The Costs of a $15 Minimum Wage

Townhall.com ^ | May 28, 2015 | Steve Chapman

[Kaslin]

In the 1970s, when oil prices jumped, most liberals embraced a simple solution: price controls. It should be illegal, they thought, to sell oil or gasoline for more than a certain amount. Americans should be able to drive without being fleeced by oil companies and foreign governments.

The impulse was understandable. Gasoline is an essential commodity for most people. When the cost rises, it imposes a heavy burden on consumers, most of whom have few transportation options.

In 1971, in an attempt to tame inflation, Republican President Richard Nixon imposed controls on almost all prices. By 1974, he had lifted most of them. But those on gas remained. Under Democratic President Jimmy Carter, they led to widespread shortages and long lines at service stations -- and didn't keep prices from rising. But the controls lasted until his successor, Ronald Reagan, lifted them in 1981.

Liberals learned an unforgettable lesson: Price controls on gasoline don't work. In recent decades, when gas prices have soared, Democrats have shown no desire to repeat the lesson.

But they embrace a similar approach for another problem: low pay for many workers. Chicago decided last year to boost the minimum wage to $13 an hour by the middle of 2019. Seattle, San Francisco and Los Angeles have gone even higher, raising the floor to $15 an hour in the next few years, and other cities may follow suit. It's a price control on labor.

Their intentions are good. Full-time employment at the current federal minimum of $7.25 an hour provides an income of just $14,500 a year. For an adult supporting one child, that's well below the poverty line of $15,930.

The problem is that a higher legal minimum wage is at odds with the prevailing supply of and demand for labor. If you set the minimum too high, you will get a shortage of jobs. Forbidding employers from paying $9 or $12 an hour means that many of their workers won't get $13 or $15 an hour. They will get zero per hour, because those jobs will disappear.

Some businesses will reduce staffing or hours. Some will scrub expansions they had planned. Some will install machines to handle tasks previously assigned to humans. Some will shut down.

Not all employers will take steps that will curb employment, but many will. Raising the minimum wage collides with one of the basic laws of economics: the higher the cost of something the lower the demand. In the employment realm, the effects may not be immediate, but they are inexorable.

An editorial in The New York Times wished away unwanted responses. It promised that the change will yield "savings from lower labor turnover and higher labor productivity." Higher pay can "be offset by modestly higher prices" and by "paying executives and shareholders less."

But if giving raises paid for itself, companies wouldn't need to be forced to do it. Raising prices means fewer customers will buy what these companies are selling, which reduces the number of employees they need. Executives and shareholders who get paid less can turn to companies that can pay more because they don't rely on low-wage labor.

Some of these consequences have already occurred in Seattle. One pizzeria owner, employing 12 people, told NPR her choice was to go back to working 60 to 80 hours a week or close. She's closing.

"Even Seattle's best-known chef, Tom Douglas, says he may have to close some of his 15 restaurants," it reported. If a famous restaurateur can't make it work, how will obscure ones fare?

Restaurants have other options besides shutting down. They can automate orders with modern technology. They can require diners to pick up their food at a counter instead of having it brought to them. They can use disposable plates and utensils. And if you worry about robots taking your job...

All of these changes reduce the need for employees. Maybe the higher pay to the workers who have jobs will make up, by some calculus, for the unemployment visited on the others. Maybe not. Either way, there's no escaping the tradeoff.

Back in the 1970s, people imagined that stations would supply plenty of gas even if we restrict what they could charge. Today, they imagine businesses will supply plenty of jobs even if we dictate what they must pay. But the laws of economics are not so easy to repeal.

[SaveFerris]

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That seems backwards to me.

[ColdOne]

Just horrible what the left is getting away with.

[Diana in Wisconsin]

“All of these changes reduce the need for employees. Maybe the higher pay to the workers who have jobs will make up, by some calculus, for the unemployment visited on the others. Maybe not. Either way, there’s no escaping the tradeoff.”

It really is quite silly. Pay a handful of the ‘cream of the crop’ the $15/hour, lay off the rest, and let the $15 an hour remaining workers PAY THE WAY FOR THOSE THAT HAVE NO JOBS. And in reality, after taxes are confiscated, they’re right BACK to minimum wage, again!

Oh, wait...it works that way ALREADY for those of us that have jobs!

Aarrgghhhh!

[piytar]

“Their intentions are good.”

NO, THEY ARE NOT!!!

[RightOnTheBorder]

That’s where I stopped reading. How can you trust analysis of someone who can’t get that simple point correct. Their intentions are to enrich unions, get low skill workers on the dole, and encourage businesses to hire illegal aliens under the table.

[Kaslin]

They are stupid and ridiculous. Every time the minimum wage goes up the hours get cut. A 40 hour week becomes a 30 week if lucky, and a 20 hour a 10 hour week. It’s not even worth it

[railroader]

In 1971, in an attempt to tame inflation, Republican President Richard Nixon imposed controls on almost all prices. By 1974, he had lifted most of them. But those on gas remained. Under Democratic President Jimmy Carter, they led to widespread shortages and long lines at service stations -- and didn't keep prices from rising. But the controls lasted until his successor, Ronald Reagan, lifted them in 1981.

Not entirely true. Nixon imposed then lifted price controls, but not on domestic oil. Carter began a phaseout of those domestic price controls in April 1979, but in a slow phaseout. Unfortunately, he also imposed windfall profits on oil companies, negating the effects of the controls (and making the gas crisis worse).

[Theodore R.]

No matter how much we warn the American people, they can never figure things out.

[Kaslin]

That’s where I stopped reading.

Normally when I read stuff like this my reply is that no one forced you to read the article. This time I do not blame you and I should have included a barf alert in the article

Here is my mea culpa, mea maxima culpa

[Yosemitest]

The ILLEGAL ALIEN IN CHIEF, along with the DemocRATS, drive the economy into the sewer,
and DEVALUE the Dollar by printing electronic money out of thin air,
and rob us of the value of the dollars we already have in out savings and in our wages.
Then they complain that people aren't making a "Living Wage".
What a FARCE.
Minimum Wage isn't suppose to be a "Living Wage".
It's a MINIMUM WAGE, and nothing more.
It should be repealed, or decrease to ZERO.
And now they want a new class of "Economical SLAVES" that will work "under the table" for cash only, the ILLEGAL ALIENS.

Minimum-wage increase proposals are NOT about minimum wages.
It's about UNION wages (read government employees mostly) and UNION DUES.
Like "Artie" on another thread wrote.

"but my theory is that
this is one of the foundations of single payer.
Down the road, as single payer replaces ObamaCare,
all healthcare workers will become in essence government employees.
Think about how many thousands of new, dues paying union members will magically become part of the SEIU.

Barry had sealed this deal with Andy Stern years ago.
Barry promised Andy and the SEIU thousands of new members,
Andy says
great,
this is the wage structure we need
so we can pay the slush fund.
Gotta pay a living wage to all of the new union members
so dues can be extracted
and kickbacks to the dems can be made.
It’s convoluted
but what dem scheme isn’t,
especially when large sums of cash are involved?"

So read the following:

Union Support Of Minimum Wage Hike Is Self-Interested

Mary Kay Henry, president of the Service Employees International Union, ... was quick to emphasize that her organization's support of a more-than-twofold increase in the minimum wage was "not about growing unions."

This may be true — but it's also undeniable that such a move would have a profound impact on growing union paychecks, even if those unions don't count a single minimum-wage employee in their ranks.

The fine print can be found in union contracts. Each year, the Department of Labor's Office of Labor-Management Standards (OLMS) releases a number of union collective bargaining agreements (CBAs).

Unsurprisingly, many CBAs available in the OLMS database LINK union salaries and wage rates to the federal minimum wage. There are a number of methods that unions use to accomplish this end. The two most popular appear to be setting baseline union wages as a percentage above the minimum wage, and mandating a flat wage at a set level above the minimum wage.

One example is a series of CBAs signed with the Union of Needletrades, Industrial and Textile Employees (UNITE). Their contracts mandated that
"(w)henever the federal legal minimum wage is increased, minimum wage (in the agreement) shall be increased so that each will be at least fifteen (15%) percent higher than such legal minimum wage."

There's also an SEIU local's contract, which ordered that
"(t)he minimum hourly wage rates shall exceed any statutory applicable minimum wage rate by 50 cents."

Some unions have also arranged contracts where the employer MUST renegotiate their contracts in case of a minimum-wage hike, NO MATTER HOW LONG is left on the pact's life span.

The possibility for abuse here is staggering:
Unions with average wages WELL ABOVE the minimum wage CAN INSERT such clauses into their contracts, FORCING negotiations in industries not otherwise affected by a wage hike.

Given the limited number of CBAs available in the OLMS database, it's impossible to determine just how widespread this practice is.

But at least one union has trumpeted this arrangement as "one of the many advantages of being a union member."

Earlier this year on its blog, the United Food and Commercial Workers International Union proudly boasted that "oftentimes, union contracts ARE TRIGGERED TO IMPLEMENT WAGE HIKES IN CASE OF MINIMUM WAGE INCREASES."

This is a stunning admission of SELF-INTERESTt for an organization that's actively PUSHING minimum-wage hikes at both the state and federal levels of government.

It also raises questions about unions' growing use of nonunion "worker centers" like the Restaurant Opportunities Center, OUR Walmart, Fast Food Forward and other organizations that have made headlines in recent months.

These groups advocate many policies that would affect those businesses that pay a minimum wage — restaurants, retailers, etc. — and a minimum-wage hike is often the FIRST demand that these union front groups make. This only casts further suspicion on the motives of the labor unions funding these groups.

No matter how you look at it, the benefits that these unions stand to reap from a minimum-wage hike should raise questions about their real motives — and whether they're only manipulating the debate over fast-food wages for their own benefit.

Berman is the executive director at the Center for Union Facts.

[pluvmantelo]

Astonishing. Steve Chapman wrote something halfway sensible.

[jim_trent]

Nixon imposed price controls on a whole range of products.

I particularly remember him putting price controls on meat. I watched as the meat displays in the grocery stores quickly emptied. Beef producers withheld meat from the marketplace rather than sell at the mandated price. When the price controls were lifted, all the beef producers sold their products at once. With the glut, the prices were cheaper than when they started withholding from the market.

Just as the conservative economists said it would happen.