A Closer Look at Costs Associated with Making Change
Does time spent at the cash register really “cost” the economy millions of dollars? Are retail workers actually paid according to their productivity? The answer to both questions is a resounding “No” according to Americans for Common Cents (ACC) Executive Director, Mark Weller.
Both arguments about freeing up economic resources via penny elimination are made by the dollar coin lobby, which supports currency reform to include elimination of both the dollar bill and penny. Weller says his group sees no connection between the two coins. “Congress can move forward on the dollar coin, or choose not to, even though the American public has already rejected it three times. Eliminating the dollar bill in favor of a coin has no bearing on the penny,” he added.
The U.S. Mint is currently looking at ways to reduce the cost of vended coins. There should not be any discussion about the dollar coin unless potential savings from other vended coins are part of the debate.
The argument put forth by the Dollar Coin Alliance (DCA) goes as follows: If the penny was eliminated, it would save time at the cash register and improve worker productivity. The DCA supported a Citizens Against Government Waste study that estimated it adds a couple of seconds per cash transaction to handle dollar notes and pennies. They suggest that penny elimination would free up economic resources of “about a billion a year.” Such astronomical claims of savings are empty in the absence of evidence bearing on the issue. ACC’s Weller challenges the claim with three facts:
Lost worker productivity charge is absurd
First, the charge of lost worker “productivity” with the penny is absurd. “It takes leaps of logic to link time ‘wasted’ with giving pennies in change to time that might have been used to clean, restock shelves or serve consumers,” he said.
Net time making transactions will actually increase with price rounding
Second, the more troubling problem arises with the assumption that removing the penny from circulation would eliminate the productivity loss. Such conjecture is illusory. In fact, Weller says, there are many reasons to believe the net time associated with consummating transactions would increase, not decrease, without the penny.
The removal of the penny would require the implementation of a rounding system for cash transactions. The actual execution of that rounding system,, as well as employee training and adjustment for each transaction, would be time consuming and unavoidable, likely resulting in consumers spending more time waiting, not less.
Economic costs of rounding of transactions eclipses time associated with handling pennies
Removing the penny from circulation would impose a regressive rounding tax on those making a disproportionate share of their transactions in cash – the poor and under-represented members of our society. This consumer rounding tax would eclipse any business cost of handling pennies.
Economists agree on one principle: businesses are guided by a desire to maximize profits. There is no obvious incentive for business to set prices in a way that will lead to rounding down. “In practice, price rounding cannot be done fairly,” Weller said.
At a December 2, 1998 committee meeting, members of the National Association of Convenience Stores (NACS) were told that the net profit on an average transaction in a convenience store is only 3% or 6 to 7 cents. Comparing the two cent difference in rounding up a penny versus rounding down a penny, it was stated that such a difference “accounts for over 30% of that net profit and, therefore all prices in the convenience store would have to be raised.” At the same NACS meeting, it was reported that “the offset in the cost of handling the penny does not even compare to the 30%” of the net profit which would be lost from rounding down. “Over three-quarters of Americans (77 percent) are concerned merchants would raise prices without the penny, and they’re probably right,” Weller concluded.
CONCLUDING THOUGHTS
The major alleged benefit associated with eliminating the penny – recovering the time and therefore productivity lost when making change at the cash register – is an illusion. The rounding costs that would come from eliminating the penny would also have significant adverse effects on consumers, and time making change would dwarf any estimates of improved productivity. The elimination of the dollar bill in favor of a dollar coin has no relevance to the penny and arguments to remove it from circulation. Additionally, the dollar coin should not be discussed without considering the cost savings of alternative metals for the coin, including the plated coin technology adopted by Canada.