Yesterday, economist Walter Williams wrote about the minimum
wage. As usual, he explains things very clearly.
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| Walter Williams photo from here |
This is how he describes the current situation for a cashier-job worker:
The average wage for a cashier is around $10 an hour, about
$21,000 a year. That's no great shakes, but it's an honest job for full- or
part-time workers and retirees wanting to earn some extra cash. In anticipation
of a $15-an-hour wage becoming federal law, many firms are beginning the
automation process to economize on their labor usage.
He didn’t mention, but he could have, that two $21,000/year
jobs put a household well out of poverty.
What those who favor a $15/hour minimum wage picture is a
single parent trying to rent a place for herself and a couple of kids in an
urban area. That’s not going to happen at $15 an hour either.
One recent study reported this data point for San Francisco
and a couple of other cities:
Average rent on a two-bedroom apartment in San Francisco is
$4,650, $1,000+ more than the number two city (New York) and $2,000 more than
the rest of the biggest cities in the country.
If we do the math, then it takes $55,800 a year just for
rent. Forget about food, clothing, entertainment, medical care (insurance for which,
alone, is beyond what a $15/hour worker could pay, thanks to Obamacare). So, we
still have to feel pretty sorry for any $15/hour worker.
The thing is, most minimum-wage workers are not mothers
trying to manage an entire household on their income. In those few cases, we do
have a safety net of social services to help out—and we can suppose that
minimum wage is temporary, because with experience and hard work come raises,
promotions, and better opportunities.
Williams points out the obvious:
Why would anybody work for $21,000 a year if he had a
higher-paying alternative? Obviously, the $21,000-a-year job is his best known
opportunity.
He does this in the context of what is really compassionate.
Because raising the minimum wage has consequences. He names three likely
outcomes for business owners forced to raise pay to a level above what the
worker is worth to the business.
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The business raises the pay without getting more
output from the workers, so profit margins drop to below survival rates, and
the business closes—including all the $15/hour workers.
·
The business invests capital in technology that
can do the work of minimum-wage workers, such as self-serve kiosks in many fast
food chains; the business might get enough return on the investment to stay in
business, but those $15/hour jobs are permanently lost.
·
The business can raise its prices to compensate
for the higher labor costs, which puts them in a losing position once shoppers
compare prices to a business that kept prices low with technology; eventually
the business closes, and all jobs are lost.
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| photo from here |
Williams looked at San Francisco, which has been
implementing its “compassionate” $15/hour policy for a while now. He quotes a
study:
A recent study by Michael Luca of Harvard Business School and
Dara Lee Luca of Mathematica Policy Research calculated that for every $1 hike
in the minimum hourly wage, there is a 14 percent increase in the likelihood
that a restaurant rated 3 1/2 stars on Yelp will go out of business.
This was looking at actual restaurants in the Bay Area that
had closed between this past September and January. Even some of the better
restaurants have fallen prey. A restaurant needs a 3-5% profit to keep going.
The minimum wage hike dropped one example restaurant from 8.5% in 2012 to 1.5%
in 2015.
So, is outlawing all jobs that bring in less than $15 of
worth to a business actually compassionate to entry-level workers?
Let’s repeat this Spherical Model point:
Whenever government attempts something beyond the proper role
of government (protection of life, liberty, and property), it causes unintended
consequences—usually exactly opposite to the stated goals of the interference.
The minimum wage issue is maybe a quintessential example.
But, then, there are so many examples around these days.
I’ve written about the minimum wage a number of other times.
So, let’s make this a “best of” on the minimum wage:
As I’ve said before, employment is an agreement between two
people: employer and worker. If the arrangement is agreeable to both, what
business does government have inserting itself between them?
An unpaid internship, for example, is an agreement that
looks economically disastrous for the worker—but if that worker gets some experience
out of it that she values, both business and worker are benefitting. And
government ought to just get out of the way.
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