I moved to San Diego, California, in August 2008, from Madrid, Spain. I made the transition to finally seriously begin working towards a bachelor’s degree, and to in the meanwhile find some sort of employment. Spain has been hopelessly marred with unemployment since before I was ever born. Even during times of economic boom, her welfare policies have guaranteed a much higher “natural rate” of unemployment in comparison to other developed States, such as the United States or even the rest of Western Europe. With that in mind, I made my way to the United States and soon found employment working minimum wage for Kmart. At this point the economy was weak, but there were still a few months before the dramatic stock market crash. Sometime late October will mark my completion of a full first year of work with the company. Usually, at this point I would be called in for a review and based upon my productivity I would be offered a raise. I refuse to accept one.
Let me be honest. I am not the most productive individual. I live with my parents, which means I do not have to pay rent, and I am a full-time student, meaning that my work at Kmart is definitely not the best it could be. I do get the job done (most of the time), and never leave a mess, but I am definitely not reaching my full potential. I simply do not cherish the job highly enough for me to pour my heart and mind into it. Nevertheless, I am still interested in maximizing my hours to make a large enough income to carry me through the week (even if technically speaking I really do not require an income to survive). You ask: would it not make sense to accept a pay raise? Indeed, if I did my income would increase, right? Wrong.
Kmart, without a doubt, is going through a tough financial situation. Stores are down in sales (and we are the best store in the district), and as a result the company is having trouble paying for employees’ wages. Furthermore, stores have to fiscally prepare for what will be the far more expensive months of November, December and January (the holiday season). The unsurprising result is a massive drop in the average hours worked by employees per week. Even full-time employees are not given full forty hour weeks. In fact, everybody’s hours in the store fell dramatically. Well, everybody’s except mine.
It took me a while to realize why this was so. Most people were incredulous, given that I am known for being lazy. Even I questioned my manager’s intentions. Then it dawned that the reason why my hours were not been slashed, and in fact they were marginally increased, was because I am affordable. Minimum wage in California is $8, and my income had not increased since I first accepted the job for that hourly wage. On the other hand, others who worked in my department were making relatively more than me. It made more fiscal sense to hire me for full eight hour shifts, given that I would in the long-run be much cheaper than any alternative. I deduced that by accepting any raises I would effectively be compromising the advantage that I offer to my employers. The competition I can put up against my peers would be reduced by the very amount of the raise. So, for me it makes sense to accept a lower wage in return for more hours (or even avoid getting fired). So far it has worked, given that despite my lower hourly wage, the fact that I work longer shifts means that I usually take home a larger paycheck.
Unfortunately, my problems have not washed away. My low level of productivity can still take its toll. The minimum wage has effectively created a surplus in labor, meaning that there are roughly 164,000 unemployed persons in the county of San Diego ready to accept $8 an hour to get my job. These people may offer something I don’t, which is higher productivity for the same wage rate. Usually, I would compete by offering myself for an even lower hourly rate, but I am unable to do that because the government felt that it was within my best interests to not make less than a certain amount. Although it is true that the price floor for labor has artificially increased my wage, it is also true that now that there is high unemployment it is impossible for me to compete on the labor market because I cannot increase my appeal.
But, in the meantime, I will continue to refuse pay raises and hope that my more expensive peers get fired before I do. That will give me a few more months of employment. By that time, who knows, maybe Kmart will have finally gone under.
It's interesting to note that countries with the most unemployment welfare are also the ones with the most unemployment.
An interesting analysis. I never would have thought that you could maximize total pay by reducing (or declining increases to) hourly rates, but with the incentives created by the rather unique environment it makes sense. This is why I love economists.
Good post.