Wages Have Consequences

Tough Things First

Good or bad, a rise in wages results in reaction. The earner may first have more money, but prices follow and can wipe-out the gains. In this Tough Things First reality check, Ray Zinn explores a game that is less than zero sum when it’s forced.

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Rob Artigo: We once talked about kiosks. What we were talking about was technology. I think we were talking about robots being used in restaurants and we talked about kiosks. And I was adamant, I felt like they were impersonal and that they would end up backfiring on businesses. And in California here where I’m at right now, you have house here, $20 minimum wage that went into effect here in California has made the proliferation of kiosks grow also by leaps and bounds. Cash registers are literally having signs hanged on them at fast food restaurants where they just said, “Please use the kiosk,” and they have no person operating the cash register anymore, you have to use the kiosk because they don’t want to pay somebody to work there. Employees at the counters are really becoming a thing of the past. You walk into a place and there’s nobody standing there.

Rob Artigo cont: They only walk up and hand you your food, and there isn’t really any interaction. The most interaction you get is if you go through the drive-through. I am out in the field doing work all the time, so I end up going through and getting snacks and things like that or light lunches in fast food as much as I can do that by going through the drive-through. And I noticed that some places are using AI voices to take orders. So they don’t even have a person that’s talking to you and creating a relationship. If I find out that it’s an AI voice, I feel like I don’t have to be courteous to it. It’s like I don’t have to say hi or “How’s your day?” or whatever.

Let’s go into this conversation by… Let me ask you the big question. Did the high minimum wage in California just erase a bunch of what used to be called entry level jobs?

Ray Zinn: It will. There’s no question. We know that from listening to some of the new stories from these different fast food places like McDonald’s and Burger King and Taco Bell and so forth. Yes, it will definitely impact not only our relationship with that particular vendor, but also our relationship with other people. So now when we got caller ID on our phones and it tells us who’s calling, if it’s just a robot voice as you would or an AI voice, I just hang up because I’m not dealing with a real person. And so I don’t feel any obligation to sit and listen to their spiel. I will not listen to a robot voice. And maybe I’ll have to get used to it because if that’s all there is, if there’s no longer that human interaction, then how do I chew out somebody that’s not really there as you would? No, I think it’s going to cause a big problem. I mean, this whole thing about reducing human interaction I think is harmful, in my mind.

Rob Artigo: I noticed that really just in the last few hours, really last 24 hours or so, that California healthcare workers will get their bump in their paycheck too. It goes to $25 an hour minimum wage for healthcare workers, and that includes everybody who works in a healthcare facility. So if you’re the maintenance guy or you’re the chief bottle washer or whatever, washing dishes in the cafeteria, you’re getting $25 an hour to work in that environment. Who’s going to pay for that?

Ray Zinn: You guess who, all of us. So in business, roughly 1/3 of the cost of a product is labor. And so if that labor cost goes up, you can rest assured that your price is going to increase 33% based on that increase in cost. We are living in a high inflationary time, even though some of the government officials are saying, “Get used to it, live with it. That’s the way it is,” the give and take as you would, it’s just still hard because most people’s wages aren’t increasing as fast as inflation is.

And companies, by the way, don’t mind inflation because it means more to their bottom line. If you’re, for example, adding 30 or 40% profit to your costs, then if their costs are going up, your bottom line’s going up because you’re just tacking on more profit. And so that’s why, by the way, the stock market’s doing so well right now. We tend to give the government credit for this, is that because inflation’s going up, profits are going up. And so that’s a good news and bad news. We’re dealing in a difficult time. Inflation is okay as long as it’s not out of line. And so unfortunately, inflation has increased so dramatically in the last few years that we can’t adjust to it quick enough. And so it’s a tragedy right now that a lot of lower income people are facing, is that their costs are going up faster than their wages.

Rob Artigo: And some people have said, “Hey, why stop at $20 minimum wage? Why not $30 or $100 an hour if you can just do that?” And also one of the quotes that I remember from Ben Franklin, one of the famous quotes was that… I don’t remember the exact quote, but it’s something along the lines of, “This great experiment of America will die when the people figure out they can vote themselves a raise.”

Ray Zinn: Yeah, that’s true. That’s true, yeah. Well, that’s what the unions are doing. They’re voting themselves a raise. And they do it by, of course, by picketing. Wages should naturally go up to compensate for increasing inflation. It’s just a natural thing. But remember, if it goes up too quickly, then there’s a price to pay just because of trying to trade differences, trade imbalances between countries. If our wages go up dramatically faster than these other countries, that makes it more difficult for foreign trade. Be careful what you wish for as they say.

Rob Artigo: Yeah, I am just looking at a list of some of the negative impacts that either have taken place or are taking place or will take place. Workers who still have jobs in California, and this is specifically the fast food workers, but anyone affected by an arbitrary minimum wage hike, says workers who still have jobs will lose them because now their employers will have more incentive to automate. And apparently, Chipotle, which does the burritos and burrito bowls, have figured out a way to have a robot make their burrito bowls. Obviously, like I said, if you go into a restaurant, there’s nobody operating the cash register. My reaction to that is instantly I go, “There’s your $20 minimum wage job.” A not job, a no job. And people have cut work. El Pollo Loco, which is another brand, I think started in California many years ago, they cut employees wages by 10%. Not wages, their hours by 10%.

Ray Zinn: As I said, be careful what you wish for. I asked my wife if she wanted one of those robot vacuum cleaners and she says, “Well, yeah, if I got one, then what would I do?” And that’s a good point because part of her responsibility is doing some house cleaning. And so we don’t want to end up not having anything to do because then we become more lazy or lazier and we forget how to work, how to get things done. I think we are going a little too fast. Maybe AI is what’s driving it, but certainly there’s a price to pay for too much machine interference as you would.

Rob Artigo: Just think back to when I was getting 3.35 an hour I think is where I started and I started at… And we’ll wrap this up here with this thought, is that the entry level, I was talking about entry level positions. Somebody who’s in high school perhaps would take a job at… I took a job at Wienerschnitzel. I think my first one might’ve been at Kentucky Fried Chicken, and then I went over to Wienerschnitzel, but gave me an opportunity to work and learn how to show up on time for a job and that sort of thing. I didn’t particularly care for working in the fast food industry. I didn’t like the pacing of it and some other issues. But it was an entry level position for me.

When somebody’s working another job, a security guard making $18 an hour goes, “All right, well I’m just going to go to work for McDonald’s and make 20 if I can,” I mean, wouldn’t it behoove a McDonald’s franchise operator, for example, to discriminate more on who they hire and make sure that the quality of that worker is worth 20 bucks an hour? So they have to be able to spell, do math if they happen to interact with anybody that they know how to approach it and be professionals or something. Because you’re not going to expect a teenager to do those things, but you might be able to find somebody who’s a little older and a little bit more mature and somebody who can handle the job for 20 bucks an hour and you’re going, “Hey, look, if I’m going to pay $20 an hour. I want that person to be worth $20 an hour.”

Ray Zinn: Well, it might push more of these youth then to get a better education so that they can get a better job like 30, 40, $50 an hour or $100 an hour. There’s, as I say, Newton’s first law of economics, is [inaudible 00:10:02] actually you have in one direction, you have an equal and opposite in the other. And so there’s a certain leveling that’ll take place over time. It’s just that when it happens too quickly, it becomes problematic. And so let’s do it in moderation as they say.

Rob Artigo: Yeah, I mean everything in moderation and we don’t do that in California. It’s all or nothing. All right, Ray, thank you very much for that conversation. I want to be able to tell the listeners that they can reach out to you if they have questions. They can go to toughthingsfirst.com. They can also offer some comments there. If you have a topic you’d like to have Ray discuss here on Tough Things First, the podcast, well, you can do that. You can drop that note there. We can always continue your education by coming back for the next podcast, reading the material on the podcast, which is blogs and links to information to raise social media, which is out there, and also his books, Get Tough Things First, which is available digitally and also in paperback, and the Zen of Zinn series 1, 2, and 3. Thanks, Ray.

Ray Zinn: Thanks, Rob.