Originally Published: November 29, 2010 9:59 p.m.
Back in 1996 when President Clinton was pushing for an increase in the federal minimum wage, his chief of staff, Leon Panetta, went on "This Week" with David Brinkley and complained that "we're talking about a lousy 90 cents."
One can only imagine how Panetta would respond to criticisms of Arizona's plan to hike its minimum wage by a dime. It's just a lousy 10-cent increase! But let's figure out what that dime represents to businesses as the picture shifts.
Take a grocery store. Let's say they average 15 workers making the minimum wage on the clock at any given time and are open for 15 hours a day. An extra 10 cents per hour is a lousy $22.50 per store per day. Multiply that by 365 days and you get to a lousy $8,212.50 per year in extra costs. What's a lousy eight grand per year?
Here's the rub: A grocery store can't make up that eight grand by selling a lousy eight grand worth of food. Profit margins at grocery stores are only 2 percent; a typical store has to sell $400,000 worth of goods to generate enough revenue to get a lousy eight grand in profit.
And if the store can't offset the increased labor costs? Maybe they get by with 14 employees instead of 15.
Companies are limited in the ways they can react: Customers are sensitive to price increases, which means increasing labor efficiency and cutting back on customer service are the only viable options.
This is why you've begun to see more self-checkout lanes at grocery stores. Instead of raising prices or selling more stuff, grocery stores are cutting back on worker hours by reducing service and introducing automation. Businesses of all stripes are working on similar efficiency measures. California Pizza Kitchen, for example, is rolling out devices that will allow customers to pay at the table, thus freeing up servers from having to perform one of their most labor-intensive activities: closing out tabs. The result? One or two fewer servers needed per shift.
Why do you think you bus your own table at McDonald's and serve yourself soda at Burger King? It doesn't make economic sense to pay someone to do the same.
If even one part-time employee is dropped from each of the thousands of restaurants, grocery stores, and other businesses that rely on minimum wage labor, what do you think that will do to Arizona's already-too-high 9.7 percent unemployment rate? It certainly won't help matters.
Also hurting matters is the fact that Arizona's minimum wage is already well above the national level. A recent study commissioned by the Employment Policies Institute by Drs. Walter Wessels (North Carolina State University) and Nicole Coomer (Workers Compensation Research Institute) found that a mere 10 percent increase in the minimum wage corresponds to a drop in employment for 16- to 19-year-olds in minimum wage jobs of 11.1 percent. States such as Arizona with expensive minimum wage laws choke off valuable alternatives for teens whose skills don't justify the state's high entry wage - which helps explain why the state's teen unemployment rate is averaging a staggering 35.8 percent.
These teens are losing out on more than just pocket money. They're missing out on valuable life skills picked up in the "invisible curriculum" that comes with early work experience, little socialization skills that we often take for granted like learning the importance of customer service, setting priorities, and cooperating with coworkers as a team effort. Studies have shown that unemployment early in life has serious consequences later on.
Higher unemployment rates. Young people with damaged career prospects. Businesses straining with extra costs in tough economic times.
But hey. It's just a lousy dime.
Rick Berman is the executive director of the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.