Economists, politicians, union and business leaders have been watching Seattle’s results as it moves rapidly toward a mandated $15.00 per hour minimum wage.What will the outcome be? Liberal thinkers argue that it will increase the living standards of the poorest and close the earning gap between hourly and salaried personnel. Conservatives say it isn’t true, that a radical increase in the minimum wage fuels inflation, causes layoffs, and forces many small businesses to shutter their doors. So, Seattle has become an incubator city for wage increases that are moving into uncharted territory in both the speed and size of the increases.[su_spacer]
Well, we are beginning to see results now. U C Berkeley recently released the results of their study and found that unemployment didn’t increase and that the minimum wage increase had been beneficial to all. However, before the left-wing could start celebrating the U of Washington study came out. That study was commissioned by the city of Seattle and 15% paid for by the city. Using a wider base of data than that used by Berkeley it showed a much different story.[su_spacer]
Jobs had decreased by somewhere between 5,000 and 6,700 in 2016 when the minimum wage had hit $13. That study also showed the following:
Many small businesses as an average have placed 10% of their workforce on a “call in” or “irregular work” schedule. The result being that minimum wage workers had a reduction of 9% of their paid hours giving them a decrease in earnings of $125 per month. That change, of course, didn’t show in increased unemployment data that Berkeley used
A significant number of restaurants had both increased their menu prices and many had added a 20% service charge to all checks.
A $1 per hour increase in the minimum wage resulted in a loss of 3% of hours worked.
Some businesses had replaced minimum wage employees with more seasoned and qualified personnel believing that the better employees produced more quality work per payroll dollar than the entry-level personnel.
Several small businesses that had been considering expanding or opening new locations either put those plans on hold or opened shops in other cities vs. Seattle.
Certainly, both studies will have their detractors. However, it is interesting to note that David Autor, an economist at MIT called the U of Washington study “very credible”. Even some notoriously liberal publications made note of the Washington results as having a broader base of data and perhaps was, therefore, less pre-disposed to show a given outcome than Berkeley.[su_spacer]
So the battle continues to rage. But, neither study showed the probable long-term result of more automation coming into play, replacing more expensive entry-level employees. A former CEO of McDonald’s recently said that a $35,000 robot is less expensive than a single employee at $15/hour. Automatic kiosks can take orders and process credit cards and cash. Robots can flip burgers, add cheese and pickles, and even package and bag the sandwich with fries it has cooked. It seems that a fully automated hamburger place can cut the workforce from some 30+ people to about 5 or 6. After 12-15 months the restaurant’s profit margin soars. The only open question is that of public acceptance of an automated burger joint. Personally, I wouldn’t mind. Probably more sanitary too.
When people say that the minimum wage raises up the poorest people, just who are the poorest people?
Students are one. Once they graduate they are usually paid much higher than the minimum wage.
There are unskilled workers as another. Raising the minimum wage may result in them having more competition, thus getting less work. After all a raise in the minimum wage doesn’t raise everyone up, just those right at minimum wage.
Then there are the undocumented workers. Raising minimum wage may incent business to hire more of the undocumented and continue to pay them under the table.
I’m not sure about the connection between minimum wage and inflation. Not sure if there is one.
Very good points, Chris.
As to the relationship between increasing the minimum wage and inflation, I think we are into uncharted ground. Historically m w has been increased a quarter here and a quarter there and tracking inflationary results has been vague at best. However, now we are seeing increases of $1 and more and those kind of increases are hard to absorb. Employers have to find economies or raise prices or some of both. Many restaurants are having to increase menu prices and add a service charge to all bills. Just one example.