What to Pay Low Wage Workers in a Post Pandemic World

 

I hesitate to write this column because it will only confuse those subject to a teachers union led education in the Portland public schools.  It involves those nasty concepts “capitalism” and “free market economy” and is exactly opposite of what they have been taught regarding “socialism” and the “welfare state.”  Worse than that it cannot be reduced to a paragraph explanation as I have attempted in many of my columns in which the Portland public school system has served as an icon of Oregon’s deteriorating education system.  It was once a star among states but in a little more than three decades it has become a model of incompetence, public employee bias and political indoctrination.

 

So in an unusual move I suggest that those of you subject to a teachers union led education in the Portland public schools stop right here and return to identifying “dog whistles, outing “microaggressions” and “virtue signaling.”  I don’t understand that claptrap and you won’t understand this.

 

Monday’s edition of The Wall Street Journal carried a front page story headlined “Tight Labor Market Returns Upper Hand to Workers.”  The article begins:

 

“Low-wage workers found something unexpected in the economy’s recovery from the pandemic – leverage.

“Ballooning job openings in fields requiring nominal education – including in restaurants, transportation, warehousing and manufacturing – combined with a shrinking labor force are giving low-wage workers perks previously reserved for white-collar employees.  That often means bonuses, bigger raises and competing offers.

Average weekly wages in leisure and hospitality, the sector that suffered the steepest job losses in 2020 were up 10.4% in May from “February 2020, Labor Department data show, outpacing the private sector overall and inflation. . .”

 

The article goes on to detail causes (labor shortage and increased demand) with some reflection on non-economic forces (lingering fears of COVID-19 and unemployment bonuses).  And while it was informative it lacked the impact of human interaction – interaction we have been experiencing since our return to Bend, Oregon for the summer. 

 

Bend is situated in Central Oregon along the famed Deschutes River. I hesitate to describe its natural beauty because I, like many residents, want you to stay the hell away – a desire that has fallen on deaf ears on the hordes that, having ruined Seattle, Portland, and California, are migrating to areas like Bend. 

 

Bend is dependent on a robust vacation business – winter and summer – and, therefore, has a plethora of excellent restaurants.

 

So this past weekend Nancy and I were out at several places.  Our first stop was the clubhouse at our golf course for a quick cocktail and a chance to reintroduce ourselves to members of the staff that we knew from last summer.  I noticed that the club had reduced the number of tables available for seating despite an increase in membership and that it had not expanded to serving seven days a week.  And the problem was not with demand – it was with supply.  The club simply could not find enough cooks, waiters, bartenders and dishwashers  to staff up to capacity levels.  Our bartender noted that when you call the club for reservations, the response that there are not more reservations available doesn’t mean that there aren’t tables available.  Rather it means there are not enough workers to provide service to that many tables.

 

The scene and the conversation were repeated when we migrated downtown for dinner.  I noticed that the restaurant was still using its “reduced” fare menu and when I asked about it was told that they, like almost every other restaurant in Bend, could not get sufficient staff to return to full service.  But there were two other elements that brought greater light to the problem and, quite frankly, do not bode well for any quick solution: the “bonuses” for unemployment payments and the rapidly escalating cost of living, more precisely the cost of housing.  So that sets the table.

 

A free market economy is governed by the principle of supply and demand.  It is the basis of capitalism.  As demand increases prices go up and as supply increases prices go down.  Most of the time the economy exists in balance with only minor adjustments to supply and demand.  

 

In America we actually have a “limited” free market economy – the limits being antitrust laws and increasing government interference through a host of non-economic “imperative” regulations.  The irony of this is that we have refrained from a robust enforcement of the antitrust laws effecting large businesses and greatly increased government regulation impacting small businesses.  And the other irony is that robust enforcement of the antitrust laws is an economic response to predatory practices. (While liberal/progressives blame Republicans for lack enforcement of the antitrust law, restraint has been the standard through both Democrat and Republican administrations.)  In contrast, government regulations are seldom about economic principles and, instead, introduced non-economic pressures into the free market.

 

A standard principle of a free market economy is that non-economic measures distort supply and demand by either artificially reducing supply or artificially creating demand.  The consequences can be anywhere between a minor annoyance to a calamitous recession.  An example of the latter is the Bush-Obama recession of 2008-09 which was caused in large part by the government forcing lending institutions to provide mortgage loans (subprime mortgages) to people whom prudence would predict could not or would not repay them.  The easy money artificially inflated demand, which in turn inflated the cost of construction and the value of existing homes such that when the defaults began to mount the housing market went from a scarcity (demand exceeded supply) to a glut (supply exceeded demand) and the corresponding drop in prices leaving homeowners “underwater” and lenders undersecured.

 

And now back to the problem described in Bend.  The outward migration of people from “war torn” communities in California, Washington and Oregon to places like Bend are caused in large part by the failures of local government creating a dangerous place to live.  As usual, those with money are the most mobile and thus those vacating Seattle, Portland, San Francisco and Los Angeles are able to use their wealth to acquire property in places like Bend – an ability greater than those who already live and work in Bend.  I spoke with a contractor/developer who confirmed the shortage of available housing in the Bend area (Bend, Sisters, and Redmond).  He noted that builders could not build fast enough to meet demand and land use regulations restricted developers from acquiring land upon which to build.  The net effect is that demand exceeds supply and thus prices are escalating at ever increasing rates.  So in this instance, non-economic elements have artificially created demand in excess of supply for housing in the Bend area – government failure to provide a safe environment thus driving people out and government regulations restricting the availability of land upon which to build – demand has artificially increased and supply has been artificially limited.  The end result is that the cost of housing for low wage workers exceeds their ability to pay and thus dampens the supply of workers available.  In order to attract workers, wages are going to have to go up.  

 

But there are two uneconomic phenomena that effect wages increases.  The first is President Joe Biden’s insistence on continuing to pay a “bonus” to those who are unemployed and receiving unemployment compensation.  The bonus is such that between regular unemployment compensation and the “bonus” many workers make more than they can by returning to the workforce thus adversely effecting the supply of workers.  So wildly has this distorted the worker supply that many states have withdrawn from the federal “bonus” program and eliminated this benefit, thus returning workers to a place where they can make more working than they can on unemployment compensation or welfare.

 

However, there is another uneconomic wild card in this mix – tipping.  At one time tipping was mostly an act of courtesy for extraordinary service.  The rate used to range at ten percent and below.  However, tipping, over time, has allowed the service industries to avoid paying the true cost of employing workers by shifting some responsibility to customers and away from menu prices.  Now tipping has risen from ten percent to a minimum of twenty percent and with the new “tablet” based payment systems suggested tipping ranges between twenty and forty percent.  In doing so it has distorted the true cost of labor to an employer.  It is also wildly discriminatory because it is based on the underlying cost of service rather than the actual value of the service.  (A simple illustration is found in payments at your local latte emporium where a twelve ounce latte (about $2.95) requires virtually the same manual effort and as twenty ounce latte (about $4.15) and yet the tip at twenty percent for the former is about $0.60 and the tip for the latter is about $0.85.  The disparity is further exacerbated by the habit of establishments including the sales tax as the base upon which to calibrate a tip.  

 

Having injected at least four non-economic elements into the cost of labor:

 

• Increased housing costs due to migration caused by government failure to provide safe communities
• Increased housing costs due to government restricted available land sites
• Federal “bonus” payments that make it more beneficial to not work than to work
• The use of non-economic tipping methodologies to distort the true cost of labor.

 

We are now confronted with a nearly impossible task to determine the appropriate amount to pay low wage workers such that it will reasonably compensate them based on the value of their work and recognize their own cost of living.  

 

Can you stop the surge of the wealthy migrating to places like Bend?  Can rebalance land use controls to recognize population surges?  Can you end the unemployment bonuses created by Mr. Biden?  Can you untangle the web created by shifting responsibility for wages from employer to customer inherent in the escalating tipping system?  Only the bonus program is easily solvable but you won’t find it happening soon in Oregon which remains controlled by the liberal/progressive and who favor the welfare state and sneer at the free market – even a limited free market.