It’s Not Just About Wages

Working the Alley

Working the Alley

It’s time for a new discussion about wages.

People who harp about hourly wages are tedious and mostly fooling themselves. The economic instinct in society should be and is making a decent life from what we have and are given. Wages are a part of that, but there is a lot more.

A person can’t make a decent life based solely on wages.

I’ve read my friends at the Iowa Policy Project on Iowa’s cost of living, wage theft, and minimum wage. I don’t disagree with their analysis of the data sets they chose. My issue is work like theirs serves the political class more than it does regular workers. Useful for policy makers, but not for those working poor.

The Johnson County Board of Supervisors recently implemented a policy to raise minimum wage in the county — with caveats — to $10.10 per hour by Jan. 1, 2017 and then index it to the Consumer Price Index for the Midwest Region. I attended a public hearing on the ordinance in Solon, read online comments and news articles on the ordinance and its impact, and importantly, talked with scores of people impacted by the law. The ordinance is a lifeline to some, but has little impact on most working poor because it does not adequately address their central concern — finding a job that pays a living wage.

As a low wage worker, I tell a small part of my story in the following paragraphs. It includes a brief history lesson, corporate interests in consumer pricing of gasoline, work injuries, and the role of total compensation packages.

History Lesson

In 1975, minimum wage was $2.10 per hour. With the proceeds of a full-time, no benefits job at a convenience store, I rented an apartment, bought food, had a telephone, owned a car and lived a reasonable life in my home town. A person could get along on $2.10 per hour, barring personal cataclysm, if just barely.

According to the CPI inflation calculator, the $2.10 I earned in 1975 equates $9.26 in today’s dollars. The exact same job I held in 1975 — convenience store cashier — now pays a going rate of $10 per hour. Minimum wage hasn’t kept up but the market has.

How can a person can build a decent life on low wages? It’s not easy. However, addressing minimum wage is a form of tinkering around the edges. So many analyses of minimum wage fail to consider the corporate system we have in every aspect of our lives. Yes, people have to contend with complex issues involving corporate life. They include health care, insurance, banking, debt, fuel, communications, food security and electricity. People complain about these aspects of life rather than leverage them to their advantage. The one I know most about is fuel pricing.

Gasoline Pricing

Gasoline prices were $2.099 per gallon at local outlets this week. Gasoline is the dominant passenger vehicle fuel and buying it has become an accepted part of life that includes transportation as a basic expense.

One of my roles during a transportation and logistics career was to purchase about 25 million gallons of diesel fuel per year for a large trucking firm. I visited refineries, pipeline companies and retailers and came to know how every penny of the price we paid came about. While I bought diesel, the same lessons apply to gasoline — something almost everyone who lives outside public transportation routes has to buy.

When I drove my first car, a Volkswagen Beetle in high school, a couple of bucks would fill it up. During gas wars, the price went as low at $0.27 per gallon. Today, state and federal tax alone is $0.579 per gallon in Iowa. An escalating tax became part of the expense background.

Perhaps the biggest change in gasoline pricing over time has been the move from vertical integration of energy companies to the culture of outsourcing and partnering among varied aspects of the fuel supply chain. This is sometimes called horizontal integration.

When I worked for Amoco Oil Company in Chicago in 1990, the corporation was paid $600 million for its oil fields in Iran. Partly because of political instability — their oil fields were seized during the 1979 Islamic Revolution — partly to divest assets and buy crude oil on the open market. Little did we know at the time, Amoco, a company viewed as a stalwart of great places to work and the ninth largest global corporation, was in the process of disappearing. At one point they did everything from exploration, production, refining, research and retailing. They merged into a foreign corporation.

When we pull up to a gasoline pump at a convenience store, the details of the hydrocarbon supply chain seem very remote. Oil and other hydrocarbons have become fungible commodities, and as such, we tend to deal with the price at the pump. Crude oil and crude oil futures trade on financial markets which provides some price visibility. Invisible are the many people from exploration and drilling, to production and refining, to transportation and delivery, to sales and marketing who get some part of the transaction of filling a passenger car gasoline tank.

Working for low wages reinforces the focus on per gallon price. When gasoline prices go up it’s bad. When they go down, we like it. Set aside the government subsidies, the unrecognized cost of using the atmosphere as an open sewer for emissions and everyone taking a fraction of our $2.099 per gallon. Energy company executives and politicians alike realize price is king and expend resources to keep it so. All a minimum wage earner knows is when price at the pump goes down, there are a few more dollars to spend this month. What people in the oil and gas business know is each entity along the supply chain is taking a margin above their costs out of the pockets of gasoline buyers. The impact on working poor is disproportionate. Raising the minimum wage won’t fix corporate extraction of money from gasoline consumers or almost anything else.

Work Injuries

I cut my right hand at work this week and had to get stitches — six of them at the base of my thumb.

It doesn’t hurt much, and my motor skills haven’t been impaired, however, the doctor said I’m supposed to minimize use of my hand until a worker’s comp doctor reviews my healing progress on Monday. There’s plenty of work that can be accommodated at the home, farm and auto store where I work so lost wages there shouldn’t be a problem. I went back to work after returning from the clinic — there was no lost time.

What matters more is the loss of productivity in everything else I do during spring to get by.

I contacted the farm and asked for relief from soil blocking for a week. I’ll lose that wage earning opportunity. The work restriction will also be a setback for weekend work in the garden. I had hoped to plant radishes, peas and turnips in newly turned ground, some of which I will sell at the farmers market. Income is delayed. There’s no short term disability insurance, so If I don’t work, productivity and income will be lost.

People who craft models about minimum wage often include the idea of short term disability as a footnote. Focused on hourly wage, they say if everything goes according to plan a person can make it on $15 per hour or whatever. Everything doesn’t always go according to plan, especially if one is working poor. Consequences of the minor lacerations on my right hand serve as testament.

That’s where economic models created to advocate for raising the minimum wage are inadequate. Life is much more complex. There are unwelcome limits an injury imposes on life at the economic edge. Accommodating and adjusting in response is a more resilient skill that matters more than raising the wage.

I’ll adjust because I have to to preserve the tenuous thread from which our economic life hangs.

Total Compensation Package

Anyone who has studied employee turnover knows the key reason people leave jobs is not wages. It’s how they were treated by their manager. None of the analyses about minimum wage I’ve read included this key aspect of work life. It makes a difference how well trained a manager is in a lowly paid job. The tendency is to rigidly design a work process and try to get workers to fit in like they were a precision machined part of the operation. Low tolerances for performance are often baked into the job, but regardless of performance if one’s supervisor is a prick, that employment will end eventually, usually by choice of the employee.

Under the Patient Protection and Affordable Care Act, companies that employ workers 30 or more hours per week must provide health insurance. To the employer this is one of many costs that yield a total cost of the employee. There is a tendency to push as much of the cost for health insurance on the employee in the form of premium co-pays, deductibles and co-pays. In my current job employees get health insurance benefits with reasonable premium co-pays and a high deductible/co-pay structure. Family coverage is more expensive, and the cost of covering a spouse is roughly equal to the cost of the least expensive policy on the government health insurance marketplace for a single individual.

Since the insurance is offered by the employer, there is no government premium subsidy, which with premium co-pays creates a disincentive for working poor to seek full time work with benefits. It is easier, and better economically, to work multiple part time jobs without benefits and sign up for health insurance through the marketplace to get the subsidy.

Wages in larger businesses are a function of total pay package. Smart companies look at the competitive marketplace for employees and determine the range of how much a position should be paid. Often a human resources consulting firm is engaged to benchmark compensation per position. Once the range is determined, the company decides what part of pay is through benefits and what part through wages. Wages, paid time off, workers compensation, disability, health and dental insurance, employee discounts, clothing allowances and the like are all part of the cost of an employee and their total compensation package. Companies will always strive to keep the overall cost of employees low.

If government raises the minimum wage, a company will seek to keep employee compensation costs the same or lower. That means some aspect of pay and benefits will take a hit, shifting the same dollars to wages from benefits. Another alternative is to turn employee hiring and management over to a temp agency which bills employee costs at a fixed rate. In some cases, like that of the Whirlpool Corporation’s recent operation in North Liberty, there are multiple layers of this type of outsourcing. The employee may earn slightly above minimum wage, but the rest of the benefits package is taken by the temp agency or subcontractor. Raising minimum wage may only shift where the money is coming from. It all comes from the total compensation package.

Conclusion

The starting point for a new conversation about wages is to consider our history, the impact of corporations on almost every aspect of our lives, the risks of injury in low wage jobs and how the total compensation package and erosion of benefits in favor of wages makes a difference when one is working poor. Hopefully this post will serve to begin some new, more meaningful discussions.

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One Response to It’s Not Just About Wages

  1. Nice economic value analysis. Networks (horizontal integration) are social and competitive in various ways. I suppose your analysis illustrates how over-emphasis of the importance of mandated higher minimum wages risks being misguided as a remedy for what many perceive as a dog-eat-dog world. Of course dog-eat-dog is a gross and inaccurate characterization of a competitive network. A sustainable competitive network may be more like a zero-sum game in which there need be no big losers as long as there is the freedom to realign oneself within the network to still find a fulfilled life as long as value is a factor. Of course this dynamism is key because, in life, we cannot really hold onto anything very long. Optimizing personal life success in these networks is a social exercise in give-and-take to optimize value. It can be useful to know the price of everything, but more useful to know the value of everything. If one’s take-home pay could be increased while everything else remained “equal,” i.e. unchanged, one would be “happier.” Of course everything else never remains “equal” and everything changes. Money does not equal happiness, but thoughtful relationship to money and understanding value can help clear the path to increased happiness.

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