America’s Highest Minimum Wage Sparks Fight in Small California City
wsj.com
wsj.com
Having grown up solidly in the class of the "working poor", I can tell you a side of the story that is not often told - there is not enough difference in quality of life between "working poor" and just being on public assistance and unemployed. When you are unemployed, you get government benefits, and most people either have a side hustle (odd jobs under the table, or sometimes something blatantly illegal), or commit some type of fraud like claiming to live on their own when in fact they split rent between many people. I'm not judging here, it's just what happens.
So you get these people who make minimum wage, they aren't really living substantially better than those who don't work, yet they have to work 40 hours a week for some ahole with a Nepolean complex, and we wonder why so many people choose not to work?
The right-wing position is that we should slash benefits because of the lazy ones taking advantage of the system. The left-wing position is that all the poor are just misunderstood. My position is that, from experience, yes there are able-bodied people who are choosing not to work, it is a problem, and the proper way to deal with it is to make sure there are substantial benefits to having a job.
Yes, raising minimum wage will make a minor increase in unemployment, and will make a bit of hardship for a very small number of restaurant owners, those are valid points, that in my opinion are not terrible enough to keep the minimum wage low.
Supporting yourself (by basically selling your labor) instead of relying on the government is worth something (non-tangible value, obviously) to a lot of people (though I suspect there are few of those people on HN). It makes you feel good (less bad) about your situation and frankly having your existence be dependent on some entity you have nearly zero control over sucks and is stressful.
Obviously on some level it comes down to personal preference but clearly a large subset of the population feels that minimum wage or nearly minimum wage jobs are a good enough deal relative to government benefits that they do them.
The people who I'd personally want to hire are the one's who are gaming the system by getting benefits and working under the table or having a side gig because they clearly know how to optimize for a given set of constraints. Unfortunately those are the ones that aren't in the job market.
There is no reason to crucify ourselves in a stupid job if we could make the same amount of money with more freedom and less effort elsewhere.
Like your employer? Yes, it does suck, but there aren't enough well-paid freelance gigs.
Also I agree with the GP comment, I was just expanding on the point about the people who aren't working and don't want to. I thought it was worth noting that that is not something many people can rationalize.
We don't live in a perfect world however, and I absolutely do not have the answer for what is the correct balance of subsidy and hard work.
An easy solution is to cut the benefits.
My personal thought is that we should lower minimum wage, but combine people who work under an income level benefits. With only full social welfare being allocated to people who can’t work.
Essentially, a minimum wage, but it’s a differential made up for after all options are exhausted.
Huh?
It sounds like you're saying the government should subsidize even more shitty, low-paying jobs, but I can't be understanding that right...
The bottom has been so eroded that full time at minimum wage works out to $14,790/yr--and you seriously want to lower minimum wage? Less than $15k for an entire year of someone's life is less than how much my salary has increased in the past 3 years (w/o a job change). The idea that people still want to cut minimum wage and cut benefits is disgusting.
Where?
Did you have any support networks (family, friends, etc)?
Were you on your parent's insurance at the time?
The real question is what the competitors will do.
Every change in economic policy, and in market situation, causes some participants to benefit, and others to be hindered [1].
When a business fires some of the staff, it may either end up improving efficiency (good for the business and the customers), or may open up a part of the market for competitors (good for the competitors and the customers). Watch the trend: if the competitors step up, build out, service more customers, perhaps even hire more staff, then the increase of minimum wage was good for the economy as whole. It would indicate the change closed up an existing inefficiency - people's effort, money, resources was being used suboptimally.
However if you notice the trend of the competitors not expanding out, or perhaps even undergoing the same contraction, then you read it as a signal of the economy being hindered by the change. It would indicate the change increased inefficiency - people's effort, money, resources starts being wasted.
I'm gonna preemptively note that the later scenario[2] would be consistent with the theory of several competing schools of economy.
--
[1] Obviously it's not a zero-sum game, but there is always a degree of give-and-take.
[2] It gets even more complex when businesses skirt the legally mandated minimum wage. Some work lines are partially exempt, like waiters. Some businesses hire undocumented workers, exploiting their aversion towards going to authorities.
a chicken shop in a town of vegans should be allowed to close
Whats your plan for handling the resulting inflation, and the 2nd-order impact that rising prices has on both people on fixed incomes (retirees) as well as savers (destroying the long-term economic power of frugal citizens).
Also, below is a paper from 2014 that studied OECD economies and concluded minimum wage hikes cause unemployment, with their model predicting $10->$15 hike would result in a 3% unemployment increase. But hey, studies can manipulate the data to prove what they want. Check out the 2nd link to the SF Federal Reserve, which comes to similar conclusions.
[1]https://www.lifescienceglobal.com/pms/index.php/jrge/article... [2]https://www.frbsf.org/economic-research/publications/economi...
Unemployment is at its lowest in 50 years [3]. This would be the ideal time to implement minimum wage increases, so any workers let go are reabsorbed into businesses that can pay the new minimum wage (while those that can’t go out of business). "Creative destruction" and all that jazz. The more disposable income minimum wage earners have, the more mobility they'll have, and with it the ability to move to locales with better housing affordability.
The Fed can’t generate a small bit of inflation with trillions in quantitive easing and holding interest rates down (and as a side note, the president of the Federal Reserve Bank of Minneapolis has even said "Pay more" to attract the workers needed [4]); raising the minimum wage is unlikely to cause inflation any appreciable fashion (compared to existing housing and healthcare market dysfunction).
Previous HN thread 15 days ago [5], with WSJ article showing the federal minimum wage bump to $15/hr can be implemented with little downside, along with the CBO report the article is based on [6].
[1] https://www.bloomberg.com/news/articles/2019-07-23/a-decade-...
[2] https://www.bloomberg.com/opinion/articles/2019-06-27/intere...
[3] https://www.npr.org/2018/10/05/654417887/u-s-unemployment-ra...
[4] https://www.economist.com/united-states/2019/07/20/low-infla...
But you're right, rising rents are likely to capture much of the gain in the lower class. But that's because the rental market is not a well functioning market.
Rising rents should encourage more apartments to be built, stabilizing prices. Instead, NIMBY rules prevent them from being built, allowing rents to soak up all the gains.
Fix the root cause, don't use it as an excuse.
No other way around it except destroying democracy (or hollowing it out, when you vote but it doesn't matter, Putinist style), or destroying capitalism.
These things are just healthy signs that both capitalism and democracy actually work in your place, and are not fakes.
> My position is that, from experience, yes there are able-bodied people who are choosing not to work, it is a problem, and the proper way to deal with it is to make sure there are substantial benefits to having a job.
This is the fundamental appeal of the UBI to me as a replacement for means-tested benefits. If the benefit is truly universal, then every bump in income actually does give you an increase in your personal revenue. Some people will choose not to work and just live on UBI. But I don't actually care all that much about them. UBI isn't enough to make anyone rich, and realistic proposals are still pretty minimal. The fraction of people who will take advantage of it to live a better life are the ones I care about.
You can find a service industry business owner to shit on literally anything local government does. If there aren't hard numbers in the piece, into the trash it goes.
In the city where I grew up, they implemented a Bus Rapid Transit system that has definitively helped the businesses on its corridor. However, from the moment it was announced, article after article would come out where business owners would blame the BRT for their declining business or even failure. The evidence never backed these claims up.
The case that the minimum wage hurts the service industry, in particular, makes sense to me. In fact, I'm sure it's somewhat true. However, when the best an article can do is a 2018 survey saying that the majority of businesses have increased prices (curiously - no numbers about any negative impact on their bottom lines) - toss it in the garbage. No thanks.
A local business group supported some transit options in my area. I thought that was nice until I realized that they only supported politicians who wanted to cut state spending across the board. So of course no transit project...
After ten years of lobbying they finally got their transit projects.... from the opposite party. You would think they learned something but they haven't changed.
I'm really skeptical about "what local business guy thinks" type information and if they even really know what is in their best interest all the time.
Again - I genuinely believe hyper-local minimum wage hikes are especially stressful to the service industry. But articles like this make me almost more skeptical of that belief, because if this is the best they can do to make the case.....
Turns out he wasn't paying his taxes, or employees at times... ;)
Granted plenty of local business guys who certainly can have those opinions and they pay their taxes.
It's a fine line. My personal opinion is that minimum wage was never meant to be a living wage, but more for entry level, part time jobs for teenagers etc. If we raise the minimum wage to a level that provides a living wage (assuming 40 hour work week), then it becomes complicated since a lot of jobs are part time. To earn a living wage, someone would have to have multiple jobs, which generally sucks if you work in the food industry. It's a complicated problem, with lots of legacy baggage and viewpoints. Providing a living wage sounds great, but I think there's lots of issues when you're dealing with transient employees who don't want to work full time, don't have many skills, etc.
That still requires interpretation.
Someone does X, is it because of Y or Z? Or something else?
In the ideal pro-minimum-wage world, prices go up slightly but the impact on those who get the minimum wage bump is bigger than the impact on those people from price changes OR the impact on other people for those price changes.
That's the tradeoff pro-min-wage people would expect and want so if that's happening, no news there.
The tradeoff they would not want would be massive hours cuts, businesses going out of business (although some would want that - not me!), or this turning into an excuse for the businesses to cut costs and/or automate. We would need data of some kind to understand if that's happening.
And similarly, if you find an economics article (or paper) that relies on statistics, and general principles, DO NOT READ IT!
Generally, avoid economics as a source of market insight altogether...
Turns out that the city had a partnership with the credit card processors to measure the change in spending before and after the implementation of the project (on a aggregate level for all the shops on that street). Surprise surprise, a year later, they were able to prove there was no drop in business. We never heard again from those business, and surprise, they are still open.
We actually have a lot of data on this stuff and we should use it :)
The only thing that made him voluntarily raise his wages was when In N Out opened a location 20 minutes away. The immediate drop in sales at his flagship restaurant forced him to compete for labor (In N Out was starting employees at 2x minimum wage IIRC).
Say 60% of my business expenses were employees, 10% was rent and 30% was produce for a restaurant.
A doubling of the minimum wage would likely increase by expenses by 35% - assuming the minimum wage didn’t impact where my food was purchased.
This is why there a large fields of economic theory that warn against minimum wage hikes.
The increase in minimum wage is going to mean those whose rent out buildings will increase prices. Food becomes more expensive, shops have to close, etc. it’s essentially a race to the bottom and as it’s a zero sum game it’ll often lead to the economy to slow (long term). This is as there is a shift in purchasing behavior, or people moving due to employment loss.
Right. Because it's savage towards profit margins they tell you that they'll be forced to lay people off to scare you... even when they won't do any such thing.
Rent is expensive just like college is expensive because we have artificially limited supply and made home ownership desirable.
We talked about trickle down and look how the speculation has turned out. Higher minimum wages will lead to inflation and lower employment but it is worth it imo. We are externalizing the costs from employers which makes no sense.
If someone is working full time, they shouldn't need public assistance for housing or food.
Anyone interested in the truth will tell you that raising the minimum wage will destroy at least some jobs.
The government institution in charge of controlling inflation is the Fed, through monetary policy.
Sidenote: getting a bit tired at the insta-downvotes on any straight-forward opinion.
Inflation is the generalized increase in prices which means that supply/demand shocks that change the prices of some goods but not others are not inflation by definition. Goods change prices all the time relatively (a new technology makes something cheaper, a climate disaster makes a produce more expensive, etc).
Changes in MW are not going to impact all goods: for starters it will not impact goods you import.
It is a bad habit of news to call inflation to a subset of goods (asset inflation, healthcare inflation, etc) but that is just plain incorrect in terms of economic terminology. The Fed is not concerned for healthcare costs rising, they are concerned for inflation which is when everything rises because the money supply outpaces economic output growth.
Going deeper: before the Milton friedman era, the Keynesian era had the argument that inflation was a problem of the cost of production of goods. So if you could stop that from happening you could stop inflation, resulting in price control policies, collective union bargaining for fixed prices, etc. It was considered and thought that fiscal policy and regulation could stop inflation and even Nixon got into that. Milton Friedman ushered the new era with the phrase from another comment: Inflation is always and everywhere a monetary phenomenon.
Countries today that use the old model, that price controls could fix inflation, include Venezuela and Argentina, that have the worst inflations in the world. Argentina has taken this concept that inflation is on the measuring of the basket of goods that they manipulate the statistic two ways: first, the agree to price controls and make sure the controler products are in the basket of goods, to claim lower inflation than real. Second, to actually fudge the numbers of inflation as measured. Naturally, neither strategy works, because as long as you have a monetary imbalance, you have inflation.
Hopefully you are at least amused by my expose!
"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." -Milton Friedman
This is the "big lie" used to justify keeping it low. The reality is that minimum wage hikes hit profit margins first and hardest, inflation next and jobs get hit last (maybe if it gets hiked $10 / hour).
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.421...
>"Studying profitability is important because the empirical evidence suggests that minimum wages do raise the earnings of low wage workers, but do not seem to have large negative employment consequences."
>"Across both datasets our results show that that profitability was significantly reduced by the introduction of the minimum wage. "
Minimum waged labor is very, very, very inelastic. For better or worse the people who clean your toilets and serve you coffee in the mornings are extremely necessary and very hard to substitute. Much more so than most middle class jobs, even.
Business lobbies know this to be the truth, but they know that they will get nothing but by asking the general public to have sympathy for their falling profit margins.
So, they try to scare the shit out of you by claiming that they will be forced to fire you instead (e.g. this expensive billboard for the national restaurant association demonstrating their concern):
https://pando.com/2014/07/17/new-san-francisco-billboard-war...
Businesses that slash necessary costs in response to cut margins have a special word to describe them:
Bankrupt.
In a brutally competitive industry such as restaurants, where profit margins of 6% are considered extremely healthy, there has to be some sort of downstream effect to keep the business viable. Most likely they'll all just raise prices, but something has to happen for these businesses to have any chance at surviving the next recession.
So you're right that minimum wage labor is inelastic for many businesses, but in restaurants a small change in costs can make a large number of businesses no longer viable.
Non chain restaurant industry is brutally competitive, yes. Burger King/McDonalds not so much.
In non-chain restaurant industry the costs are typically either pushed on to diner (in the form of higher prices) or the rentier (in the form of lower rent).
The one quirk of the non-chain restaurant industry is that if there is a cost push in the form of higher minimum wage or higher rent it often leads to bankruptcy and a replacement of the business with a different cost profile rather than a smoother transition to higher prices. This is why they fight so hard against unionization and minimum wage hikes.
Literally the opposite. It's so elastic they can't demand any wages for what they do. Minimum wage is about turning it inelastic with the punishment of prison.
The best argument I have heard around MW is that businesses can afford to pay more but have too much market power to let that go. I tend to disagree in a 3.5% unemployment economy, but its possible.
These famous studies of minimum wage always come with caveats, on both side of the aisles. If you increase minimum wage today you might not see the unemployment ever in a stat, because you are sacrificing future employment (businesses that don't open because upstart costs are higher). In the end, MW is a handout from left leaning people passing the bill to businesses: they could help the working people they want to target just as well with suplemental labor income, but that implies reducing other expenditures from the government, whereas MW looks like a freebie from businesses.
This is why it's inelastic. Employers naturally optimize their headcount no matter what the size of the overall wage bill is.
In which case we should see toilets going uncleaned, coffee not being made in response to minimum wage hikes and a clear spike in unemployment that couldn't be attributed to anything else. Doesn't happen (c.f. Dube, Lester, Reich (Nov 2010)).
>These famous studies of minimum wage always come with caveats, on both side of the aisles.
Dube, Lester, Reich is the only one I'm aware of which comes without caveats.
This effect could be explained by capital consumption. If you already have a business you can't switch your entire capital to adjust to the new costs. But new businesses will invest more in less-labor-intensive coffee machines, smaller/worse bathrooms, and wouldn't fire the staff immediately and take the profit hit now and not invest later. Human systems tend to hide away consequences by playing with future expectations, because they are easy and invisible.
This topic is actually academically difficult as it is, I'm not an academic or professional economist, and I simply distrust all parties. Thus, in case of doubt, do no harm. Do nothing.
It also makes sense to me that restaurant jobs are more elastic than janitors as they are a product of discretionary spending.
Yet the study I linked to very much disagreed with this hypothesis of yours.
You can cut profits without cutting jobs. In fact, it's very easy in an economy where the ratio of profit : GDP is so high.
He clearly has reasons for doing what he is doing but I find it hard to believe that increase in minimum wage is the issue, specially when the way it's due to increase yearly, preceeds he starting his business (unless the reporting is wrong and is not 2017)
Is there anything I'm missing here?
Don’t other labor costs (e.g. payroll taxes) scale with pay? So the daily savings are more than $60.
And $60/day conserves $1,800 a month, which is a decent amount of cash for a restaurant. If it’s a lunch-rush shop with marginal dinner business, $2,000/month could be the break point for that shift and those jobs.
Absent zoning reform, however, these wages are more likely to flow into higher rents versus consumption or savings.
Also, my original calculation assumed 8 hour shifts for all employees per day, which is likely wrong (could be more or less)
Granted that $1800 is a decent amount of money for a small restaurant but staffing levels are at 40% of what they were, is the service/quality not going to suffer a bit (a lot?)?
But, how many stories like this are needed until it's no longer anecdotal? I keep seeing people on HN say "Anecdotal! Doesn't matter!". I mean, so is the story of someone getting hit by a car and breaking bones. If they say "high speed vehicles hitting someone can break bones", it's easy to say "Anecdotal! Many people are around high speed vehicles and don't break bones!" Which is true too.
So... just saying. I've been doing data science on and off the last 2 years and the number 1 task is cleaning data. Which, in itself leads to problems. All data is anecdotal, except its collected in one place. Maybe the whole unbiased collection plays in, but no one is truly ever unbiased towards anything.
Guess what... you can. If you can’t, usually there’s another, self-inflicted reason. If you look back a few years ago, there was a significant tomato price increase and you had similar stories where expensive tomatoes were prompting price increases on the menu.
I'm arguing that this being anecdotal isn't enough to invalidate their claims. Their claims are invalid because of other factors that anyone with their own business can see through. But not for being anecdotal. I have an issue with the HN community using anecdotal as enough justifiable cause to say someone is wrong. Data is just a lot of recorded anecdotes in one place.
I don't agree with this interpretation. Data is the use of quantitative measures to provide sound evidence for a compelling argument. Anecdotes rely on a "shoot from the hip" approach to describing a position. For example, blaming rising minimum wage as the sole factor in the success or failure of a business ignores a whole spectrum of factors (business rent, business insurance, prevailing local population wages, pricing, quality of food, quality of service, etc).
Even if we took all of the anecdotes of these business owners into account and they all said "We had to eliminate staff and hours because of rising minimum wage." it isn't enough to actually support the claim that rising minimum wage causes the problems described. It informs a theory of the effects of rising minimum wage but without all of the supporting evidence and data collection that eliminates possible other influencing factors it is purely anecdotal and should in no way be considered supportive of their claims and therefore does in fact invalidate them.
As an example, suppose that along with the city increasing minimum wage they also increased property taxes gradually over time. The property owners decided to then pass the increase in property taxes onto their renters. Because of the increase in both minimum wage and property taxes occurring at the same time it squeezed the owner's profit margins. The owner unable to do anything about the change in rent focuses entirely on the fact that they had to increase what they pay their employees due to the increase in minimum wage. When interviewed about the situation they only talk about the increase in minimum wage as the problem, which is anecdotal and ignores the other influencing factor, increase in rent due to the increase in property taxes.
When the WSJ laments about minimum wage, those anecdotes will be high noise. When the WSJ has an article about bond trading, anecdotes are usually going to be higher signal.
"How much do you earn, mr business owner?"
Hey, if your employees earning a minimal wage aren't entitled to some privacy, neither are you.
Answer: "I make -50k per year".
Small business owners aren't the winner. Raising minimum wages don't hurt Walmart or Amazon - they do though, destroy the small guy. Amazon doesn't raise their pay to be nice.
"20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. "
https://www.fundera.com/blog/what-percentage-of-small-busine...
Then perhaps he shouldn't be having a business in the first place? What was his scheme, get his profits (or barely even) by paying people a pittance?
You don't know his use case. It sounds like his money maker was the brunch and lunch crowd while dinner was just something extra. Increasing wages decreases business opportunity.
Sure, and I'd rather he was not.
And using scheme in a perjorative manner to a guy running a business with arguably the smallest profit margins in small business? Doesn't contribute to the discussion at all.
They should take solace and comfort in the fact that business practices that perpetuate paying people a pittance are forbidden, as oppose to encouraged, and thus a real liveable economy can emerge -- even if they lose their immediate source of income. Besides that's on people like you -- in a civilized western european country they'd be entitled to welfare until they get a better job.
This neo-liberal and all-too-American argument can also be used to justify sweatshops (at least they are making a pittance), child labor (some money is better than nothing, they help their families that way), and every kind of inhumane working condition...
Looking at the EU, the minimum wage doesn't seem all that great: 14 countries have a monthly minimum wage under 1000 Euros, of the remaining, all but one is under 2000, and only Luxembourg breaks that. 2000 Euros/month is equivalent to approximately $26750, though purchasing power would be different than a direct comparison.
Countries in the EU might provide more benefits (on top of the salary earned), but those will vary by country. As will benefits and tax rates in US states.
Some jobs are held by people working part time, students, moms, retirees seeking to stay active. If minimum wage gets too high, then there won't be jobs for these types of employees who aren't seeking a living wage, just some spare change etc.
The amount of ad hominem in your post is really astounding. "people like you," references to the US lacking civilization, assuming I'm a neo-liberal (whatever that means in your lexicon). This doesn't really contribute to the discussion, or provide a compelling argument to sway people with different opinions.
The minimum wage went from $15/hour to $16.30. $15/hour is a hair over $30K/year for a fulltime employee. While I wouldn't like to try and support a family on that, I wouldn't consider it a pittance. It's not like the Triangle Shirt Factory...
Shouldn't it be more efficient with mass production of meals? If economic efficiency is the goal, people would eat in neighbourhood rotating menu restaurants. Like a Soviet kolkhoz or any army camp.
It already is: McDonald's, Burger King, Taco Bell, etc.
The difference being that in the examples given the means of production are also controlled by the business. With fast food, and McDonald's as the example, they control their own supply chain[1]. It's the reason that everything tastes the same no matter which McDonald's you go to. Many fast food businesses emulate this process because it has been so successful for McDonald's.
With your example of a Soviet kolkhoz, the state owned the agriculture and determined the prices because they had control over the whole supply chain.[2]
I would also argue that this is what people are buying when they buy pre-packaged frozen meals. People seem to forget that home refrigeration wasn't a thing until it became really accessible starting in the 1930s. Then with the invention of the frozen dinner in 1950s changed how a large set of people looked at meals. You suddenly didn't have to cook and didn't have to pay someone else to cook you a meal on demand. For a price comparison, a frozen dinner in the 60s was around a dollar[3] or less [4]. Whereas a restaurant would have cost approximately an extra 100%, 200%, or more[5] "1964 A one-plate turkey dinner at Howard Johnson’s $1.49" (specifically the standard fare, not fine dining).
[1] https://boxaroundtheworld.com/mcdonalds-supply-chain-managem...
[2] https://en.wikipedia.org/wiki/Kolkhoz
[3] https://www.encyclopedia.com/sports-and-everyday-life/food-a...
[4] http://www.thepeoplehistory.com/60sfood.html
[5] https://restaurant-ingthroughhistory.com/restaurant-prices/
Who speaks for those that got laid off? They would seem to me like the most important stakeholders