Update on the Arizona Minimum Wage

The Arizona minimum wage is going up again:

The annual increase is the third since voters approved the minimum-wage initiative by a 2-1 ratio in 2006. This year's increase is 5 percent. At $7.25 an hour, the wage is up nearly 41 percent from December 2006 but still only about half of the state's median wage of $14.25, according to the Arizona Department of Commerce.

Oh my God!  You mean the minimum is still below the median?  (Sorry, that is a bit off-topic, but I just can never resist making fun of journalist's understanding of math and statistics).

In just over two years, the minimum wage is up over 41%.  As a company that employs a lot of minimum wage workers in Arizona, I thought I would report on the impact to date.  As a quick background, my company runs campgrounds (and other recreation facilities) all across the country.  We typically employ retired couples who live in their RV onsite and work both for the free camp site as well as a wage, usually minimum wage.  In a good year, our business makes between 6-8% pre-tax profit on sales, which I can tell you is a thin, thin cushion given all of my life's savings are locked up in this one investment.

I don't know where minimum wage supporters think the extra money comes from to pay higher wages.  If they think at all, I suppose they would say that the government is in effect collective bargaining for these workers and getting businesses to cough up some of their immense profits to pay a bit better wage.

Well, our labor costs are about 50% of revenues  (we are a service business).  This 50% is not just wages, but other costs calculated as a percent of wages, such as FICA, medicare, and unemployment taxes and workers comp premiums.  So, if I still want to earn a living for myself, and the state says half my costs must go up by 41%, then it means that prices are going up 20+%.  And that is what has happened.   Remember, at the same time, fuel prices, electricity prices, insurance prices, and everything else has gone up, so that camping prices have risen by 20% or more.  But there is a limit to how far we can push prices, particularly since our typical customer tends to be relatively low-income.  So we are pursuing two other longer term responses:

  • We are increasingly turning to automation solutions, like automatic pay systems and gates, to replace people.  While we like to have someone actually there to answer questions and to help visitors, fee collection machines work 24 hours, are not subject to overtime rules, they never get hurt, they never sue us, and the government never passes laws to increase their price.
  • We are changing our operating strategy from hiring retired couples who live on-site to hiring younger workers.  This is a change I really hate.  The business model of hiring retired folks who live on-site at a campground is an old and successful one.  Folks in their seventies (and I even have workers in their eighties and nineties) don't work very fast, and they have more workers comp claims, but they had the ability to live on-site and life experience that helped them with customer service.  But trade-offs that worked at $5.15 an hour don't work as well at $7.25 and higher.  So far only selectively, but we are hiring younger folks from the local community to come in and do some of the janitorial and maintenance work.  Even if I pay them $8 or $10 an hour, they make sense if they can be twice as productive.
  • Ian Random

    You're missing the point, all that matters is that it feels good. Think of all those teenagers trying to make their car payments.

  • kebko

    Can't you pay them the minimum wage & then subtract out fees representing the other benefits, so that for them, there basically isn't any change?

  • http://geidus.com/ Brian Dunbar

    We are increasingly turning to automation solutions, like automatic pay systems and gates, to replace people.

    The cost to employ a person is raised and the employer finds it cheaper to deploy automation.

    Anyone who didn't see this coming ... raise their hand.

  • Franco

    It is a shame that the minimum wage has risen above the productivity level of these workers. No one will hire them now. But I guess nothing is better than something...

  • pino

    It is a shame that the minimum wage has risen above the productivity level of these workers. No one will hire them now.

    It has always been that way; maybe not for these specific workers, but for labor in general. I don't understand why minimum wage supporters never try to INCREASE the productivity of the worker; education, life skills or just plain 'ol gumption.

  • DirtyJobsGuy

    Much of this is a totally shameless fundraising ploy by politicians. Raising the minimum wage for private firms costs them nothing, but it does raise any union or public sector job pay that is tied to some multiplier of the minimum wage. These unions then can show their appreciation with increased campaign contributions.

    They don't really care if it backfires in the private sector. The Politician (largely Democratic but in some states republican as well)/Public Sector Union complex is the greatest threat to the economy today.

  • joshv

    I was taking a sleigh ride through a Wisconsin cherry orchard this last weekend and the guide pointed to the remains of a few outbuildings "this is one of the building that the migrant cherry pickers used to live in". It seems they used to be housed communally, in clean, yet cramped quarters (imagine an army barracks). Eventually though an edict came down from the state of WI requiring that every migrant family had to have its own accommodation - with a separate sleeping/washroom. Given the number of migrant workers employed, and the short length of their visit, it was basically impossible to comply with the order.

    The next year they used tree shakers to shake the cherries off of the tree and hired no migrant workers. I am sure the migrant workers were well please with the beneficence of the Wisconsin legislature.

  • K

    A little off topic.

    I once had a long conversation at a party with a bulldozer operator. Or sort of a bulldozer operator, I'll get to that. It was in Orange County, CA over a decade ago.

    No doubt he was an able and skilled heavy equipment operator. And after a few beers I learned he made about $50/hour which was the established union wage for such masterly skills.

    The problem was that he hadn't worked in three years. There was no work for unionized construction workers except when government mandated it. i.e. on construction for city, county, or federal entities. Private builders just used cheap labor, usually illegal aliens.

    I'm not Aesop. There is no moral to the story. Just some food for thought.

    I will add, referencing DirtyJobsGuy, that government workers heartily endorse a very high "official" union wage scale because the pay of government workers is often set to the "prevailing wages" for the craft. And the prevailing wage is defined as the union scale wage rather than the pay actually being received by nearly all workers in the private sector.

    For government workers it can be a nice closed loop. A toy railroad where the little train brings goodies around on every loop.

  • ou_steve_o

    I'm with Kebko. Why can't you increase the old workers' hourly wage but charge them the difference for the campsite?

  • Brit B

    The way I see it, these increases in the minimum wage are a way to shift the support of workers earning minimum wage towards the employer and away from the taxpayer (via foodstamps etc). I'd be all in favour if the tax burden was decreased to reflect this.