It also means that anyone that can provide only $18/hour of economic value is now banned from working at a fast food restaurant.
Fast food restaurants clearly realize more than $20/hr in economic value from their hourly employees in California, much like they do in Europe.
I reject your assertion that an employee clearly realizes more than $20/hr in value to their employer. But even if they did: why should the employer be forced to pay them more, when the job itself is unskilled and therefore has a surplus of folks demanding the position, even at their current rates of pay?
It's visible in the business practices: California has more McDonald's restaurants than any other state[1], and franchisees aren't running a charity. This law is the result of a compromise, as much as individual franchise owners may wish to portray otherwise[2]. If they're currently profitable and feel as though they can compromise at $20/hr, then I feel confident in claiming that they're realizing more than $20/hr in average employee labor value.
> But even if they did: why should the employer be forced to pay them more, when the job itself is unskilled and therefore has a surplus of folks demanding the position, even at their current rates of pay?
One good reason is to close an implicit subsidy: in states with high living costs, employees who require social services while continuing to work amount to an implicit labor subsidy on the government's part. I don't know about you, but I don't think the government should artificially depress wages like that.
[1]: https://www.scrapehero.com/location-reports/McDonalds-USA/
[2]: https://www.restaurantbusinessonline.com/financing/mcdonalds...
I agree. I don't think the government should provide any welfare services. Just as I don't think they should artificially skew market equilibrium through minimum wage or rent controls.
We have opposing views, and that's okay.
I believe that private charity should be the mechanism utilized to reduce the external costs of cruelty. It generates the most efficient solutions, and allows each person to maximize the utility of their givings.
I believe the government mandated solution is inefficient and often robs people of their charitable purchasing power.
This feels obviously untrue to me, I'd love to hear your argument for why you think it's true.
I have no economic reason to donate, the most efficient solution for me personally is to give $0 to charity.
If we decide, as a country, that it's important for our brothers and sisters to not starve to death, it seems to me that the most efficient system is one that's centralized, evidence-based, and supported by mandatory contributions.
>> I have no economic reason to donate, the most efficient solution for me personally is to give $0 to charity.
So we agree that you were able to increase the efficiency of your capital expenditure by not giving to charity. That is an increase in the efficiency of capital allocation over the taxation approach.
> If we decide, as a country, that it's important for our brothers and sisters to not starve to death, it seems to me that the most efficient system is one that's centralized, evidence-based, and supported by mandatory contributions.
Now you're contradicting the $0 charitable allocation. If you want to prevent starvation, then your optimal charitable contributions would be nonzero.
All society does in your example is force everyone to give to a cause that not everyone may want to give to. You're able to lower your contribution to the cause by forcing your neighbor to give to it under threat of violence. This is the problem I have with welfare, and this situation is known as "tyranny of the majority," which is what the republic US system sought to avoid.
History tells us which is the right answer.
This is a solved problem, but the outsourcing of our troubles in a "fire and forget" way such as through taxes has both diminished the private sector's ability to provide as well as turned it into someone else's problem: "Well I pay my taxes so it's the governments responsibility now."
I describe a system that is maximally efficient for the individual.
This is certainly true on the whole, but it is not necessarily true at the margin. It's quite likely that in response, fast food restaurants will be motivated to slim down their staffing more than they would otherwise.
Keeping the store open might well be worth $30/hour per remaining employee, but the new equilibrium might involve things like closing drive thrus, moving to digital-only checkout, very high productivity expectations, etc.
What would be the result of a Legal Minimum Wage on the employer’s persistent desire to use boy labor, girl labor, married women’s labor, the labor of old men, of the feeble-minded, of the decrepit and broken-down invalids and all the other alternatives to the engagement of competent male adult workers at a full Standard Rate? … To put it shortly, all such labor is parasitic on other classes of the community, and is at present employed in this way only because it is parasitic...
The unemployable, to put it bluntly, do not and cannot under any circumstances earn their keep. What we have to do with them is to see that as few as possible of them are produced."
- Sidney Webb, “The Economic Theory of the Minimum Wage”
If a business model relies upon paying people wages so low they can't afford to live without government assistance, then that business model is government subsidized.
The best example of this would be Walmart, who rake in massive profits year after year while having employees whose sole duty is to help employees with finding and filing for public assistance programs, which the employees need because they're paid so little.
No person in the US working a full-time job should be paid so little that they cannot afford at a minimum the essentials for living a healthy and happy life (ie, not just food/shelter but for things like enough to be able to do something in celebration of life's events, raise a child if they wish, put money away for when they are at retirement, etc.)
Among other things, this would substantially free up money and administration resources to provide for those who are not working and need help getting their life back together enough to be employable again.
In such cases, workers would simply be unwilling to work somewhere that cannot provide an income to meet their needs.
You describe a problem generated through moral hazard.
We have private charity to help fill the gap between a skills/resource deficiency and a paying job.
If you look at the real unemployment rate is presently around 7%. During the 2020 downturn it was around the same as Great Depression. https://www.thebalancemoney.com/what-is-the-real-unemploymen...
I want private charity to work. Sadly I think you’ll need to have a public private partnership.
https://fee.org/articles/what-caused-the-great-depression/
Here's a quote related to the affect of FDR's imposed federal minimum wage; the consequences are similar to what I've argued above:
""" The President’s Re-employment Agreement called for a minimum wage of 400 an hour ($12 to $15 a week in smaller communities), a 35-hour work week for industrial workers and 40 hours for white collar workers, and a ban on all youth labor.
This was a naive attempt at "increasing purchasing power" by increasing payrolls. But, the immense increase in business costs through shorter hours and higher wage rates worked naturally as an anti revival measure. After passage of the Act, unemployment rose to nearly 13 million. The South, especially, suffered severely from the minimum wage provisions: the Act forced 500,000 Blacks out of work. """
Here is a paper that argues New Deal spending crowded out 30% of faith-based benevolent charity:
https://www.sciencedirect.com/science/article/abs/pii/S00472...
In this example, marginal cost just increased by some delta, d, to get to $20. This means that anyone currently working in such fashion that d > (mr - mc) now provides negative value to their employer.
Furthermore, in any future venture, people will only be hired if they can provide >= $20 in hourly revenue.
Likely fast food restaurants will raise prices to cover the increased mc, so this ultimately gets passed on to the consumer.
I don't understand why this is controversial.
This increase will get passed onto the consumer, and it will also create more competition in who can maintain the constraint of $20/hr for pay while decreasing the rest of their costs to compete with the McDonald’s and KFCs.
For example, reducing the profit margin.
I dont think either assertion is true.
Maybe a business finds ways to cut costs to offset the wage increases leading to a worse product for the consumer.
If I have a worker that is able to produce 150% of the tacos per hour compared to another worker, there is definitely a difference in throughput and therefore a difference in value.
> This increase will get passed onto the consumer... reducing the profit margin
I agree. There are three outcomes:
1. Pass the costs to the consumer
2. Reduce profit margins
3. Go out of business (this happens when 1 and 2 fail)
The policy now has forcably changed the market equilibrium for labor by reducing supply in jobs comparable to fast food. The government has now mandated the consumer must pay more than the market equilibrium price. It has mandated that entrepreneurs reduce their income.
All the other things are secondary consequences that may, or may not, happen.
If a company can not keep up with the rising cost of labor, they’re more than welcome to secede ground to their competitors who can.
This is the absurd argument I see made all over the place in favor of high minimum wages.
If $20 per hour is ok, why not $30? Or $50? Or $100? It would make everyone rich, right?
What's the problem?
Command economies don't work.
Laws like this are short sighted and the only effect is to devalue our currency even more.
Command economies were literally one of the golden ages of the American middle class. So no they do actually work.
Anyone who is working deserves a living wage. Otherwise we’re now helping companies hire people and not pay them enough for the work they do. These people don’t go away, they end up costing all tax payers more $.
Also, next time you go to a fast food place look and see how many of them are high schoolers. Maybe that’ll stop the strawman arguments.
Have you considered that by increasing minimum wage so dramatically, high schoolers now need to compete with adults for the same positions, and they are now crowded out because they have less flexibility with their hours and schedules?
High schoolers may be willing to accept a lower wage for the same work, which would give them an advantage in hiring, but now they are barred from seeking it.
The point of a government is to protect people from being exploited.
You know this view is wrong. You can argue the children working in mines in various countries is "fine" then with that argument.
No.
Everywhere child labor is a symptom of the poor. But I believe parents should have the ability to teach and labor their children as they see fit. Regulations against unsafe working conditions are fine, so long as they're implemented at the correct level, but the government deciding it knows better than the parent is always wrong.
Companies whose costs can't be cut to cover the rising labor and profits shrink to zero will go out of business.
Why are we mandating that people go out of business when they have people voluntarily trading their labor for a set price?
Why are we reducing the roi of producers of capital which will lead to fewer investments?
Is this a play to reduce fast food for the sake of public wellbeing?
Is there a 5A argument here that the government has passed a law for the public benefit and that law invalidated labor contracts, so now the government owes just compensation for the delta between what their labor cost them prior to the new minimum wage? I would say yes.
And in all cases they need to produce enough over the duration of their shift to offset the cost of hiring them. Why would I employee two people to work at 50% capacity when I could just hire one?
Why hire someone for two hours when I could hire someone else for one.
Yes, there are some positions wherein I need someone there whether they're doing work or sitting around. But a business that can minimize costs can win customers so there will always be the need to measure widget output to justify the hire.