Free Markets, Free People


Learning the laws of economics the hard way

Tis the season of minimum wage hike demands and fast food protests again. Frankly I don’t have a problem with wage hikes … if they’re voluntary. I do have a problem with coerced wage hikes, however. And that’s precisely what any rise in the federal minimum wage amounts too. It is feel good legislation that uses the force of government to coerce businesses into paying employees more for jobs the businesses don’t deem worth the cost imposed. It is feel good legislation that religiously and studiously avoids the laws of economics.

For instance, what is one of the effects of raising the minimum wage? Job loss. How so? Well, here’s a real world example:

President Obama recently signed an executive order that will increase the minimum wage for employees of companies with new federal contracts beginning Jan. 1. At that time, the minimum wage for all federal contract workers — not just those working for fast food concessions — will increase to $10.10 from the current $7.25. It is not yet known how far-reaching the effects will be for contracts on military installations.

[...]

…new Labor Department rules issued last fall for fast food workers on federal contracts under the Service Contract Act require an increase in the minimum wage for such employees, varying by region. The rules also require payment of new, additional “health and welfare” fringe benefits at a rate of $3.81 per hour to those employees.

Result?

Four restaurants, including three McDonald’s outlets, will close within the next three weeks on Navy installations, according to Navy Exchange Service Command officials.

And two other contractors — a name-brand sandwich eatery and a name-brand pizza parlor — have asked to be released from their Army and Air Force Exchange Service contracts to operate fast food restaurants at two other installations, according to AAFES officials.

A source with knowledge of military on-base resale operations said the issue likely has to do with two new government regulations — one implemented, one pending — that will affect wages for contract workers in such on-base concessions.

Action/reaction. Who loses? Well what’s zero times the new minimum wage? That’s what the former workers of those restaurants can look forward too in the near future. Will other fast food outlets take their place? Possibly – but then as another law of economics points out, businesses do what they do for profit, consequently costs incurred are usually passed on to the consumer in the form of price increases for the product. So who will get screwed then. In this case sailors making about 23K a year. Probable result – business will be down because fewer of their customers will be able to afford their prices with the frequency they once did.

As usual Obama has done this by executive fiat. And, it appears the minimum wage hike may or may not have any life in Congress (even with dopy old Mitt Romney coming out for it). But the debate and the protests roll on. For instance we have today’s fast food protests which are alleged to be happening world wide (backed by about $15 million SEIU dollars here in the US).

Here’s an example of what they’re saying:

Naquasia LeGrand, 22, of Brooklyn, says this was her sixth protest since 2012. She has worked for three years as a cashier at Kentucky Fried Chicken in Park Slope, an affluent neighborhood in Brooklyn. She says makes $8 an hour and pays $1,300 a month for her apartment. “We live in New York City — a multibillion dollar city,” she says. “These corporations … are making all this money. It’s only right that we (workers) come together.”

The sense of entitlement is overwhelming.

So let’s break down what she does for her $8 an hour.  She says “may I help you” to a customer, a customer gives her their order which she enters via a touchpad computer.  The computer computes and totals the order.  She enters the amount of cash tendered and it tells he how much change to give back. Or she swipes a credit card, waits for the receipt to print and hands both back to the customer.  At some point after that, she hands the customer a tray with food on it or a bag containing it.

Guess what else can do most of that?

And what can the employer know will never happen with this?  Well, it won’t be out in 6 protests in 3 years and won’t have an attitude every day it cranks up and goes to work.  And other than initial cost and maintenance costs, it will likely be more accurate than a human, faster than a human and cost less than a human in the long run.  The technology is already here and as it proliferates it will get cheaper and cheaper.  And it is proliferating.  Guess who just bought 7,000 of them?

The point of course is when costs go up businesses have to consider their options, especially if they’re in a very competitive industry – like fast food. They know that they can only pass on a certain percentage of higher costs to their customers. So they have to look for alternatives to doing that. One of the fastest and easiest ways to increase the bottom line is to reduce headcount. Another is to automate low skill jobs. What Ms. LeGrand is doing is inviting her employer to consider one of those options if higher wages are forced on them. And there are few jobs requiring less skill at a fast food joint than cashier/order taker. See picture above for confirmation.

Every time the minimum wage goes up, it prices some jobs out of the marketplace. Anyone – who usually fills those jobs that get eliminated? Low skill workers. The one’s who need jobs, any job, the worst. Instead of letting the market have the ability to set the worth of work, the government imposes a wage floor and essentially outlaws any wage below that floor.

Of course that doesn’t change the worth of the work to the potential employer. A $6 an hour job is still worth $6. Only a fool is going to pay $10.10 or $15 or whatever above that an hour. So the work goes undone and a person willing to do the work for that price goes unhired. Instead, other options and substitutes are considered, like automation or contracting it out overseas where labor costs are cheaper. Why do you think so much is “made in China?”

The do-gooders are our own worst enemies when it comes to this. Its all about them feeling good about helping the “little people”. They never look beyond that to the real consequences of their do-goodism. There are a couple of reasons they don’t: A) it is apparently beyond their understanding and B) it’s all about them feeling good about themselves, not what happens afterward.

The “market” is stuck with the consequences.  And when it all goes tango uniform and what people like me predicted comes true, we’re treated to claims that the cause was “market failure” (btw, read this great rant on “market failure”).  That’s about the time you see people like Ms. LeGrand, the SEIU, Harry Reid and the usual suspects start talking about hiking the minimum wage again.

And the cycle repeats.

~McQ

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22 Responses to Learning the laws of economics the hard way

  • Naquasia won’t have to worry, she’ll be losing her job to the minimum-wage immigrant way before the robot overlords push her out into what is no doubt a well-deserved welfare line.
     

  • Personally I tihink arguing about minimum wages hikes and effects is rather pointless.

    Rather, I believe the tactic that should be taken is this:

    Hey, all those that want $20/$30/$40/$ whatever, per hour for fast food workers, good for you.  All you have to do is develop a business plan and gather financing to fund “Liberal Hamburger’s” (I’d say substitute Progessive but you’d probably get sued for trademark infringement or some such thing).  If you can make it work, the franchise rights will make you very rich and you’ll have proved everyone else wrong.

    Go for it.

  • There is no serious economist of any stripe that will assert that raising the minimum wage will not cause a loss of net jobs in the economy.  The only debate is HOW MUCH.

    There are few who will not observe that a governmental market distortion in wages will not cause the LEAST wealthy to suffer the MOST.

    Given that, how can anyone of good conscience advocate such a destructive, mean-spirited policy?

    • Read jpm100 below. This is win-win, since increasing min wage is popular, and the bad results will not be blamed on those who cause them. Further, the min wage enables underground employment which enables illegals who will vote Democrat. And it will further shut out black youths from the productive economy, which will help keep blacks fully invested in Democrats. There is so much “win” in this for Democrats. Short term. Long term.

      • Let me just report that my experience employing workers during my life as a contractor shows that illegals do not work for anything less than the going rate.  In my case, I paid roofers per “square” (100 sq. ft.) of applied roofing, which in a lot of cases was $21 + per hour.  And that was back in the 80s.  I’ve also worked WITH oil field outfits that employed whoever…some were illegals…and NOBODY worked for less than the going rate.  I’ve been around several trades, and I’ve never seen an illegal accept less than his gringo competitors.  This was in non-union Texas.

  • The government interferes and causes problems.
    The market reacts poorly. People lose jobs.
    The government points out a “market failure” that needs more regulation.
    The government interferes…….rinse repeat.

  • The evil capitalist corporations will be blamed for the job-loss and the unemployed workers will be further driven to the part of “income inequality” along with a bunch sympathetic people on the sideline who don’t like to think too hard. 

    Utter Success. 

    • Well, yeah, ask our resident guest commenter from Maine.
      When costs for companies go up as a result of regulation or law, NO company, except for a greedy evil capitalist corporations would EVER think of passing those costs along to consumers or trimming back their staff or staff benefits.

  • I just don’t under stand why American connoisseurs of fast food won’t pay more ?
    … but, of course, Michelle Obama calls this food “unhealthy” so their loss will be better for Americans in the long run.
    At the White House, they prefer wagyu, not just ordinary steak.

  • We should probably push for a state or large city to hurry up and try a very high minimum wage.
    Then we would have better proof.
    Switzerland is going for a $25.00/hour wage. Bring it on.

  • She says “may I help you” to a customer, a customer gives her their order which she enters via a touchpad computer.  The computer computes and totals the order.  She enters the amount of cash tendered and it tells he how much change to give back. Or she swipes a credit card, waits for the receipt to print and hands both back to the customer.  At some point after that, she hands the customer a tray with food on it or a bag containing it.

    That’s the problem.  This person is doing “minimum work for minimum wage.”

    Now as an owner, if that same woman was bright, bubbly, and welcomed the customer rather than “can I help you?”; if she up-sold items; if she suggested other items with enthusiasm rather than by rote; etc, then a case can be made that she deserves more money.  After all, she is bringing more money into the company.

    The same goes for a guy who is “flippin’ burgers.”  There is no shame in that work, but there is a difference between a guy who throws a slab of beef that ends halfway off the bun and a guy who tries to make the burger look as close to the picto-board as he can.

    If a person wants to do minimum work they deserve minimum wage.

    If they want to step above and beyond, make the company more money so the company can specifically pay them more money, go for it.   Show the company that you are worth more than they are paying you, rather than giving lip service to the idea that you have a right to be paid a certain rate.
     

    • I was recently in a Rite-Aid where one of the staff was asking a customer in a loud voice if they had any plans for the week-end. They had a little meaningless back and forth. It was almost shouting.
      I decided I liked this. I’m not sure if its encouraged, or the employees just do this on their own, but I like it for the following reasons:
      1) Its very American and I like the fact that we can freak out all the insular and crabbed foreigners this way. Culture shock and awe, baby. “Hi, yeah, my name’s Jack, lemme shake your hand and show you around! Say, any plans for the weekend?” This stuff strikes fear in the heart of a German.
      2) We are getting close to a point to where retail interactions will be done with any people needed.  But the store should still keep staff to answer questions, etc. and also, just to be nice and chat. This may in fact end up being more important than math skills.

      • Heh, I had an American visitor here in Stockholm a couple of years back and he said, “I love this place, you get in a taxi and the driver doesn’t talk to you… It is so peaceful”.

  • Well, the Swiss are not stupid, anyhow…

    “Almost 77% of voters opposed the minimum wage proposal, according to almost complete results. Supporters had argued it would “protect equitable pay” but the Swiss Business Federation said it would harm low-paid workers in particular.”

    Apparently, they have no minimum wage law currently.

    • Shame they don’t have Obama as a President so someone could comment that the Swiss are racists because they failed to vote in favor of it.

  • Switzerland is one of the most benighted of the Deep Southern states.  I mean, you DO know about their gun control position.  Neanderthals…  Plus, many of them speak German!

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