• Tag Archives minimum wage

  • Guess Why Hundreds of Busboys Just Lost Their Jobs

    Posted on by Azrael Comment

    Red Robin, a popular burger chain, will cut jobs at all 570 of its locations because, chief financial officer Guy Constant said, “We need … to address the labor [cost] increases we’ve seen.”

    To put it differently, Red Robin is cutting these jobs because of bad government policy: namely, hikes in the minimum wage. On January 1, some 18 states — from Maine to Hawaii — increased their minimum wage.

    Founded in Seattle but headquartered in Colorado, Red Robin hopes to save some $8 million this year by eliminating bussers from their restaurants. (Bussers, or busboys, clear dirty dishes from tables, set tables, and otherwise assist the wait staff.) According to the New York Post, the company saved some $10 million last year after eliminating “expediters,” who plate food in the kitchen.

    The Impact of an Increase in Wages

    Despite what many people, including policymakers, would argue, this is an altogether painfully predictable response to increased labor costs. It’s basic economics. The “first law of demand” teaches us that when the price of a good or service increases, people will tend to buy fewer units. Conversely, when the price of a good or service decreases, people will tend to buy more. This idea is usually presented no later than chapter 3 in any econ 101 textbook.

     Labor is no exception to this rule. If the cost of employing workers increases, we’d expect companies to hire fewer workers and even to let some go.

    Some might say, “Well, why can’t Red Robin just make a smaller profit and stop being greedy?” Consider, however, that pretax profit margins for the restaurant industry typically range between 2 and 6 percent. This means that there isn’t a lot of room for error or cost increases before realizing a loss.

    Now suppose that a restaurant like Red Robin is operating normally when minimum-wage hikes are imposed. Let’s take Colorado as an example. On January 1, Colorado’s minimum wage increased by about 10 percent—from $9.30 to $10.20 an hour.

    Have the workers at the restaurant — the cooks, the servers, or the bussers — acquired any new skills? No! Will they magically become more productive and begin to generate more revenue for their employer as a result of this policy? No! The workers simply become more expensive to employ. So what is a company like Red Robin to do?

    One option would be to add a surcharge to customers’ bills to recoup some of the losses from the higher labor costs. This is precisely what happened in San Diego following a minimum-wage increase — much to the chagrin of policymakers and customers alike. Another option would be to increase menu prices — a particularly unpopular move when it comes to luring in customers.

    A third alternative would be to fire some staff and make do with a smaller workforce. Restaurants like Chili’s have taken to installing ordering kiosks at its tables, allowing customers to order and pay their tabs without ever having to speak to a waiter. Other restaurants, like McDonald’s and Wendy’s, have also begun to substitute technology for human beings in the form of automated ordering kiosks.

    Note that three groups could lose here. First, Red Robin loses. No company likes firing employees, incurring higher costs, or trying to provide the same quality service with fewer workers.

    Second, customers may lose through poorer service or higher prices.

    And third, workers lose if they find themselves without jobs.

    While we may not like the idea of someone trying to live on $5 or even $7 an hour, we can likely all agree that earning a small wage is better than earning nothing at all due to unemployment. It’s easy to vilify restaurants and other companies when they respond to higher costs with layoffs. But it’s important to place the blame where it belongs. In this case, it’s bad policy — not incompetence, not corporate greed — that’s causing people to lose their jobs.

    Reprinted from Independent Institute.


    Abigail Hall Blanco

    Abigail Hall Blanco is a Research Fellow at the Independent Institute and an Assistant Professor of Economics at the University of Tampa. She received her Ph.D. in economics from George Mason University.

    Professor Hall is the author of scholarly articles in such journals as Public Choice, Defence and Peace Economics, Advances in Austrian Economics, Review of Austrian Economics, The Independent Review, Atlantic Economic Review, and The Journal of Private Enterprise. And, her popular articles have appeared in Newsweek, The Hill, The Daily Caller, The American Thinker, and the nationally-syndicated McClatchy-Tribune News Service.

    She is also the recipient of the William P. Snavley Award for Outstanding Achievement in Graduate Studies, Association of Private Enterprise Young Scholar Award (2013, 2014, 2015), and the Don Lavoie Memorial Essay Competition Award.

    Her work includes topics surrounding women’s issues in business and the family, civil and economic liberty, the U.S. military and national defense, including, domestic police militarization, arms sales, weapons as foreign aid, and the political economy of military technology.

    This article was originally published on FEE.org. Read the original article.




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  • With the Minimum Wage, Who’s the Real Bully?

    Posted on by Azrael Comment

    What do economists predict employers of low-wage workers will do when a government raises the minimum wage by a large amount, say, $2.40 an hour?

    An increase in the minimum wage doesn’t magically make low-wage workers more productive. So we predict that employers will reduce other components of the compensation package: reduce paid breaks, reduce their contribution to benefits such as health and dental insurance, and reduce other components of the pay package.

    The Wisdom of the Coffee Shop

    That is exactly what two owners of Tim Hortons coffee shops in Cobourg, Ontario are doing in response to the $2.40 per hour increase in the minimum wage that became law in Ontario on January 1. This is from a Canadian Press news story published in The Globe and Mail, a major national publication based in Toronto:

    In a letter dated December 2017, Ron Joyce Jr., son of company co-founder Ron Joyce, and his wife, Jeri Horton-Joyce, who is Tim Hortons’ [sic] daughter, told employees at two Tim Hortons restaurants they own in Cobourg, Ont., that as of Jan. 1, they would no longer be entitled to paid breaks, and would have to pay at least half of the cost of their dental and health benefits

    The minimum wage in Ontario between October 1, 2017, and December 31, 2017, was $11.60 per hour. As of January 1, it is a whopping $14.00 per hour. In U.S. dollars, as of today, that is $11.20 an hour. (The average hourly wage of workers 15 years of age and over in Ontario in November 2107 was $26.82. So the new higher minimum wage is 52% of the average wage.)

    The Inevitable Backlash

    And what was Ontario premier Kathleen Wynne’s reaction? Was it: “Oops. I blew it. I should have realized that employers would adjust to make it worthwhile to keep hiring their lower-wage and lower-productivity workers?” No. Was it: “I should have also realized that employers and employees are better than me at coming up with the optimal mix of money wages and other benefits?” Again no.

    It couldn’t have been her fault. Instead, she attacked the employers. The news story continues:

    Premier Kathleen Wynne said if Joyce Jr. wants to challenge the Ontario government policy, he should come directly to her and not take it out on his workers

    But they didn’t challenge the Ontario government policy. Instead, they announced how they were going to comply with it. Ms. Wynne doesn’t even get the basic story right.

    And what is Wynne saying would have happened if they had “come directly to her?” Is she saying she would have reconsidered the policy? Probably not, given that she also said:

    When I read the reports about Ron Joyce, Jr., who is a man whose family founded Tim Hortons, the chain was sold for billions of dollars, and when I read how he was treating his employees, it just felt to me like this was a pretty clear act of bullying

    Kathleen Wynne was right to identify the fact of bullying. She was wrong, however, in identifying who engaged in bullying. To know who the bully is, she need only look in the mirror.

    H/T Janet Bufton.

    Reprinted from the Library of Economics and Liberty


    David R. Henderson

    David Henderson is a research fellow with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, California. He is editor of The Concise Encyclopedia of Economics (Liberty Fund) and blogs at econlib.org.

    This article was originally published on FEE.org. Read the original article.




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  • 2018’s New Minimum Wages Come with a Cost

    Posted on by Azrael Comment

     

    In a 2014 letter written by the Economic Policy Institute (EPI) to President Obama and congressional leaders in support of an increase in the federal minimum wage to $10.10 an hour, more than 600 economists apparently agreed with, and endorsed this statement:

    Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

    More recently, EPI endorsed a $15 an hour federal minimum wage and estimated that:

    The rising wage floor would generate $144 billion in additional annual wages, which would ripple out to the families of these workers and their communities. Because lower-paid workers spend much of their extra earnings, this injection of wages would help stimulate the economy and spur greater business activity and job growth.

    Seems almost like economic magic right? Through a government edict in the form of an artificial price control (minimum wage law), we can stimulate the entire US economy and increase national income, prosperity, and jobs!

    And here’s the latest from EPI on the pending increases in state minimum wages next week:

    At the beginning of 2018, 18 states will increase their minimum wage, providing more than $5 billion in additional wages to 4.5 million workers across the country. In a majority of these states, minimum wage increases (ranging from $0.35 in Michigan to $1.00 in Maine) are the result of legislation or ballot measures approved by voters in recent years.

    According to the narrative of minimum wage advocates like EPI, that $5 billion in additional wages will get spent by low-skilled workers on goods and services, and with the power of a mythical multiplier that spending will ripple through the economy and magically stimulate the entire economy, create jobs, and bring about prosperity!

    But here’s a question that never gets asked (or answered) by EPI and minimum wage supporters: Where will the $5 billion in additional wages come from? While thinking about this overlooked question that reveals an important economic fallacy, I was reminded of a similar economic fallacy illustrated by Henry Hazlitt’s famous essay on the broken window, which exposed the economic fallacy of the “blessings of destruction.” Using Henry Hazlitt’s essay as a template (which is actually based on Bastiat’s original essay on the broken window fallacy from 1850), I’ve written a new essay below to expose what might be called the “blessings of the minimum wage fallacy” on the eve of the 18 minimum wage increases scheduled to take place this week.

    The Blessing of the Minimum Wage Fallacy

    From Henry Hazlitt’s Economics in One Lesson, we learn that “the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” Let us begin with a simple illustration: the 18 minimum wage hikes that will take place next Monday on January 1.

    As a result of 18 state laws mandating that minimum wage workers will get paid $0.35 (in Michigan) to $1 an hour (in Maine) more on January 1, a young teenage worker named Alex working full-time at a small neighborhood pizza restaurant in Maine would make $160 in additional income every month (ignoring taxes). Alex would spend that additional monthly income of $160 at local merchants on items like food, clothing, footwear, Uber rides, movies, computer games, and electronics items. The local merchants who receive that $160 from Alex’s additional spending now have additional income and profits every week, and they can spend some of that additional income and profits on goods and services. Alex’s additional monthly income, therefore, ripples through the local Maine economy with an amazing multiplier effect that almost magically increases spending and income throughout the local economy.

    The pro-minimum wage crowd points to these many positive income effects from Maine’s pending $11 an hour minimum wage and Alex’s additional income, and many might even suggest that a minimum wage far above $11 an hour would create even greater and more positive benefits for workers like Alex and the local merchants who would be the beneficiaries of an even higher minimum wage. For example, EPI suggests that a $15 an hour federal minimum wage would lift wages for 41 million American workers.

    But let us take another and closer look at the situation. The minimum wage crowd is at least right in its first conclusion about Alex’s spending, which is just a small part of the much larger $5 billion in additional wages and spending EPI estimates for next year. The public policy of artificially raising wages through government fiat will mean more business and billions of dollars in greater sales revenues for local merchants around the country. The local merchants will be no more unhappy to learn of the magical spending from 18 minimum wage hikes in 2018 than an undertaker to learn of a death.

    However, we haven’t yet considered the situation that will now face hundreds of thousands of merchants and small business owners next year, including Alex’s boss – Mrs. Alice Johnson who owns the small pizza restaurant in Bangor where Alex works. As a result of Alex’s good fortune to receive $160 in extra income every month (and nearly $2,000 during the entire year) as a result of government fiat, his boss and sole-proprietor Alice Johnson now has $160 less every month (and $1,920 for the year) because she has to pay Alex out of her own income or profits.

    The Johnson family now has to cut back on their household spending by $160 every month that they would have spent on food, clothing, Uber rides, and electronics products at local merchants. Alex’s gain of $160 each month comes at the direct expense of the Johnson family, who are now worse off in the same amount that Alex is made better off. (And if Mrs. Johnson employs more minimum wage workers than just Alex, she and her family are worse off by $160 per month, and $1,920 per year, for each worker.)

    If we consider that Alex and the Johnson family are a part of the same local community in Bangor, the community’s income hasn’t changed – rather, there’s only been a transfer of income of $1,920 per year from the Johnson family to Alex; but no net gain in community income, wealth, jobs, or prosperity has been achieved.

    For the entire state of Maine, the $80 million in higher wages that EPI’s estimates next year as a result of the $1 an hour increase in the state’s minimum wage have to come from somewhere or someone. And that “somewhere” or “someones” are the thousands of local merchants in Maine like Mrs. Johnson who will be made collectively worse off by $80 million in 2018.

    The people in the pro-minimum wage crowd think narrowly of only two affected groups from minimum wage hikes: Alex, the minimum wage worker, and the merchants that gained his business from his artificial increase in income. The minimum wage advocates forget completely about the third parties involved, namely small business owners and their families like the Johnsons in Maine, and the local merchants that now lose their business because the labor costs for small businesses have been artificially increased by government fiat.

    Minimum wage advocates will easily see Alex’s increased income and spending because it is immediately visible to the eye and easy to calculate ($5 billion next year according to EPI, and $144 billion annually if the federal minimum wage is increased to $15 an hour). They fail to see the lost income and subsequent reduction in spending by the Johnson family that otherwise would have occurred – because it’s less visible and harder to calculate.

    The minimum wage example above exposes an elementary fallacy about its alleged positive income effects. Anybody, one would think, would be able to avoid that fallacy after a few moments thought. Yet the minimum wage fallacy, under a hundred disguises, is the most persistent in the history of economics. It is more rampant now than at any time in the past. It is solemnly reaffirmed every day by great captains of industry, by labor union leaders, by editorial writers and newspaper columnists, by progressive politicians and progressive think-tanks, by learned statisticians using the most refined techniques, and even by professors of economics in our best universities who sign statements in support of the minimum wage. In their various ways, they all perpetuate the minimum wage fallacy.

    It All Has to Come from Somewhere

    The minimum wage supporters see almost endless benefits despite the economic destruction that characterizes minimum wage laws. They see miracles of multiplying prosperity, increased income, and more jobs coming from minimum wage hikes, a form of economic magic enacted in state capitals, by city councils, and the federal government. But once we trace the long-term effects of such public policy on all groups in the economy, and analyze both what is seen and what is unseen, we should easily understand that the minimum wage cannot, and will not, have overall positive effects. At best it can only transfer income from one group (business owners like Mrs. Johnson above and/or their customers in the form of higher prices) to another group (low-skilled, limited-experienced workers), but with no net gain.

    It’s an ironclad law of economics that to stimulate one group with public policies like the minimum wage, protective tariffs, or farm subsidies, another group in the economy has to be equally “un-stimulated.” In the case of the 18 increases next week in state minimum wages, the EPI’s estimate of $5 billion in additional wages will stimulate low-skilled workers next year by the exact same amount that it will “un-stimulate” merchants, businesses, business owners, and their families in those 18 states – by $5 billion.

    When one considers all of the long-term effects on all groups that would result from minimum wage laws: the economic distortions, the misallocation of resources, the loss of employment opportunities for low-skilled workers and the lifetime consequences of not gaining work experience at an early age, and the businesses that close or are never opened, one can only come to one conclusion: the minimum wage law is a very bad and very cruel public policy that makes local communities and the entire economy overall much worse off, not better off.

    Groups like EPI that support increasing the minimum wage do a great job of addressing the benefits of higher wages to low-skilled workers, but then completely ignore the costs of those artificial wage increases. That is, they never answer the most important question of all, posed above: Where will the $5 billion in additional annual wages from the 18 minimum wage hikes next year come from?

    For example, in a 60-page document released earlier this year by EPI’s senior economic analyst David Cooper, “Raising the minimum wage to $15 by 2024 would lift wages for 41 million American workers,” there is extensive coverage on every page of the estimated benefits of artificially higher wages ($144 billion annually) to various workers by demographics (age, gender, race/ethnicity, education, family status, children, geography, etc.) that would result from a $15 an hour federal minimum wage. But you won’t find a single sentence in the 60-pages of text that explains where the $144 billion will come from if the federal minimum wage is increased to $15 an hour!

    There’s not a single mention in the EPI report of the word “business” except for a reference to a $15 minimum wage “spurring greater business activity and job growth.” There’s also not a single mention of what should be relevant terms like “higher prices,” “labor costs,” “profits,” “adjustments,” or “reduced hours” that would give us some idea of the costs of a $15 an hour minimum wage, who pays those costs (businesses), and how those higher costs will offset the benefits. And that’s the essence of the “blessings of the minimum wage fallacy” that EPI has fallen prey to — a $15 minimum wage sounds like good public policy only when you count all of the blessings (benefits) to workers while ignoring the costs to businesses.

    We learned from Bastiat and Henry Hazlitt that broken windows and other forms of destruction can’t increase a community’s overall income, employment, and economic prosperity. Likewise, neither can the 18 minimum wage hikes scheduled to take place on Monday have overall, positive net economic benefits next year.

    Any public policy looks good when you look merely at the immediate effects, but not the longer effects; when you consider the consequences for just one group (workers in the case of the minimum wage) but for all groups (businesses), and only emphasize the benefits (to workers) while completely ignoring the costs (to employers). But that’s not sound economic logic or objective economic analysis on the part of groups like EPI; rather it’s pure partisan political advocacy for an economic fallacy that violates the ironclad law of economics described above. Or as Milton Friedman described it in 1966, support of the minimum wage is “monument to the power of superficial thinking.”

    Update: As Not Sure points out in the comment section, there is an additional cost to employers when the minimum wage increases because of the 7.65% payroll tax imposed on employers for Social Security and Medicare. Therefore, the $5 billion in higher wages next year for minimum wage workers would actually cost their employers $5.3825 billion.

    Reprinted from the American Enterprise Institute


    Mark J. Perry

    Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.

    This article was originally published on FEE.org. Read the original article.




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