February 22, 2017
Column | basic training

Rumblings in the DC: The cost of runaway minimum wages

We can dither about raising the minimum wage all we want. But the laws of supply and demand will have a far bigger effect on pay than anything we decide.

By Art van Bodegraven

All of a sudden, fast-food workers who've been oversampling the wares are marching, particularly in favorable weather, with demands—not requests, mind you—for a new minimum wage, most notably $15 per hour.

They are often joined by warehouse workers and custodial operatives, and anyone else who feels aggrieved by receiving part-time wages for part-time work. The premise that an entry-level position should command a wage that permits home purchase and other major life expenditures is a debate for another day.

That the employed, but possibly underpaid, marchers might not be superproductive, as it is, crosses the mind randomly. And it does raise the question of how all the marching and chanting might be further reducing quality and throughput—another debate for another day.

TRANSLATING THE REALITY TO THE ABSTRACT

Amex Open Forum's weekly e-newsletter, "The Recap," recently featured a discussion of the possible impact(s) of an increased entry-level wage. In it, my friend Steve Mulaik probed some current academic research in the field. Truth to tell, Mulaik has been cosmically involved in matters of distribution center performance for the 20 years I've known him. He dabbles in both esoterica and exotica, and does not hesitate to borrow concepts from academics when he is not coming up with new discoveries and ideas on his own.

His latest explorations call into question the possibility that rising wages and performance are inescapable consequences of a new "minimum" wage approach. Mulaik's contacts suggest that the end game is one in which the cost/earnings of free-market entry-level wages will be lower than the averages today in some cases and higher in many other scenarios.

Interesting, but perhaps overtaken by the cumulative effect of a broad application of a radically different (higher) wage structure.

HOW THE WORLD REALLY WORKS

Mulaik's work has focused on performance optimization and a wide range of enabling concepts for a generation. He is all about throughput, efficient movement, high quality, and measurable results—whatever it takes to achieve them.

One of Mulaik's many brilliant thoughts is the hiring of people with affinity for job-specific attributes, rather than trying to match, or manipulate, a set of operational needs against limitations of human capabilities—reverse ergonomics, so to speak. So, we'd forget providing cues to supplement operational information and concentrate on such things as high reach, stooping/low reach, color recognition, spatial awareness, multitask processing, and so on.

Cool. Even captivating on a good day. But to return to reality ...

WHAT HAPPENS WHEN REGULAR MEALS BECOME AN IMPERATIVE

Experiments, case studies, process flow analyses, and high concepts aside, any distribution center must develop high-performance processes and cost-competitive results. Time to put your big boy pants on and make your way in the world. No matter what research might suggest, when one job pays $15/hour and another pays whatever you can get, you will take the sure thing of $15.

The new "entry-level wage" will become the standard, table stakes for any enterprise to get into the game. No rational employer will provide managerial attention to variations in pay and cost based on abstract research.

So, forklift driver A will enjoy a given uniform pay rate, forklift driver B will have another, a packer/shipper yet another, with shift differentials for each. Within those, there will be pay and tenure grades to permit interim wage rates based on performance.

Come seasonal peaks of hiring, and raw competition will force hiring at a rate greater than the new "minimum." At that point, the "minimum" becomes immaterial, and the task differential becomes impossible to manage.

THE NET BOTTOM LINE

It's simple. Irrespective of the academic explorations involved, the cost of our lowest-compensated, lowest-demand jobs will rise. Period. You've, no doubt, heard of supply and demand. Those concepts work in all phases of life.

Labor costs in distribution centers will resist control—or reduction. Pullin' Cokes at Mickey D's will command the same $15 an hour as puttin' pickles on a White Castle. Those will begin to make jobs as Walmart associates look like attractive career alternatives.

Traditionally low-wage options across industries will no longer be such bargains for enterprises. I think we can figure out what that means—for enterprises, for consumers, for margins.

Let me know how all that works out for you. Seems to me that today's $8-per-hour person will have to become something much more than that in order to afford to scarf down a few singles and fries.

About the Author

Art van Bodegraven
Columnist
Art van Bodegraven was, among other roles, chief design officer for the DES Leadership Academy. He passed away on June 18, 2017. He will be greatly missed.

More articles by Art van Bodegraven

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