Red state laborers will finally make as much as their blue state counterparts next month, when the Federal Minimum Wage is raised to $7.25. Most of the blue states, ours included, had already raised their legal minimums to that level years ago, but a map of the states still slumming it at the Federal Minimum Wage is basically identical to the 2008 map of states won by John McCain, proving once again that the more someone needed a change, the less likely they were to vote for it. What IS the matter with Kansas?
I can't blame non union, red state employers for panicking right now. I had a solid two years of panic before New Jersey raised our minimum wage by 40% ahead of the rest of the country.
We weren't paying our workers minimum wage, but we weren't paying entry level positions $7.50 either 4 years ago. After taxes, workers comp, health insurance, pension, vacation, holidays, and sick days, a worker earning $7.50 costs Unionwear $13.28 per hour worked. In Georgia, where the state minimum is still $5.15, the cost to our non union competitors is only $5.88 per hour worked. Yes, that's Savannah, not Tsibilisi.
I stopped taking a paycheck for four months, raised prices, worked out a deal with our union to give us credit for mandated increases, and begged the state for help improving our productivity to enable us to compete with red state manufacturers. It would be a struggle to survive. At least our workers would be happier, I thought.
It turns out everything I anticipated about the wage increase turned out to be wrong.
1. We had to give the raise a month ahead of time. About a month and a half before the increase, many local business took advantage of uninformed workers by advertising hiring at $7.15 an hour. Seven shortsighted employees, about 10% of our staff who were making under $7.15, jumped ship. Many did not realize they would be getting an increase soon after that. None realized they either gave up benefits worth about $3 per hour for $.65 an hour in pretax earnings, or would have a new waiting period for benefits.
2. The workers were uniformly unhappy because of an attitude that can only be described as "even though I just got a 30% raise, the lady sitting next to me used to make less than me and now she makes the same". This led to across the board increases for everyone, as most of the employees making under the minimum now had to make more to keep their caste system intact--and those making well over minimum needed increases as well.
3. Productivity saving investments started to look quite tasty. In two years, our cost for a completely unskilled laborer rose nearly 50%, from about $1400 a month loaded to $2100 per month loaded. Suddenly, spending $20,000 on programmable sewing machines that eliminated the need for an unskilled cutapart or trimming person had a one year payback. After some quick math, we decided to lease a number of these machines to replace the unskilled laborers who so graciously naturally selected themselves for attrition with poor decision making ability.
4. Skilled labor became far more valuable. It turns out that $20,000 machines need $50,000 mechanics, especially when being operated by miminum wage employees. Our mechanic left for higher pay, and our backup left also. Many local businesses were laying off two unskilled/unmotivated $7.50 employees and replacing them with one fast, sharp $15 per hour laborer. This flight to quality basically took our cutter, mechanic, and shipper, who were all making $10-$15 per hour. Their replacements now all earn $15-$25 per hour.
5. Unskilled labor became far less valuable. Unskilled, unmotivated, and untrainable employees could still pay for their wages and union benefits when they cost $70 per day. But it was hard to justify spending $100 per day on someone whose skills could not progress beyond using scissors and a broom. We spent as much time eliminating unskilled work through training and motivation for nearly all the workers, but those who couldn't or wouldn't had to become the state's problem. Incidentally, all seven of the workers who were unable to realize they were leaving a job for less money ended up on unemployment by the end of that summer.
6. The state came to the rescue, providing us with a grant that quickly more than doubled our productivity, which lowered our unit labor costs while simultaneously raising our employees earnings even further through the use of incentive bonuses. Now when our low labor cost state competitors raise their prices because of the minimum wage increase, a union shop 11 miles from midtown Manhattan will be the lowest cost producer in the country.
7. We were able to more than compensate for the additional labor costs by expanding, which spread our overhead over double the amount of products. We also changed the way we looked at the relationship between materials and labor, processes, and the management/employee relationship in general. None of this would have happened without the minimum wage increase.
I guess whatever doesn't kill you makes you stronger, and this is no exception. The only Widespread Panic I hope to see in the south this summer will be touring with the Allman Brothers.
