South-Western College Publishing - Economics  
Deliverymen Do Not Carry Home the Bacon
Subject Minimum wage
Topic Government and the Economy
Key Words Pay, workweek, overtime, minimum wage
News Story

The state of New York is filing suit against companies which are underpaying deliverymen who work for grocery and drug stores, carrying home the bags of affluent shoppers. The companies charge $2.25 for a delivery, paying the deliverymen $1.25. This is alleged to result in deliverymen being paid 87 cents to $1.74 an hour over workweeks that average 69 hours. When they are not making deliveries, the suit contends that the employees work in the store.

While the federal minimum wage is $5.15 an hour, state law allows some low-level jobs to be paid $4.25 an hour. However, overtime beyond 40 hours a week is payable at time and a half. The attorney general's suit calculates that this amounts to $354.88 a week for 69 hours work, while workers are earning just $60 to $120 a week. Few complain for fear that it would attract the attention of the immigration authorities.

(Updated March 1, 2000)

Questions
1. Assume that the suit has foundation and that the wage paid to the deliverymen is below the state minimum wage.
  a) Draw a labor supply and demand diagram showing the equilibrium wage that is being paid and the higher state minimum.
  b) Why might the equilibrium wage be relatively low? Refer to the factors that might affect the supply and demand curves.
2. Assume that the lawsuit is successful in enforcing the minimum wage.
  a) What will happen to the level of employment of deliverymen and the wage paid?
  b) Who would win, and who would lose?
  c) What would happen in the product market for the delivery of groceries? Draw a diagram of the supply of, and demand for, grocery delivery services and illustrate the equilibrium before and after the increase in deliverymen's wages.
Source Richard Perez-Pena, "New York to Sue on Wages of Supermarket Deliverers," The New York Times, January 13, 2000.

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