposed when radio stations started promoting BeeGees-free weekends. There are other things; I don't think the shows are as compelling viewing (I've mostly listened to the show while working on blog posts); many of the singers are clearly professionally trained, and there haven't been a lot of "train wreck" spots (clueless tone-deaf performers).
I think for one thing the show misses Simon Cowell. But maybe it wouldn't hurt for the show to run every other year. Maybe they can incorporate social media into the show, e.g., if your tweet is read on the air, you win an iPhone or iTunes gift card. What would they do in the off-years? Perhaps an alternative talent elimination (e.g., acting, comedy, science/invention, a more authentic apprentice competition; maybe a band competition or a contest to select lead vocalist of a band).Musical Interlude: My Favorite Groups
The Supremes, "Reflections". Along with "I Hear a Symphony", my favorite Supremes tunes: just pop songwriting gems, brilliantly arranged and performed. Not the only great song on 'reflections'...
