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.
