American Elephants


About that $15 Minimum Wage In Seattle by The Elephant's Child

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If all other factors remain equal, the higher the price of a good, the fewer people will demand it. That’s the Law of demand, a fundamental idea in economics. The idea refers to the minimum wage — the price of a worker, as well as the price of a pound of butter, or a bottle of shampoo.

President Barack Obama claimed that increasing the minimum wage would “grow the economy for everyone” by giving “businesses customers with more spending money.” Economics was clearly not a feature of that mysterious transcript.

There is a lot of confusion about just what a “minimum wage” is. It is the least amount of money that can be offered to a worker for their labor as decided by the government. It is illegal to pay anyone less for their labor. “But you can’t support a family on the minimum wage!” they cry. You are not supposed to. It’s a starting wage for beginners.

It’s for a first job. It’s for learning how to work. When young people have savvy parents that tell them about the basics, and how to dress and how to act when applying for a job, and some kids don’t. But there is so much to learn: arriving before your shift begins. Dressing appropriately with appropriate grooming. Learning how to wait on a customer, how to operate the cash register, how to keep your workplace immaculately clean. How to treat customers so they want to return, keeping the restrooms clean, picking  up, cleaning up, smiling at customers. That’s aside from learning how the establishment works. When they have learned successfully how to become a worker instead of a beginner, they will probably have had a raise (statistically most do within 6 months). And they have skills that they can take to another workplace. A new worker learns those skills from a manager or another worker who must devote their time to teaching. A new worker is a cost, rather than a benefit.

Seattle, a city of the left, has had some experience with the minimum wage. Sea-Tac, the district surrounding the Seattle-Tacoma International airport raised their minimum wage to $15 on January 1. 2014. Its a district of hotels, restaurants and bars and lots and lots of parking lots. The results were predictable. Leftists crowed that hardly any businesses shut down, and most people didn’t lose their jobs. What happened is that brand new workers didn’t get a job.

At the Clarion Hotel off International Boulevard, a sit-down restaurant has been shuttered, though it might soon be replaced by a less-labor-intensive cafe…

Other businesses have adjusted in ways that run the gamut from putting more work in the hands of managers, to instituting a small “living-wage surcharge” for a daily parking space near the airport.

The publisher of the Northwest Asian Weekly had a conversation with two hotel employees who have been affected:

“Are you happy with the $15 wage?” I asked the full-time cleaning lady.

“It sounds good, but it’s not good,” the woman said. “I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.

The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay. “I have to pay for parking,” she said.

I then asked the part-time waitress, who was part of the catering staff.

“Yes, I’ve got $15 an hour, but all my tips are now much less,” she said. Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. Yes, she used to receive free food and parking. Now, she has to bring her own food and pay for parking.

When the law changes, businesses adjust in different ways. They no longer have the staff time to hire brand-new workers. Youth unemployment goes up.

Seattle voted for a $15 minimum wage, which took effect on January 1. Several restaurants have closed, and economists have made much of it, but a local blogger claims to have spoken to the owners of the closing businesses, and says they were closing anyway, and it has nothing to do with the minimum wage. That may or may not be true. We are only 2 months into this government-mandated wage floor, and there will be inevitable effects. Young people will find it harder to find that first job. Hours and benefits will be cut back. More computers, more robots.

The Panera Bread CEO supports raising the minimum wage — as long as it is applied equally to all. CEO Rob Shaich, a Democratic donor recently announced that he will be replacing cashiers with computers.

Companies like Costco and Walmart are supporting hikes in the national minimum wage, knowing that will adversely affect their smaller competitors.

McDonald’s had a 30% drop in quarterly profits last year, on a 5% drop in revenue. Unions have made McDonald’s a target of their campaign for a $15 minimum wage. Internationally they are experimenting with replacing cashiers with computers. But they are also under attack from the food police. Low income families don’t eat out as much in the current economy. The WSJ said: “As many contributors to these pages have warned, forcing businesses to pay people out of proportion to the profits they generate will provide those businesses with a greater incentive to replace employees with machines.”

The Minimum-Wage Stealth Tax on the Poor” Wall Street Journal. When a fast-food business is forced to raise pay, it also raises prices. Guess who gets hit worst by the increase.

“We Can Predict the Effects of Seattle’s $15 An Hour Minimum Wage” Forbes. We can get a good idea of what it is like before that wage comes in. And then we can go back when it’s fully implemented and see what the effects have been.

ADDENDUM: Here’s another take on Seattle Restaurants, from Seattle Magazine: Why Are So Many Seattle Restaurants Closing Lately?” Ouch! The reasons vary, but the restaurant business is never an easy one. Operational cost increases and failure to thrive. I apparently erred. The wage hike does not take effect till April 1.

The Washington Restaurant Association’s Anton says “It’s not a political problem, it’s a math problem.” A a common budget breakdown among sustaining Seattle restaurants so far has been the following: 36 percent of funds are devoted to labor, 30 percent to food costs and 30 percent go to everything else (all other operational costs).  The remaining 4 percent has been the profit margin, and as a result, in a $700,000 restaurant, he estimates that the average restauranteur in Seattle has been making $28,000 a year. If restaurant owners made no changes, the labor cost in quick service restaurants would rise to 42 percent and in full service restaurants to 47 percent. “Every operator I’m talking to is in panic mode trying to figure out what the new world will look like.”


1 Comment so far
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A lot of boutique restaurants are closing, and smaller hotels are cutting back. It’s not the minimum wage, they say, but rising costs from food suppliers (who have to pay the minimum wage) and delivery services (that have to pay the minimum wage) and service and supply vendors (that have to pay the minimum wage).

Airport communities are special cases in that frequently you’re dealing with a captive audience (didn’t rent a car? don’t want to take a cab?). those people who are crowing that there aren’t mass closings of restaurants and hotels and convenience stores are failing to see the forest for the trees. There are the examples you cite in your article. Then it should be noted that the average dinner check for two people in the Sea-Tac area has increased $15-20 in the past year. Hotel rates have gone up anywhere from 8% to 20% (hotels in downtown Seattle have already raised some of their room rates in anticipation). Hotels that cost $180 a night (not unusual) will see rates go up to $210-230. The result, as you might guess, is fewer people staying there, and tourism dollars are the first to go (it’s one thing to travel on your company expense account, quite another to have to out-of-pocket your hotel, food, attractions, souvenirs, etc.).

There will always be the True Believers out there that will claim that the $15/hr minimum wage is good for business and the country. It is my hope that enough people pay attention to the places that have already forced it in, and the inevitable inflation that follows.

Comment by Lon Mead




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