Seattle's minimum wage may actually cost restaurant workers(marketwatch.com)
marketwatch.com
Seattle's minimum wage may actually cost restaurant workers
http://www.marketwatch.com/story/seattles-15-minimum-wage-may-actually-cost-restaurant-workers-study-finds-2017-06-26
10 comments
Then employers will simply wholesale fire other employees. The point is that when costs go up, the demand curve shifts. Forcing businesses to do otherwise would wreak havoc.
Having employers that can't provide decent workplaces and decent pay go under is a good thing. That's the goal of these regulations. It's sometimes incorrectly seen as an unwanted side effect of more labor friendly regulations - but it's not. Employers that can't pay a living wage should simply go under.
Having fewer employees work better hours (full time) is also a desired effect.
Having fewer employees work better hours (full time) is also a desired effect.
Well your theory kind of flies in the face of most economist's views, which should be a red flag.
I don't think forcing companies to go out of business because they can't "provide wages" for employees makes sense. For one thing, that's not remotely the goal of the business. For another, nothing guarantees that these companies will go under, rather than (as most are doing) simply cutting back on some hours and some jobs.
You seem to suggest that the natural state of the world is a bunch of businesses paying a high wage, and that if we just get rid of all these businesses that are paying lower than that, we'd find jobs for everyone in higher-paying places. The truth is that some people simply can't provide more than $15 an hour in value to any business, for whatever reason, and no business will ever pay them more. These people will simply remain unemployed.
I don't think forcing companies to go out of business because they can't "provide wages" for employees makes sense. For one thing, that's not remotely the goal of the business. For another, nothing guarantees that these companies will go under, rather than (as most are doing) simply cutting back on some hours and some jobs.
You seem to suggest that the natural state of the world is a bunch of businesses paying a high wage, and that if we just get rid of all these businesses that are paying lower than that, we'd find jobs for everyone in higher-paying places. The truth is that some people simply can't provide more than $15 an hour in value to any business, for whatever reason, and no business will ever pay them more. These people will simply remain unemployed.
I think that it's more or less if not an explicit goal then at least an accepted reality of unions worldwide that businesses should pay reasonable wages or not be in business at all.
As you point out, this has a number of consequences, all of which are acceptable from the perspective of unions:
- Low wage unqualified jobs, beneath some lowest threshold of skill simply cannot exist. This level varies between markets, but e.g there are no shoe polishers or elevator attendants in Scandinavia.
- The natural rate of unemployment is higher than it otherwise would be. Basically instead of having 10% doing low paying jobs, you have 10% on generous unemployment benefits.
So essentially - and in accordance to all economic theory I know - having high wages and few unqualified jobs is certainly possible IF you
- spend lots of tax money on having an educated workforce
- have generous unemployment benefits
- Accept that society basically provides for anyone that doesn't provide value enough - either by training or just supporting them financially. Labor collectives prefer the state to pay these people instead of them driving wages down (because as you point out they don't provide that value)
Basically the scheme is possible if you tax the top N% of earners so much that you can let the bottom M% not have to work crap jobs.
Whether this is an appetizing solution depends on your political preferences of course, I'd say it's a pretty progressive version of social democracy, and it's found for example in the Nordic countries.
As you point out, this has a number of consequences, all of which are acceptable from the perspective of unions:
- Low wage unqualified jobs, beneath some lowest threshold of skill simply cannot exist. This level varies between markets, but e.g there are no shoe polishers or elevator attendants in Scandinavia.
- The natural rate of unemployment is higher than it otherwise would be. Basically instead of having 10% doing low paying jobs, you have 10% on generous unemployment benefits.
So essentially - and in accordance to all economic theory I know - having high wages and few unqualified jobs is certainly possible IF you
- spend lots of tax money on having an educated workforce
- have generous unemployment benefits
- Accept that society basically provides for anyone that doesn't provide value enough - either by training or just supporting them financially. Labor collectives prefer the state to pay these people instead of them driving wages down (because as you point out they don't provide that value)
Basically the scheme is possible if you tax the top N% of earners so much that you can let the bottom M% not have to work crap jobs.
Whether this is an appetizing solution depends on your political preferences of course, I'd say it's a pretty progressive version of social democracy, and it's found for example in the Nordic countries.
I think you've mixed up employees and employers a few times there, makes for confusing reading.
Haha thanks, I sorted it I think. If "e" and "r" makes any difference to a word then why are the keys right next to eachother?
Last election, Santa Clara (county, IIRC) had a ballot proposition up to change their labor law so that a business which needed additional hours worked would be required to offer them first to existing employees (potentially putting them over thresholds for things like full-time employment status) before they could hire any additional employees to work those hours.
It's a game of whack-a-mole, but if you want to get to living wage + benefits for everyone, that's kind of how you have to go about it, since businesses will always hunt for loopholes.
It's a game of whack-a-mole, but if you want to get to living wage + benefits for everyone, that's kind of how you have to go about it, since businesses will always hunt for loopholes.
It's also a race to the bottom if you allow counties or even states to have local more "business friendly" employment laws. If every employer in the country was required to offer full time and 20 days paid vacation, then it wouldn't be a competitive disadvantage to do so.
except for global markets...
"Even people paid by the hour obviously need contracts that ensure them an amount of work"
I wish this were the case everywhere. I've just signed my first job contract in Norway, and I gotta say I prefer it. Folks working here have a right to a job contract. Even if you are part-time or temporary/seasonal. Even if you work fast food. Even getting paid hourly.
It does take care of things like getting wages cut and having trouble getting unemployment for it. You have proof in your contract.
That said, the contracts really don't really make wages more fair, merely affects some of the reactions to a rising minimum wage. There really isn't anything about a contract that would stipulate a better wage offer. Instead, it forces folks to be a lot more upfront about the job, wages, and promises of pay hikes/time off. The employee can sign it or not, the same as they can accept or deny a job now.
I'm gonna guess you can do away with minimum wage laws, but only if you actually have a balancing force against employers, even in times of economic downturn. Laws do that, especially if updated and adjusted to make sense for the times, but I don't know of anything else that could do that. Theoretically folks can just change jobs, form a union, or get schooling/training, but this doesn't realistically work for many minimum-wage workers. A strong safety net might make those sorts of things more possible, though.
I wish this were the case everywhere. I've just signed my first job contract in Norway, and I gotta say I prefer it. Folks working here have a right to a job contract. Even if you are part-time or temporary/seasonal. Even if you work fast food. Even getting paid hourly.
It does take care of things like getting wages cut and having trouble getting unemployment for it. You have proof in your contract.
That said, the contracts really don't really make wages more fair, merely affects some of the reactions to a rising minimum wage. There really isn't anything about a contract that would stipulate a better wage offer. Instead, it forces folks to be a lot more upfront about the job, wages, and promises of pay hikes/time off. The employee can sign it or not, the same as they can accept or deny a job now.
I'm gonna guess you can do away with minimum wage laws, but only if you actually have a balancing force against employers, even in times of economic downturn. Laws do that, especially if updated and adjusted to make sense for the times, but I don't know of anything else that could do that. Theoretically folks can just change jobs, form a union, or get schooling/training, but this doesn't realistically work for many minimum-wage workers. A strong safety net might make those sorts of things more possible, though.
Not a very viable solution: but you can apply for unemployment for those missing hours.
If one can not afford to pay a living wage for these jobs, then these jobs should not have existed in the first place.
Not everyone is expecting a living wage though. Case in point - I have a family member who's making less than minimum wage (which alone would be barely sufficient to survive), but when she combines this with her husband's income, she's not living terribly bad. If her boss was forced to pay minimum wage and adhere to all other laws, he'd likely close the business and she (my family member) would end up being worse off. The reason why he'd close the business is that it's a shitty clothes shop where the increases employee costs would eat a lot of his (meager) profits.
Why would we be worse off if the shop closed? I can imagine gutting minimum wage in a basic income works but even then I think we'd need workplace safety regulations and so on.
> he'd likely close the business and she (my family member) would end up being worse off.
This is exactly the train of thought I think is incorrect: Businesses that can't pay workers a living wage should have to shut down. Workers (as a collective, and in the long run - not individuals in the short term obviously) are better off.
The idea is that businesses should compete on efficiency, not lower wages. When a business that can't pay a living wage closes, another can take its place that hopefully can.
> she combines this with her husband's income
This is another reason for having living wages: this persons low wage makes her economically dependent on another person. This might be a happy marriage but what about all marriages that aren't? Living wages means people can leave destructive and abusive relationships too.
This is exactly the train of thought I think is incorrect: Businesses that can't pay workers a living wage should have to shut down. Workers (as a collective, and in the long run - not individuals in the short term obviously) are better off.
The idea is that businesses should compete on efficiency, not lower wages. When a business that can't pay a living wage closes, another can take its place that hopefully can.
> she combines this with her husband's income
This is another reason for having living wages: this persons low wage makes her economically dependent on another person. This might be a happy marriage but what about all marriages that aren't? Living wages means people can leave destructive and abusive relationships too.
> The idea is that businesses should compete on efficiency, not lower wages. When a business that can't pay a living wage closes, another can take its place that hopefully can.
In this case, these shops are located in a sort-of marketplace, where there are dozens of shops selling very similar goods. They all effectively share the same customer base and they are all barely functioning, and are only doing that thanks to avoiding all sorts of laws. If they started paying minimum wage, some of them would close, which would increase profits for the rest, allowing them to stay in business. From the workers' perspective though, it would create a bimodal distribution where employees of surviving shops are better off, while the rest is fired. I'm not sure if that's a positive outcome.
In this case, these shops are located in a sort-of marketplace, where there are dozens of shops selling very similar goods. They all effectively share the same customer base and they are all barely functioning, and are only doing that thanks to avoiding all sorts of laws. If they started paying minimum wage, some of them would close, which would increase profits for the rest, allowing them to stay in business. From the workers' perspective though, it would create a bimodal distribution where employees of surviving shops are better off, while the rest is fired. I'm not sure if that's a positive outcome.
It would indeed suck for those folks that get laid off - temporarily, at least. But those same folks will likely find another job somewhere - and as a bonus, that job will pay the higher wage. They can work less hours and be in the same situation as before or work the same amount and be a bit better off.
If the US had an actual safety net, those laid off workers wouldn't be so bad off either.
If the US had an actual safety net, those laid off workers wouldn't be so bad off either.
If you agree that the minimum wage would likely mean that there would be fewer businesses, and therefore fewer jobs, then isn't it hard to also believe that the people who lost their jobs would likely find other work? Isn't it also likely that at least some of them will become permanently unemployed?
Sure, but some of that is normal. Economic downturn? A few folks get permanent unemployment. Big enough place closes? Sure, a few get permanently unemployed. I don't think there is a way to stop that, nor do I really see that as an issue so long as it is a minority of folks. It definitely isn't something special to minimum wage hikes in any case.
In fact, I'd argue that even then we are better off. Say you have 20 low-paying jobs, the sort which means you are still eligible for food stamps and other tax-payer funded assistance. All 20 get laid off. 13 find full time work at the new minimum wage, so they no longer need assistence. Four find part-time work, making nearly what they did before with fewer hours. They still need assistance, but slightly less since they don't need as much child care. One makes less money. The other two are unemployed forever, requiring assistance. I'm gonna guess this is a win in the end.
In fact, I'd argue that even then we are better off. Say you have 20 low-paying jobs, the sort which means you are still eligible for food stamps and other tax-payer funded assistance. All 20 get laid off. 13 find full time work at the new minimum wage, so they no longer need assistence. Four find part-time work, making nearly what they did before with fewer hours. They still need assistance, but slightly less since they don't need as much child care. One makes less money. The other two are unemployed forever, requiring assistance. I'm gonna guess this is a win in the end.
> From the workers' perspective though, it would create a bimodal distribution where employees of surviving shops are better off, while the rest is fired. I'm not sure if that's a positive outcome
Actually ending up with a positive outcome requires more reform than just minimum wage - which may actually be negative (on its own, and short term).
There has to be good unemployment benefits for all, you have to have good employment security so hours can't be cut and so on and so forth. The idea is to have such a strong labor collective that driving bad employers out of business is a sustainable strategy. Organization level needs to be pretty high, say at least 50% for unions to have any real power here.
Actually ending up with a positive outcome requires more reform than just minimum wage - which may actually be negative (on its own, and short term).
There has to be good unemployment benefits for all, you have to have good employment security so hours can't be cut and so on and so forth. The idea is to have such a strong labor collective that driving bad employers out of business is a sustainable strategy. Organization level needs to be pretty high, say at least 50% for unions to have any real power here.
A minimum wage seems like an attempt to compensate for weak labor collectives and the lack of a safety net. Sweden, for example, has no minimum wage, but a combination of strong unions/labor collectives and decent unemployment benefits manage to keep wages up anyway.
My concern minimum wage wise is simply that firms seem to use social programs to subsidise wages, rather than a minimum wage I'd like to see the tax write off removed for wages below the cost of living. Below the poverty line I'd like to see employers pick up the entire tax bill of their workers.
> he'd likely close the business and she (my family member) would end up being worse off.
>>This is exactly the train of thought I think is incorrect: Businesses that can't pay workers a living wage should have to shut down.
So are you saying that no business should ever start or get off the ground because they don't have all the funding they need to do so (including paying proper wages)? Many of these minimum wage jobs were not suppose to be a full-time career path. These jobs were intended for people getting their first job, people in retirement or those seeking just a little bit of extra cash.
>>This is exactly the train of thought I think is incorrect: Businesses that can't pay workers a living wage should have to shut down.
So are you saying that no business should ever start or get off the ground because they don't have all the funding they need to do so (including paying proper wages)? Many of these minimum wage jobs were not suppose to be a full-time career path. These jobs were intended for people getting their first job, people in retirement or those seeking just a little bit of extra cash.
Short answer: yes.
Long answer: Yes, and it's an acceptable drawback because being allowed to underpay worker is an unacceptable competitive edge. If one wants exceptions it's better to do with directed efforts such as lower payroll taxes for small or new companies.
Long answer: Yes, and it's an acceptable drawback because being allowed to underpay worker is an unacceptable competitive edge. If one wants exceptions it's better to do with directed efforts such as lower payroll taxes for small or new companies.
So I guess I should just give up and stop working on anything since I don't get paid for what I do and it might be "..an unacceptable competitive edge".
Not sure how hobby or volunteer work has anything to do with that. A bit strawman-y.
That said - where I live it's also not allowed to volunteer at e.g. a home for the elderly, because the union would feel you are taking their work.
So it's not all positive.
That said - where I live it's also not allowed to volunteer at e.g. a home for the elderly, because the union would feel you are taking their work.
So it's not all positive.
> Not sure how hobby or volunteer work has anything to do with that. A bit strawman-y.
It's not a hobby or volunteer work if the end goal is to start a successful business. Some of us are (again) not lucky to be born with a silver spoon in their mouth or have some VC drop money in our laps to start something.
> ...where I live it's also not allowed to volunteer at e.g. a home for the elderly
I'm very glad that I don't live where you do since it seems like a place that is hostile towards humanitarian efforts and kindness.
>...because the union would feel you are taking their work.
So what if the unions feel that you are taking their work? After being a part of a union for several jobs, I am very much against them since they took a large portion of my pay for nothing in return.
I'm sure that there are many founders out there who worked long hours with little to no pay to start their companies since they lacked investors or bootstrapping funds. These minimum wage laws only drive up the cost of living, drive out jobs and make it even more difficult to start a business. My stance is that there should be no minimum wage and if the pay is too low, go find a job where the pay is not too low.
It's not a hobby or volunteer work if the end goal is to start a successful business. Some of us are (again) not lucky to be born with a silver spoon in their mouth or have some VC drop money in our laps to start something.
> ...where I live it's also not allowed to volunteer at e.g. a home for the elderly
I'm very glad that I don't live where you do since it seems like a place that is hostile towards humanitarian efforts and kindness.
>...because the union would feel you are taking their work.
So what if the unions feel that you are taking their work? After being a part of a union for several jobs, I am very much against them since they took a large portion of my pay for nothing in return.
I'm sure that there are many founders out there who worked long hours with little to no pay to start their companies since they lacked investors or bootstrapping funds. These minimum wage laws only drive up the cost of living, drive out jobs and make it even more difficult to start a business. My stance is that there should be no minimum wage and if the pay is too low, go find a job where the pay is not too low.
A personal business such as an early 1 person startup isn't paying anyone wages so I don't see how minimum wages apply at all tbh. Minimum wages are for employees.
> Businesses that can't pay workers a living wage should have to shut down.
This should emerge as a natural consequence of economic reality. If workers can't earn a living from a business, they are supposed to either resign or die (per definition). And the business would have to either increase its wages or shut down.
There should be no need to regulate that with laws.
This should emerge as a natural consequence of economic reality. If workers can't earn a living from a business, they are supposed to either resign or die (per definition). And the business would have to either increase its wages or shut down.
There should be no need to regulate that with laws.
There is no need to regulate this with laws if the parties of the labor market are of comparable strength (which is the definition of a functioning market - that the parties involved have some kind of parity).
In most parts of the US labor market there is no such power parity between employees and employers - and minimum wage laws are just trying to band aid the problem instead of addressing the root cause.
I doubt the US will see scandinavian levels of worker organization any time soon, but a reasonable fix would be to have a social safety network that is so strong that it competes with employment. A non time-limited unemployment insurance that paid a reasonable fraction of the minimum wage (e.g. 50-75%) would likely have a significant effect on the bargaining position of workers.
In most parts of the US labor market there is no such power parity between employees and employers - and minimum wage laws are just trying to band aid the problem instead of addressing the root cause.
I doubt the US will see scandinavian levels of worker organization any time soon, but a reasonable fix would be to have a social safety network that is so strong that it competes with employment. A non time-limited unemployment insurance that paid a reasonable fraction of the minimum wage (e.g. 50-75%) would likely have a significant effect on the bargaining position of workers.
Are there no prisons? Are there no workhouses?
Minimal wage is nothing but an instance of price control[1] and "Although price controls are sometimes used by governments, economists usually agree that price controls don't accomplish what they are intended to do and are generally to be avoided."
1. https://en.wikipedia.org/wiki/Price_controls
1. https://en.wikipedia.org/wiki/Price_controls
Yup. So having minimum wages to ensure people can make a living wage is exactly the same as having to have price fixing for food to ensure people can eat. It's a knee jerk response to a fundamental problem (that workers make too little in relation to price levels).
The problem with the US discourse on the subject is that it's a debate for/against higher minimum wages rather than a debate of "what regulations need to change so that the minimum wage without regulation is a livable wage".
The problem with the US discourse on the subject is that it's a debate for/against higher minimum wages rather than a debate of "what regulations need to change so that the minimum wage without regulation is a livable wage".
You can just as well look at it as an instance of collective bargaining, where workers collectively set the minimum wage they're willing to accept.
Would you rather have price controls or a subsidy? People that support themselves on jobs that pay less than minimum wage generally need support from the state to live. So a minimum wage is basically a refusal by the state to subsidize business.
Well, you could also look at it as a minimum wage being the government (trying to) force one group of people to subsidize poor people, namely, business owners. I'd much rather the government helps poor people directly, both so that it's on everyone and not only business owners, but also because it doesn't tamper with the market price, which causes all sorts of problems.
That's the point, it certainly does tamper with the market price. If somebody is receiving EITC & food stamps, they may be willing to accept a job paying $2 an hour because that $2 an hour will allow them to buy a little bit of meat to go with their rice & beans.
Without EITC & food stamps and other assistance $2/hour wouldn't cover food & rent even working 2 jobs, so they'd be forced to turn those jobs and look elsewhere, most likely to crime.
EITC & food stamps to the employed are a subsidy for the employer and distort the true market price for labour. Perhaps less than a minimum wage does.
Without EITC & food stamps and other assistance $2/hour wouldn't cover food & rent even working 2 jobs, so they'd be forced to turn those jobs and look elsewhere, most likely to crime.
EITC & food stamps to the employed are a subsidy for the employer and distort the true market price for labour. Perhaps less than a minimum wage does.
> People that support themselves on jobs that pay less than minimum wage generally need support from the state to live.
Unemployment does exist and it is not lethal.
Unemployment does exist and it is not lethal.
Exactly. It's not lethal because of state & community support. But state support for the employed is just a subsidy for the employer. It's better to have them be fully unemployed on state support so they can look for better jobs, improve their education or start a micro-business.
> But state support for the employed is just a subsidy for the employer.
I'm not sure what you're talking about. You are not supposed to receive state support while being employed.
I'm not sure what you're talking about. You are not supposed to receive state support while being employed.
That's exactly what the EITC is. The main benefit is that it's a direct subsidy by the government instead of burdening businesses with paying people above what a free market demands.
From a political standpoint. It's also a lot easier for people to support. You have to work to receive it and it's been popular in both Republican and Democratic administrations. I can't speak for the current one. I don't think Trump has any core set of beliefs.
From a political standpoint. It's also a lot easier for people to support. You have to work to receive it and it's been popular in both Republican and Democratic administrations. I can't speak for the current one. I don't think Trump has any core set of beliefs.
Over 60% of government benefits go to the employed. Walmart has built a whole business model around this, giving workers information on collecting government benefits, which is essentially a huge government subsidy for Walmart and similar businesses.
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That is like saying, "If a food is not perfectly nutritious according to my pet theory, it should be banned."
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Genuinely curious: if employers are simply cutting back hours to save paying the extra wages, what's happening with those hours that aren't staffed anymore?
One possibility is that the businesses were already overpaying for labor by staffing more employees for more hours than were needed. But that just turns a minimum-wage hike into a convenient excuse to roll back hours/staff (much as economic downturns tend to be used as a cover for companies to lay off people they no longer needed anyway).
Another possibility is that more hours are being assigned to salaried employees since it doesn't cost extra to have them work more. But that would actually be a good thing -- it would increase the demand for salaried full-time employees, and being a salaried full-time employee is much better than being a minimum-wage hourly employee.
Another possibility is that businesses are just closing down more often rather than pay people to keep things operating. But that seems unlikely.
So what's actually happening?
One possibility is that the businesses were already overpaying for labor by staffing more employees for more hours than were needed. But that just turns a minimum-wage hike into a convenient excuse to roll back hours/staff (much as economic downturns tend to be used as a cover for companies to lay off people they no longer needed anyway).
Another possibility is that more hours are being assigned to salaried employees since it doesn't cost extra to have them work more. But that would actually be a good thing -- it would increase the demand for salaried full-time employees, and being a salaried full-time employee is much better than being a minimum-wage hourly employee.
Another possibility is that businesses are just closing down more often rather than pay people to keep things operating. But that seems unlikely.
So what's actually happening?
Restaurant workers did fine (under both this NBER study and a prior Berkley one). It was a superset of low-wage employees including those restaurant workers that did poorly overall. This is one of the more interesting results since minimum wage studies in the past have favored studying restaurant workers (for reasons I don't know).
Buried lead: study is hugely problematic.
http://irle.berkeley.edu/files/2017/Reich-letter-to-Robert-F...
http://irle.berkeley.edu/files/2017/Reich-letter-to-Robert-F...
Working 9.4% less time for 6.6% less income seems like a good trade.
Consuming less is the way to sustainability. Consuming less can be aided by earning less.
Consuming less is the way to sustainability. Consuming less can be aided by earning less.
Consuming smarter can also go a long way, but that often requires earning more and is the route most people would like to take.
I'd rather have an organic steak than no steak.
I'd rather have an organic steak than no steak.
Increasing your wages decreases your wages! I think this propaganda can be found on cuneiform tablets. What an old old, completely bogus argument.
These hypothesis always get flipped when talking about the rich. For them, more money creates an incentive for them to work more!
Yes it makes the poor lazy and the rich hard working...right.
These hypothesis always get flipped when talking about the rich. For them, more money creates an incentive for them to work more!
Yes it makes the poor lazy and the rich hard working...right.
From what I heard, this report only focuses on stores with a single location - so chains are not represented.
http://www.wbur.org/hereandnow/2017/06/26/seattle-minimum-wa...
http://www.wbur.org/hereandnow/2017/06/26/seattle-minimum-wa...
>>The report “is problematic” and its conclusions “unwarranted,” he said. Reich co-authored a recent study that argued Seattle’s higher minimum wage did not hurt employment.
so of course it may actually not have.
so of course it may actually not have.
Since basic economic theory predicts the result, the "actually" in the title is unnecessary and shows the bias of the headline author.
Economic theory predicts that demand for those employees will fall and that businesses will reduce their hours, but doesn't necessarily predict that each employee will end up with less money overall.
I think increased minimum wages are a good thing but it seems like an attempt to cure the symptoms rather than the cause.