A “told you so” follow up on that $15 minimum wage hike in Seattle (and coming to San Francisco soon):
Seattle’s $15 minimum wage law goes into effect on April 1, 2015. As that date approaches, restaurant across the city are making the financial decision to close shop. The Washington Policy Center writes that “closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.”
Of course, restaurants close for a variety of reasons. But, according to Seattle Magazine, the “impending minimum wage hike to $15 per hour” is playing a “major factor.” That’s not surprising, considering “about 36% of restaurant earnings go to paying labor costs.” Seattle Magazine,
“Washington Restaurant Association’s Anthony Anton puts it this way: “It’s not a political problem; it’s a math problem.”
“He estimates that a common budget breakdown among sustaining Seattle restaurants so far has been the following: 36 percent of funds are devoted to labor, 30 percent to food costs and 30 percent go to everything else (all other operational costs). The remaining 4 percent has been the profit margin, and as a result, in a $700,000 restaurant, he estimates that the average restauranteur in Seattle has been making $28,000 a year.
“With the minimum wage spike, however, he says that if restaurant owners made no changes, the labor cost in quick service restaurants would rise to 42 percent and in full service restaurants to 47 percent.”
Key quote: “It’s not a political problem; it’s a math problem.” Of course it is a “political problem” because it is clueless politics that pushed this. However, for the owners, it is indeed a “math problem”. And the math for staying open doesn’t add up.
Are there alternatives to closing. Sure. But they’re the same ones we’ve talked about for years:
Restaurant owners, expecting to operate on thinner margins, have tried to adapt in several ways including “higher menu prices, cheaper, lower-quality ingredients, reduced opening times, and cutting work hours and firing workers,” according to The Seattle Times and Seattle Eater magazine. As the Washington Policy Center points out, when these strategies are not enough, businesses close, “workers lose their jobs and the neighborhood loses a prized amenity.”
Welcome to the land of $17 dollar cheeseburger. And, as you can figure out fairly quickly, everything else will be more expensive too … which, of course, erodes the purchasing power of that $15 wage. More importantly, if you work for one of those establishments that is closing, your wage is $15 times zero hours, isn’t it?
So the citizens of San Francisco voted themselves an increase in prices, er, excuse me, a “$15 minimum wage” and thumb their noses at the laws of economics.
Reality hits back. Borderland Books, an iconic SF bookstore, provides the perfect two-fold example with this announcement:
In November, San Francisco voters overwhelmingly passed a measure that will increase the minimum wage within the city to $15 per hour by 2018. Although all of us at Borderlands support the concept of a living wage in principal and we believe that it’s possible that the new law will be good for San Francisco — Borderlands Books as it exists is not a financially viable business if subject to that minimum wage. Consequently we will be closing our doors no later than March 31st. The cafe will continue to operate until at least the end of this year.
Many businesses can make adjustments to allow for increased wages. The cafe side of Borderlands, for example, should have no difficulty at all. Viability is simply a matter of increasing prices. And, since all the other cafes in the city will be under the same pressure, all the prices will float upwards. But books are a special case because the price is set by the publisher and printed on the book. Furthermore, for years part of the challenge for brick-and-mortar bookstores is that companies like Amazon.com have made it difficult to get people to pay retail prices. So it is inconceivable to adjust our prices upwards to cover increased wages.
The change in minimum wage will mean our payroll will increase roughly 39%. That increase will in turn bring up our total operating expenses by 18%. To make up for that expense, we would need to increase our sales by a minimum of 20%. We do not believe that is a realistic possibility for a bookstore in San Francisco at this time.
Note the key lines. “The change in minimum wage will mean our payroll will increase roughly 39%.” Yet, there’s not 39% room in the earnings to weather that increase, because an 18% increase in operating costs puts them in the red. Borderland Books explains why – retail price is almost impossible to get anymore so they can’t increase the price of the product to cover the cost. Result? The workers in the bookstore will have a wage of $0 as of March 31. I’m sure they’re thrilled.
Meanwhile the cafe will stay open because it can do what? Pass the cost on to the customer. So in essence, those who voted for the increase in minimum wage voted dollars out of the pockets of those who opposed it as well as their own. While the workers in the cafe will get their $15 an hour minimum wage, it will be achieved in an increase in the price of the goods the cafe sells (about 20%). And if their experience is anything like Seattle’s (which also instituted a $15 minimum wage) tips will dry up to next to nothing, while perks (such as free meals, parking, etc.) will be discontinued now that the workers make enough money to pay for most of them.
Yes, economic illiteracy has a price – and here it is. Fewer jobs, higher prices, all a result of fools who thought they could magic “a living wage” out of a vote without that having any consequences to the workers or themselves.
Apparently we “underestimated” ebola and ISIS, but when it comes to the economy and our well being, our man in the White House did us proud, but we’re just not apt enough to realize that. From Obama’s “60 Minutes” interview:
Steve Kroft: You’ve got midterm elections coming up. Are you going to get shellacked?
President Obama: Well…
Steve Kroft: Or do you think that, I mean, are you optimistic? What are the issues and what are you going to tell the American people?
President Obama: Here’s what I’m going to tell the American people. When I came into office, our economy was in crisis. We had unemployment up at 10 percent. It’s now down to 6.1. We’ve had the longest run of uninterrupted private sector job growth in our history. We have seen deficits cut by more than half. Corporate balance sheets are probably the best they’ve been in the last several decades. We are producing more energy than we had before. We are producing more clean energy than we ever had before. I can put my record against any leader around the world in terms of digging ourselves out of a terrible, almost unprecedented financial crisis. Ronald Reagan used to ask the question, “Are you better off than you were four years ago?” In this case, are you better off than you were in six? And the answer is, the country is definitely better off than we were when I came into office, but now we have to make…
Steve Kroft: Do you think people will feel that?
President Obama: They don’t feel it. And the reason they don’t feel it is because incomes and wages are not going up. There are solutions to that. If we raise the minimum wage, if we make sure women are getting paid the same as men for doing the same work, if we are rebuilding our infrastructure, if we’re doing more to invest in job training so people are able to get the jobs that are out there right now, because manufacturing is coming back to this country. Not just the auto industry that we’ve saved, but you’re starting to see reinvestment here in the United States. Businesses around the world are saying for the first time in a long time, “The place to invest isn’t in China. It’s the United States.”
So there you go. When you ask the salient question (are you better off now than you were 6 years ago), you dumbasses always give the wrong answer. You ARE better off because our King says so. Screw the fact that “income and wages” are not going up, or the labor participation rates is at historic lows or real unemployment is considerably higher than the manipulated number! You’re better off, dammit! And government can fix the wage problem – you know, just raise the minimum wage for heaven sake.
Given that level of cluelessness, are you at all surprised this administration underestimated ISIS and ebola?
Nothing new here, but let’s repeat it for the umpteenth time so perhaps somewhere some lefty will actually figure out why minimum wages are a bad idea:
One of the results of the state and local minimum wage increases across the country is more young people out of work, according to Puzder. The more entry-level jobs pay, the more willing experienced, qualified workers will be to take them, thereby bumping the young and inexperienced out of the work force. Puzder says that is causing a real problem for the young people of America.
“The real problem with youth is: You have to have these entry-level jobs to get the experience you need to move forward in your life. If they don’t have those jobs, they’re sitting at home – I don’t know – looking at the posters from the last election or waiting for mom to make dinner, as opposed to being out there actually working and getting the experience that they need to go forward in life,” argues Puzder. “The experience is the important part and we’ve got a whole generation of kids ages 16 to 29 who are missing out on that.”
So how does the economy regulate the price of labor?
“When there’s a demand for labor, the cost of labor goes up. When there’s no demand for labor, it goes down and you can’t solve that problem by having the government artificially mandate a wage increase when there’s no economic growth to support that,” says Puzder. “What businesses do is they increase their prices and they move to automation so you have less jobs.”
Yes, as usual, central planning will fail and have negative consequences. I know, you’re shocked.
Oh, and this:
“When politicians tell people, ‘We’re going to increase the minimum wage and your check will be bigger,’ what they don’t say and [what] the next sentence should be [is]: ‘However, it’s not going to be worth as much as the increase, because everybody’s going to increase their prices so you’re not going to be able to buy as much as you could have if we’d just had economic growth that justified that increase.”
So what does Andy Puzder propose instead of artificially inflated minimum wages? “Government needs to get out of the way. If government gets out of the way, businesses will create jobs,” he says. “Wages will go up and the country will go back to a state of prosperity instead of what we’re in now.”
So you get the usual self-serving half-truth from pols when they claim they’re doing something to help the “little people”. By the way, Andy Puzder is the CEO of CKE Restaurants. He and I disagree on one thing:
Puzder says he believes states and municipalities have the right to raise the minimum wage, but he believes people need to understand the consequences, including higher prices and increased automation, which his company is undertaking using iPads to take orders at some restaurants instead of people.
Uh, no, Mr. Puzder … states have the power to raise the minimum wage, but unless you believe some entity other than yourself has a “right” to mandate how you spend your labor dollar, they have no “right”.
Anyway, prepare for some lefty to come by and assure us that the laws of economics aren’t really iron-clad at all, that supply and demand regulated by the market is old thinking and that central planning has a much better chance of assuring a “living wage” … if, given their skills, anyone can find a job at that price.
Well that’s determined by all sorts of variables – how much the person seeking the job is willing to take, how much the person wanting the job done is willing to pay, the scarcity or abundance of labor, etc.. And so in a free market, when a job is open it is up to the person seeking to have the work done and the person seeking a job to decide what it is worth to each of them. If they can reach agreement, then the job is offered to the person seeking the job. If agreement can’t be reached, then the job goes unfilled.
The bottom line is that no outside party can decide what that job is worth – in that mythical free market, that is. However, we don’t have a free market and legislators, trying to buy the good will of voters with other people’s money, often decide they know what every job is worth at a minimum. Thus the minimum wage.
Well this is anecdotal, I know, but it certainly seems to support every negative we here at QandO have been talking about for years. In the long run raising the minimum wage only raises the cost of labor. It does not change the worth of a job. Ever.
SeaTac workers are learning that the hard way:
Last January, SeaTac implemented a $15 per hour minimum wage for hospitality and transportation workers. The consequences to the drastic hike in wages are just beginning to be realized—and it’s not pretty.
“It sounds good, but it’s not good,” the woman said.
“Why?” I asked.
“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.
“The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.
“What else? I asked.
“I have to pay for parking,” she said.
“I then asked the part-time waitress, who was part of the catering staff.
“Yes, I’ve got $15 an hour, but all my tips are now much less,” she said. Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. Yes, she used to receive free food and parking. Now, she has to bring her own food and pay for parking.”
SeaTac is a small city—10 square miles in area and a population of 26,909—with an economy almost exclusively defined by the Seattle-Tacoma International Airport. Five months into the implementation of a $15 minimum wage and it appears that a deep sense of regret has already flooded the city and workers who should have “benefited” from the terrible economic policy.
Meanwhile, as the largest city in the Pacific Northwest and one of the fastest growing major cities in America, Seattle is on the verge of following in SeaTac’s woefully unfit footsteps. Seattle Mayor Ed Murray’s $15 minimum wage plan includes a phase-in period of three to seven years and makes no exception for business type or size. Murray’s plan elicited back-lash from prominent Seattle businesses owners and economists alike.
Like we’ve said, increased costs associated with the job will likely be passed along to either the customer or the worker or both. Here you have two perfect examples of how perks that helped workers and were of value to them (and for which they didn’t have to pay taxes) fell victim to some interfering government body unilaterally raising the cost of labor. The worth of the job done didn’t increase at all. Consequently, businesses looked at ways to compensate for the increase in labor cost. As for the decrease in tips? Well people tip well because they know most waiters and waitresses don’t make much for a wage. However, when they’re making $15 an hour, suddenly there isn’t a great or compelling reason to “help them out”. Tips decrease. Why tip someone for doing their job when they’re making that kind of money hourly. And, just as likely, prices have gone up to cover this expense. Consequently, overtime is limited, etc.
Its not that this is something hard to figure out. But the socialists among us never get past the feelgood part of it, because, well, because math is hard and economics is absurdly hard … or something..
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.
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.
A poll came out the other day saying that the majority of American’s first priority is unemployment. And it should be given the incredible low we’re now suffering in labor force participation.
So what bright idea are Democrats pushing in spite of that? Hey, let’s raise the minimum wage?
Result? Well, even the CBO, the Dems favorite “go to” agency to support their ideas (when it actually agrees, of course), doesn’t see this as a particularly bright idea if they’re concerned about the people’s priority:
Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects.
Notice it says reduce “total employment” by 500,000. It also says it is only a projection and that it could actually be higher than that.
But, but … it will help the poor!
The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.
Or said another way, Democrats are willing to see a half million plus lose their jobs to serve 19% (and that assumes that all of the 19% keep their jobs).
But, but … it will give the poor more to spend!
Moreover, the increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices.
Those are facts, folks. Democrats don’t deal in facts, they deal in emotions … and if they can pass a minimum wage bill, they’ll feel wonderful about themselves. And if they can’t, they’ll blame it all on the mean old Repubicans who want you to be able to keep your job or something radical like that.
This week, Bruceand Dale just talk about Wendy Davis and other things.
The direct link to the podcast can be found here.
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I wonder just how intelligent the bulk of Americans are. From a Quinnipiac poll:
American voters support 71 – 27 percent raising the minimum wage. Republican support is 52 – 45 percent. Given several options:
- 33 percent of voters say increase the minimum wage to $10.10 per hour;
- 18 percent say increase it from the current $7.25 per hour to something less than $10.10;
- 18 percent say increase it to more than $10.10 per hour;
- 27 percent say don’t increase the minimum wage.
Raising the minimum wage will lead businesses to cut jobs, voters say 50 – 45 percent, with Republicans seeing job cuts 68 – 29 percent and Democrats saying no 65 – 29 percent. Independent voters expect job cuts 51 – 45 percent.
We’re faced with the lowest job participation numbers in a long, long time, our economy is just starting to recover, a majority of Americans know that raising the minimum wage will lead “business to cut jobs” and yet, the majority also want to raise it anyway (to include 52% of “Republicans”).
It makes you just want to throw up your ands and say “screw it”.
That’s kind of the $64,000 dollar question (yes, I’m showing my age … bite me) isn’t it?
You’ve seen the news about the fast food walkouts and claims that food service people should be paid $15 an hour? That what the United Food and Commercial Workers union claims workers in that industry should have. But what do workers they actually represent in that industry actually get? Not much over minimum wage and union dues to pay out of that:
An examination of UFCW contracts shows that even senior union members are not receiving the wages that ROC and Jobs for Justice demand.
Consider a department manager at Kroger’s union shop in Michigan. She earns a maximum rate of $13.80, even after over half a decade on the job. If this is the highest wage the UFCW can negotiate for skilled, experienced workers, how can the union provide entry-level, low-skilled workers with $15 an hour?
It is not possible for them to accomplish this. Yet, receiving media coverage for the protests they sponsor is an effective way to increase membership and dues collections. The wage they demand is more than twice what similarly skilled union members are paid, namely $7.40 an hour for an entry-level cashier.
Courtesy clerks are paid a starting rate of $7.40 an hour and can work their way to up a wage ceiling of $7.45, after 12 months on the job. Fuel clerks do not fare much better; they start at the same $7.40 and can earn $7.80 an hour after three years of experience, barely over half of the $15 an hour wage worker centers supported by the UFCW demand. Specialty clerks also start at $7.40 an hour, but can earn up to $9.35 after six years. This amount is still 25 percent below the $12.50 an hour “living wage” Jobs for Justice claims all entry level workers should be paid. Read the full union contract between Kroger and the UFCW here.
The take-home pay is even lower once dues—and federal and state taxes—are removed. Dues are mandatory and usually take between $19 and $60 a month from members’ paychecks.
A non-union member could negotiate that without even trying hard. So, what good is the union really done for those those it represents? Other than pay it’s union staff very well?
It is expensive to run a union. The average total compensation for those employed by the UFCW—rather than represented by the UFCW—is $88,224 a year. This income is almost six times what the union negotiated for cashiers at Kroger’s. Joseph Hansen, the International President of UFCW, earns in excess of $350,000 a year—over twenty times the earnings of many of the workers he represents. The Executive Vice President and National President both earn over $300,000. Are entry-level union workers receiving benefits from paying dues out of their $7.40 an hour paychecks to fund these salaries?
But you know, it’s “management” that’s the problem, right? I mean how could a cashier negotiate a $7.40 an hour paycheck without the union – and then give the union its “dues” out of that same paycheck? Hey, the president of the union has to have his perks, right?
I know, I know, don’t look at the paycheck, look at the other benefits … like a pension, right?
The UFCW has one of the worst records for funding of union pension plans. The Labor Department has informed the UFCW that nine of its pension plans have reached “critical status,” meaning they are less than 65 percent funded. Many of these funds have been underfunded for six years. They have low chances of regaining sustainable financing unless they can convince more new members to join and pay dues without receiving similar benefits.
And, of course, there’s the political side of things … it is important to help fund the union’s political activities, no?
Well of course it went to Democrats. Democrats have been in the union’s pocket (and vice versa) since time began, apparently. Put $11.6 in the pension fund? What are you, a Republican?
Yes, it’s a crying shame people aren’t represented by this union … said no libertarian, ever.