Recently there has been an increasing level of discussion regarding minimum wages. This is a difficult issue and regardless of the pros and cons, it is something that investors should be monitoring.
The following is a true story and has real life implications for any discussion of the future of minimum wages.
A number of years ago, I was enjoying a too brief winter sojourn at a beach front hotel in Acapulco. Being too parsimonious to spring for the ocean view room, I enjoyed a view of the local public golf course. Every morning a group of men appeared and continued digging shallow trenches with picks and shovels. Apparently golf course management had decided to install lighting to permit evening golf and the trenches were designed to keep the required wires out of sight and out of play.
Eventually, overcome by curiosity, I was able to find an English speaking individual who appeared to be overseeing progress. I asked him why a back-hoe, which would have completed the job in a fraction of the time, was not being used. He pointed out that the then minimum wage for this kind of work in Mexico was approximately 5 dollars a day. As, at that time, a back-hoe would have to be imported and, after adding up all of the costs, manual labor, while considerably slower, was the attractive option.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA