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Serving them right

On certain issues, leftist harping is especially odious. One is the minimum wage.

Anyone who has met a payroll knows that, when higher wages are simply dictated from on high, then employees (or hours or salaries) must be cut back elsewhere – assuming the business can survive at all. It’s math. We’ve seen it before,

Leftists like to deny math and other facts of business and economics. What makes it odious is, they’re also smug about it. It isn’t just their ignorance; it’s their aggressive pride in staying ignorant.

Via HotAir, now a study confirms that San Francisco’s minimum wage does indeed injure the businesses and workers of that city.

San Francisco’s higher minimum wage is causing an increasing number of restaurants to go out of business even before it is fully phased in, a new study by the Harvard Business School found.

The closings were concentrated among struggling, lower-rated restaurants. The higher minimum also caused fewer new restaurants to open, it found.

“We provide suggestive evidence that higher minimum wage increases overall exit rates among restaurants, where a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit,” report Dara Lee and Michael Luca, authors of “Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit.” The study used as a case study San Francisco, which has an estimated 6,000 restaurants in the Bay Area and is ratcheting up its minimum wage.

So, Nancy Pelosi and her fellow limousine-socialists are looking at fewer restaurant selections for themselves – and more unemployed people. Do they understand that? Or even notice it?

There is only one time when the minimum wage doesn’t hurt employment: When it’s low enough, in real terms, to be ineffectual. For example, if we have a period of inflation – and no minimum wage increases – then its real value will go down, and employers can afford to hire the low-end workers again. But the higher the minimum wage is, in real terms: the more low-end workers can’t get work.

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16 Comments »

  1. So, Nancy Pelosi and her fellow limousine-socialists are looking at fewer restaurant selections for themselves – and more unemployed people. Do they understand that? Or even notice it?

    I doubt Madame Pullyourpanties and her friends rarely frequent anything less than top-2nd-percentile restaurants, so they’d hardly be discomforted. In Madame’s case, her husband owns several at their various luxury resorts and destination-venues; the Rosewood Cordevalle Spa and Golf Resort has 4 fine-dining options alone. One prix fixe at $350-per-person for hand-gathered organic locavare-fare, including a tour to view the colorfully-clad peasants toiling the fields as you snack on fresh berries and 19 varieties of heirloom apples.

    They remind me of the smug “artists” who create art by pouring molten aluminum into live ant-colonies

    Comment by Ted B. (Charging Rhino) — April 19, 2017 @ 5:49 am - April 19, 2017

  2. I don’t think many people realize that for an employee to receive $15 an hour before taxes, the employer is shelling out almost $30 an hour, with all the regulations, taxes, and fees that the employee never sees.

    Comment by Juan — April 19, 2017 @ 9:22 am - April 19, 2017

  3. “let them panhandle”…..(and urinate in the streets). It is Socialist San Utopia after all until enough people are fed up and the counter-revolution comes to town.

    Comment by Rex — April 19, 2017 @ 10:17 am - April 19, 2017

  4. “let them panhandle”…..(and urinate in the streets). It is Socialist San Utopia after all until enough people are fed up and the counter-revolution comes to town.

    Comment by Rex — April 19, 2017 @ 10:18 am - April 19, 2017

  5. Sorry for the double comment…too much caffeine this morn.

    Comment by Rex — April 19, 2017 @ 10:19 am - April 19, 2017

  6. In an article that came up on my feed on Facebook it talked about what the average minimum-wage needed to be in each state for all people to be able to afford a two-bedroom home. The first thing I said in my comment about it was that I did not ever read a law or find any kind of rule in life that said that everyone had to have a two-bedroom home; some people do, and some people don’t. My second comment on the article stated that this kind of mentality, where you need to keep raising the minimum wage, is what kept driving up prices on everything and lead to the reasons why you have to pay over $50 to eat a meal as a family at McDonald’s in Australia. In response to my comment, one of my gay,liberal friends said, “I don’t agree with you.” He gave no reasons or evidence, apparently it was something he just believed. How can anyone who has had basic math not understand that the more money you spend requires a lowering of costs? It has to be willful ignorance.

    Comment by TAD — April 19, 2017 @ 11:55 am - April 19, 2017

  7. TAD, good responses. Minimum-wage jobs are supposed to be for people getting their first or second job. Not for people establishing two-bedroom households.

    It’s a sad commentary on how we’ve lost GOOD jobs / the middle class / upward mobility / the American Dream. In addition to being a commentary on people’s lack of realism, etc.

    Comment by ILoveCapitalism — April 19, 2017 @ 1:03 pm - April 19, 2017

  8. Hi Jeff (ILoveCapitalism),
    I understand the dislike of minimum wages that you outlined. Given assumptions of free markets, it makes total sense. School textbooks outline the argument with price floors and S & D diagrams. Your example of restaurants in SF comes to mind. However, if you change assumptions about markets, allow for oligopolistically organized industries, then the results can look very different. Example: Using a Sweezy Kinked Demand Curve model leads to the result that increasing the minimum wage increases firm costs, leaves output unchanged (hence, no efficiency effects), and results in a change in the profitability of firms. If firms are making economic profits (which firms with real economic power tend to do if not regulated to have only normal profits) they end up sharing it with workers who get higher returns. In the old days, you could see this “profit sharing” with the impact of unions and demand for higher wages. We don’t see that much anymore because unions are going the way of dinosaurs in the private sector. Firms keep more of their economic profits. In the case I have outlined, raising the minimum wage in those kinds of industries does not lead to the result you envisage. Unfortunately, using a one size fits all approach of a universal minimum wage price hike leads to the results you first suggested.
    Be well,
    Cas

    Comment by Cas — April 19, 2017 @ 2:42 pm - April 19, 2017

  9. anyone else think the left is getting exactly the results they want? i’m a firm believer that there is no such thing as an unintended leftist consequence. remember it is a Marxist’s job to destroy the existing order.

    Comment by salg — April 19, 2017 @ 3:11 pm - April 19, 2017

  10. The minimum wage is $0.00. You can’t buy nothin’ with nothin’. Market forces create the least amount which will attract a person to do hourly wage work. The employer has to suck that up and pay it. There is no reason whatsoever why the profit margin of the company should come into play in any wage formulation.

    “The” economy is an approximation of an approximation. Supply and Demand is highly transitory. Attempting to make an exact science of economics is pure voodoo.

    Motel 6 opened in the late 60’s at a rate of $6.00 per room. Dumb idea. But the motel room market of today can not equate the 6 in the name with price or even image that it was ever possible to pay so little. Why not? Because the minimum rental rates have adjusted according to “the” economy. (How much did maids make in the days of the $6 room at Motel 6? – If you could get a room for $6 what would you expect?)

    The real point is that welfare has priced most “minimum wage” workers out of the market. Why would any fool trade in housing, medical care, food allotments, utility assistance for the risk of trying to earn enough to pay for the equivalence and have spending money left over?

    Every welfare recipient should be responsible for breaking his/her welfare payments into equivalent wage increments. In the bulk of cases, it is far more than the prevailing minimum wage and even exceeds the calls for $15.00 per hour.

    How about just ending welfare and paying would-be recipients $15.00 per hour to pave roads, paint bridges, clean parks, and fend entirely for themselves. Workfare. Of course there would be a strict culling of those who actually need societally sponsored institutionalization.

    Comment by Heliotrope — April 19, 2017 @ 6:32 pm - April 19, 2017

  11. As Helio points out, the minimum wage is zero.

    But it’s a complicated issues: a lot of people (Mark Steyn has mentioned 40 percent) work in low-wage service jobs (low-wage may be > min wage).

    Accordingly, many of the working poor receive public assistance so, as our businesses are so good at, costs are socialized while benefits are privatized.

    While it would never happen, I wonder what things would look like if the working poor received a “living wage” and no public benefits. A $1 via the private sector has to be less expensive than $1 sluiced through Leviathan.

    I remember a chart from the PA DHS showing how gov’t benefits made low-wage work far more attractive than trying to improve one’s own situation.

    http://www.zerohedge.com/news/2012-11-27/when-work-punished-tragedy-americas-welfare-state

    Of course, there’s reality and I don’t think lefties really give a crap about the plight of the working poor. If they did, they’d be a bit more circumspect with regard to regulations of dubious benefit and open borders.

    The left is all about getting even with those they just don’t like.

    Comment by KCRob — April 19, 2017 @ 7:35 pm - April 19, 2017

  12. ““The” economy is an approximation of an approximation. Supply and Demand is highly transitory. Attempting to make an exact science of economics is pure voodoo.”

    OK. And what? Economists use models. And you argue them out on their merits. S and D can change, and with them prices and output. Again I grant your claim as I understand it. I am assuming that you agree that some industries are oligopolistically organized, even as others are competitively organized. So, I guess you grant the point that I raised. Thank you.

    As for: “There is no reason whatsoever why the profit margin of the company should come into play in any wage formulation.” Sure. But by the same logic, there is no inherent reason why workers shouldn’t contest for part of it in industries that do have ECONOMIC profit. Why shouldn’t they share in the benefits of the firm’s market power?

    Finally: “The real point is that welfare has priced most “minimum wage” workers out of the market. OK. Different argument aimed at a different target. No worries.

    Comment by Cas — April 19, 2017 @ 9:29 pm - April 19, 2017

  13. Example: Using a Sweezy Kinked Demand Curve model leads to the result that increasing the minimum wage increases firm costs, leaves output unchanged (hence, no efficiency effects), and results in a change in the profitability of firms. If firms are making economic profits (which firms with real economic power tend to do if not regulated to have only normal profits) they end up sharing it with workers who get higher returns.

    Cas, that’s unrealistic in so many ways.

    First, we’re supposed to assume that the Sweezy Kinked Demand Curve model is an accurate (a sufficiently correct and complete) description of the real world, rather than an overly-limited or incorrect plaything in some econometrician’s office.

    Second, we’re supposed to assume the econometrician playing with her version of the Sweezy Kinked Demand Curve model is able to derive a “correct” minimum wage to achieve good profit-sharing for each of thousands of job types across many industry segments, despite her being in her office with knowledge of no more than a tiny handful (if that) of the industries and job types in question.

    Third, we’re supposed to assume that it’s desirable to have firms getting much less of the economic profit of their own operations. By what standard is that desirable? To me, it sounds like a great way to make firms even more brittle, unadaptive, uncreative, unable to survive a downtown, etc. than they are already.

    So fourth, we’re supposed to assume that economists somehow know – better than the market or the real world “knows” – how much economic profit firms should receive.

    The free-market price mechanism (when government steps back and lets it operate) co-ordinates the real-world knowledge of millions and distills it into price signals, which then co-ordinate the action of millions. Economists with their Sweezy Kinked Demand Curve or other models simply cannot do that. By the nature of human knowledge and human interaction, they CAN. NOT. EVER. DO. THAT. successfully (i.e., achieving an economy anywhere near optimum). Ever.

    To think that they can, is essentially arrogant. And to make the attempt, is essentially fascist (trying to plan/control others). An important difference between us is: I have grasped those facts and, apparently, you still have not.

    If Soviet-style planning was Central Planning 1.0 (top-down planning of economic activities), then today’s economists are after Central Planning 2.0 (top-down planning of the *influences* on how markets conduct economic activities; telling the market where to go). But neither is any good. Neither comes from a good place in the human heart, and neither leads to success in the real world. Witness the sclerotic world economy of today.

    Unfortunately, using a one size fits all approach of a universal minimum wage price hike leads to the results you first suggested.

    That’s a little more realistic. Thank you.

    Comment by ILoveCapitalism — April 20, 2017 @ 7:09 pm - April 20, 2017

  14. In Madame’s case, her husband owns several at their various luxury resorts and destination-venues […]

    Her husband was also an investor in (though no longer, from my research) the Piatti restaurant chain. In the Denver outpost of that enterprise, a slightly-upscale family restaurant was taken over by a nouveau Italian bistro with overpriced and mediocre food. I would be absolutely stunned if the management therein ever paid more than minimum- or market-wage rates as well as if the entire front- and back-of-the-house staff were fully comprised of US citizens from opening to the current day. Equally as surprising would be if she had a clue as to what employess at her husband’s ventures were paid in relation to the overall workforce or what percentage were not US citizens.

    If you could get a room for $6 what would you expect?

    I think I can answer that question at about six times that rate. There is a modest hotel in suburban Denver which has traditionally catered to ‘economy’ travelers as well as the long-haul trucking community. For years its outdoor signage advertised a $19.95 (“& up”) rate. Last time I drove by there, it was $39 (“& up”)—where it has been for a long time. Yet a few years ago, the premier local alternative paper did a story on the property which highlighted its current use more as an unintentionatl entertainment complex rather than as a place to catch a few z-zz-zzzzzz (think prostitution and methamphetamine use). Meanwhile, the cheapest Motel 6 rate I have seen in two states is $49 (and that would be a low-season, come-in-we-need-the-business rate). Even at that rate, you can be assured that much of the staff is not being paid significantly more than minimum wage. Though all will be well in The Centennial State once the voter-mandated minimum wage fully kicks in sometime around 2020. But that current $49 Motel 6 rate will seem quaint by comparison in the future. And the meth-heads and carnal entrepreneurs will probably have to pay a lot more than $39/night at the suburban flophouse (if it’s still in business by then).

    Comment by RSG — April 21, 2017 @ 2:28 am - April 21, 2017

  15. Hi ILoveCapitalism,
    I found your reply interesting for a number of reasons.
    First, I agree that trying to impose a custom-fitted minimum wage in multiple industries would be pretty difficult and ultimately inefficient. This is just an application of Hayek’s critique of command economy practices. No argument.

    If you read my comment to your post you will see that I am not suggesting that we impose a higher minimum wage. My aim was two-fold. First, to undermine your confident assertion that the minimum wage MUST, of necessity, be bad for an industry and the workers who labour or want to labour in it. To make the claim, you use (in the background perhaps), economic theory of the inefficiency of price floors to support your claim. Simple economic theory (on the level of the original model that you implicitly used in terms of supply and demand) provides an alternative that leads to a different result than the one that you offered. After all, yours was the only choice that was originally offered! To put it a different way, it is odd that you are happy to use economic theory when it suits your purposes, but dismiss “economists” and their “models” when these disagree with your views.

    Second, I used the idea of industries and firms with market power not to say that a government (or economists) must step in and impose a solution, but to allow private actors—working collectively—to contest for the economic profit that firms with market power create. Unions are such actors. I know you dislike them, but these non-state actors are more likely to know the conditions of the industry and are better placed to make demands upon firms that benefit from opportunities to make economic profit. They are not part of the critique you offered. Your points two and four currently miss the mark. I am happy to talk about your points when you narrow that critique in your next reply.

    Let me now address the next two points:

    “Third, we’re supposed to assume that it’s desirable to have firms getting much less of the economic profit of their own operations. By what standard is that desirable? To me, it sounds like a great way to make firms even more brittle, unadaptive, uncreative, unable to survive a downtown, etc. than they are already.”

    Let me be clear about economic profit. It is a rate of return that is higher than what is necessary to bring those resources into social production—for industries that have above the economy rate of return. This could be because of government regulation or because of natural monopoly issues, or for many other reasons. So, “by what standard” you ask? The oligopolistically organized firm is prima facie productively and allocatively inefficient. I offer your question back to you—why should the firm keep those excess profits in this situation when it can be contested with its own workers who also help make the product? Why is that not desirable? You suggest that firms will become more unadaptive, etc. The logic of this claim is to assert that lack of/some competition will be better than actual/more competition—but for who? Better for the firm, of course—who wants true competition?—it hurst profits. But it is clearly worse for society—paying higher prices for less product. Also, why would getting less economic profit make these imperfectly competitive firms more fragile or less creative when they are already protected from competition in important ways? Perhaps because this protection makes them less nimble? Less creative over time? When faced with the reality of monopolies, Hayek preferred monopolistically organized industries that ran themselves rather than being run by governments. There is nothing in his critique that would stop a union (a private actor) from contesting those excess profits as long as the process to contest was voluntarily accepted by the union members (i.e., not coerced to do it, but freely chosen and respected others’ property rights).

    Just some thoughts on your post.
    Be well
    Cas

    Comment by Cas — April 21, 2017 @ 7:30 pm - April 21, 2017

  16. […] Serving them right  […]

    Pingback by The Weekly Headlines – My Daily Musing – Br Andrew's Muses — April 24, 2017 @ 9:20 am - April 24, 2017

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