Minneapolis about to have 1st hand experience of the "laws of supply and demand"

Minneapolis City Council approves $15 minimum wage

Excerpt:

The Minneapolis City Council approved a $15 minimum wage Friday, a move years in the making that will affect hundreds of businesses and thousands of workers across the city.

The vote adds Minneapolis to a list of cities nationwide, including Seattle, San Francisco and Washington, D.C., that have approved similar measures in recent years.

“Today, we uplift all workers,” Council Member Abdi Warsame, who was absent from Friday’s meeting, said in a letter that was read aloud. “Today’s vote, while historic, is just another step in our unending journey to build a better city.”

The $15 minimum wage will be fully implemented citywide by 2024, with a faster phase-in for large businesses — those with more than 100 employees.

Only Council Member Blong Yang voted against the ordinance. Before the vote, he read a statement listing his concerns about how a $15 minimum wage might negatively affect his north Minneapolis ward, including small business owners and entrepreneurs of color and youth workers.

The laws of supply and demand apply to labor, too.

Excerpt:

Thanks to a new study from economists at the University of Washington, American progressives have learned that the laws of supply and demand apply to the labor market. Everybody already knew that, except for professional economists. The study, commissioned by the city government of Seattle and published by the National Bureau of Economic Research, found that Seattle’s law incrementally raising its minimum wage — to $13 an hour last year, en route to $15 — resulted in low-wage workers’ earning less money rather than more. This surprised many in Seattle, who had been assured by all the best economists, including Paul Krugman, that such a thing would not come to pass.

So, what happened? The short version is: You can pass a law saying you have to pay low-wage workers more, but you cannot pass a law that says you have to hire them in the first place, or that you cannot cut back on hours when the price of hourly labor goes up. As businesses responded to the new higher labor costs by reorganizing their processes in less labor-intensive ways (the classic examples here are the replacement of wait staff with computer screens in restaurants and the replacement of bank clerks with more sophisticated ATMs), the law that was supposed to increase low-wage workers’ incomes actually reduced them — substantially, by an average of $125 a month.

The first lecture in Economics 101 is that supply and demand interact through prices. (And a wage is a price — the price of labor.) Producers will produce more of any given product at a higher price, and consumers will consume less of it at a higher price. At some point, producers’ preferences coincide with those of consumers, and that is the market price that emerges. That’s a rough model, of course, but it describes the basic reality of how commercial transactions actually happen.

When Economics 101 tells you something you don’t want to hear, the thing to do is to commission a study. As Ronald Coase observed: If you torture the data enough, it will confess to almost anything. For progressives desiring to raise the minimum wage in spite of the consequences predicted by basic economics, that study came from two Princeton economists, David Card and Alan Krueger, who in 1994 compared employment at fast-food restaurants in New Jersey to that of their counterparts across the river in Pennsylvania after New Jersey enacted a relatively modest increase in the minimum wage.

The Card-Krueger study found that raising the minimum wage had not cost jobs in New Jersey. There were many problems with the study: It used fast-food employment as a proxy for minimum wage even though most fast-food workers do not make the minimum wage; it ignored workers in other industries, such as hospitality, that might have been more strongly affected; it covered a relatively short period of time; it relied on telephone surveys of restaurant managers rather than on hard employment data.

The Card-Krueger study included only a few months’ worth of data from after the time the minimum-wage hike went into effect. Some economists suspected that while fast-food operators were unlikely to simply start hacking away at their staffs in the months following an increase in the minimum wage (which, again, would not affect the wages of most fast-food workers), they would instead change their medium- and long-term plans, choosing less labor-intensive modes of production, substituting capital for labor through automation, reducing hours to make their labor consumption more efficient, etc. And that is, in fact, what subsequent studies found: Restaurants didn’t just start firing people after the minimum wage went up, but the wage hike did significantly reduce future job growth and labor consumption.

Comment: See Seattle's minimum wage hike may be hurting workers

Burger Flippers verses Momentum Machine: Who will win?

Will Minimum Wage Protesters Order Fries From Their Burger-Flipping Robot Replacements? Excerpt:

The Momentum Machines website is low-key right now, but that may have something to do with high-profile arguments in the press and protests in the streets demanding that fast-food chains pay workers $15 an hour to do the job the company's robots are designed to fill. Even before those placard-wielders decided to raise their costs in terms of dollars and grief, the San Francisco-based start-up announced that they were obsolete.

Comment: Image capture from Fast Food Robot Builds The Perfect Burger. Momentum Machines website. Johnny Cash's "The Legend Of John Henry's Hammer" comes to mind: "I'll die with my hammer in my hand, but I'll be laughing, cuz you can't replace a steel driven man". But I'm guessing that MM will beat the flipper!

Denny's CEO explains restaurant wages

$15 Minimum Wage? Denny’s CEO Weighs in on Worker Pay Battle

Excerpt:

According to Glassdoor.com Denny’s line-cooks are pulling in $11.32 per hour on average, with hostesses making $8.32.

Those are admittedly extremely low rates but Miller makes no apologies. For one thing the level of employee turnover in the service industry is extremely high, skewing the average pay numbers towards the starting wage.

Most workers hired by the casual food industry don't hang around long enough to get a raise, but the ones who do can advance quickly.

What Miller and Denny’s franchisees are really offering has nothing to do with starting hourly rates.

Start-up jobs are all about opportunity. In the case of Denny’s, those opportunities are going to people who might not otherwise get a foothold in a workplace where upward mobility is a realistic goal.

“The benefit of this industry is we’re one of the largest employers of those who don’t have a good start otherwise,” he says. “Many can start in this industry and work their way to management or ownership." If the pay is low to start in the service industry the chances to advance are much higher than other fields. “This industry should be the poster child for how it ought to work because we give people a place to start,” Miller states with what seems an obvious point that those on the side of offering career-level pay for start up jobs seem to miss.

Most industries don’t have the scale to give so many people a place to start. To those who scream in protest at the idea of someone going from the bottom rung to penthouse suite simply by working hard, Miller points to Dawn Lafreeda. After starting at Denny’s as a hostess when she was 16 years-old, Lafreeda bought her own franchise by the time she turned 24. Today she’s one of Denny’s biggest franchisees with 70 locations in six states and revenues of over $60 million. She also has 1,800 employees, some of whom she mentors by making them partners.

Is she the exception in a cutthroat industry? Of course. That’s how capitalism is supposed to work. The best and the brightest are rewarded. If they have a semblance of decency they try to help others up the ladder. For the employees who seize that opportunity the rewards are vast. Those unwilling or unable to stand-out in a good way leave Denny’s with invaluable experience dealing with people and a sense of responsibility that comes with honest work.

... As for the argument that no one can feed a family earning minimum wage, Miller says that’s an issue for the employees and their families to work out for themselves.

Denny’s pays slightly better than the free market rate for the work they offer. If that’s not enough for a worker perhaps a job at Denny’s isn’t the right fit.

Ultimately the argument on employee pay comes down to free market economics versus the injection of government between the private sector and its employees. Denny’s is why that model works. The company generally treats its workers well because happy workers lead directly to a better customer experience. “Continuity of staff and stability means repeat guests and the continuity of stringing together consecutive positive sales quarters,” Miller concludes. “Those employees are a critical part of that and it plays a role. In context you have to run the business.”

The elegance of free market economics can be a beautiful thing.

Comment: Makes perfect sense!

On raising the federal minimum wage

Call for Minimum-Wage Boost Revives Issue That Divides Economists

Excerpt:

President Barack Obama's proposal Tuesday to raise the federal minimum wage is likely to rekindle debates over whether the measure helps or hurts low-income workers. White House officials say the move to boost the wage to $9 an hour, from $7.25, is aimed at addressing poverty and helping low-income Americans.

But the proposal likely will be opposed by Republicans and business groups, which have traditionally said raising the minimum wage discourages companies from hiring low-skilled workers.

Mr. Obama's proposal would raise the minimum wage by 2015 in several stages. After that, there would be an annual increase pegged to inflation. It comes as part of a package of initiatives White House officials are hoping will appeal to middle-class and low-income workers, many of whom have seen wages remain relatively flat—or even fall—in the past decade.

In 2008, while first running for the White House, Mr. Obama proposed raising the minimum wage to $9.50 an hour by 2011. But the White House never followed through with a push for changes in this area, and he hadn't brought the issue up again as president until Tuesday night. Administration officials believe the proposal would lead to higher wages for at least 15 million Americans by 2015, and possibly more because workers who earn just over the minimum might see a commensurate bump.

Comment: The simple truth ... the government cannot decree wealth. Probably here in Minneapolis most "minimum wage" jobs are already at $ 9 an hour. I doubt it would impact many employers in this region. Most workers with some education and initiative can make more than the minimum wage. Why the government cannot decree wealth: An employer has to evaluate whether a laborer is worth the wage. There are other options: 1.) Not hire at all, 2.) Introduce efficiencies in operations. On the horizon is  a robot that can flip  burgers!

Another article: The impact of a $9 minimum wage
Excerpts:

But employer groups say that raising the federal minimum wage would cost jobs, and hiking state rates doesn't help reduce poverty.

Studies have projected a loss of at least 467,500 positions were the hourly rate to go up to $9.80, according to the Employment Policies Institute, which advocates for employers. The most recent boost meant that 114,000 fewer teens had jobs.

"Tight margins -- keeping a few cents in profit from each sales dollar -- means that an employer faced with higher labor costs can't just absorb them," wrote Michael Saltsman, a research fellow at the institute, in an op-ed in the San Jose Mercury News last month.

Will it happen? Obama’s Agenda Seen as Dead in the Water by Republicans
Excerpt:

“Minimum wage won’t pass the House, climate-change won’t pass the House,” Thune said. “Those are things he would probably have a hard time getting a lot of Democrats to vote for.”

On the value of "First Jobs"

Why Are Politicians Killing Off "First Jobs"?

Excerpts:

What was your first job?

I stuck pieces of plastic and metal together at an Evanston, Ill., assembly line. We produced photocopiers for a company called American Photocopy.

I hated the work. It was hot and boring. But it was useful. It taught me to get good grades in school so I might have other choices.

...

I write about this because I’m appalled watching politicians kill off “first” jobs. (They say it’s to protect us.)

First, they raise the minimum wage. Forcing employers to pay $7.25 an hour leaves them reluctant to give unskilled kids a chance—why pay more than a worker can produce? So they offer fewer “first” jobs.

Comment: My first job was working at a greenhouse making $ 1. per hour. I started in the Spring of 1967. That summer I worked 54 hours a week ... 6 days X 9 hours and made $ 54 hours a week.

What did I do?

• I boxed plants into flats and carried them and loaded them into a delivery truck
• I mulched plants with manure
• I blended potting soil: dirt, manure, and some other stuff in a large grinder / blower
• I wheeled old dirt out and new dirt into greenhouses
• I occassionally drove the delivery truck
• I cleaned out the boiler (had to crawl inside and scrape it)
• I cut weeds and tall grass with a scythe
• I hacked vines off from fence with a small axe
• I burned a giant brush pile
• I mowed the owner's home lawn
• I weeded the owner's private garden
• I picked weeds
• I cut flowers
• I walked along side of a bush hog and picked up rocks / sticks ahead of it
• I repaired greenhouse glass
• I bulked up, muscled up and tanned up. I sweated a lot!
• There were no sick days, PTO, or vacation days!

The seminal events:

• A childhood friend's father committed suicide in the early morning hours of July 5th
• A guy I met at the greenhouse died in an auto accident - not that summer but later that year (I think Spring 1968)
• Two guys I knew well in H.S. died just after graduation. One: VW bug accident / other: tractor rolled over on him

Some have asked me about the $ 1 wage and minimum wage. This chart details that the minimum wage was $ 1.40 back then. Scroll right and the chart shows that the minimum wage for farm labor was $ 1.00. I was considered farm labor. In February 1968 I received a 15% raise to $ 1.15! The following Summer (1968) I started working at Monsanto Chemical and made as I recollect about $ 3.00 per hour.

How Welfare destroyed Black families

The State Against Blacks

Excerpts:

Mr. Williams, an economist at George Mason University, is contrasting being black and poor in the 1940s and '50s with today's experience. It's a theme that permeates his short, bracing volume of reminiscence, and it's where we began our conversation on a recent morning at his home in suburban Philadelphia.

"We lived in the Richard Allen housing projects" in Philadelphia, says Mr. Williams. "My father deserted us when I was three and my sister was two. But we were the only kids who didn't have a mother and father in the house. These were poor black people and a few whites living in a housing project, and it was unusual not to have a mother and father in the house. Today, in the same projects, it would be rare to have a mother and father in the house."

Even in the antebellum era, when slaves often weren't permitted to wed, most black children lived with a biological mother and father. During Reconstruction and up until the 1940s, 75% to 85% of black children lived in two-parent families. Today, more than 70% of black children are born to single women. "The welfare state has done to black Americans what slavery couldn't do, what Jim Crow couldn't do, what the harshest racism couldn't do," Mr. Williams says. "And that is to destroy the black family."

...

Mr. Williams distinguished himself in the mid-1970s through his research on the effects of the Davis-Bacon Act of 1931—which got the government involved in setting wage levels—and on the impact of minimum-wage law on youth and minority unemployment. He concluded that minimum wages caused high rates of teenage unemployment, particularly among minority teenagers. His research also showed that Davis-Bacon, which requires high prevailing (read: union) wages on federally financed or assisted construction projects, was the product of lawmakers with explicitly racist motivations.

One of Congress's goals at the time was to stop black laborers from displacing whites by working for less money. Missouri Rep. John Cochran said that he had "received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics." And Alabama Rep. Clayton Allgood fretted about contractors with "cheap colored labor . . . of the sort that is in competition with white labor throughout the country."

Today just 17% of construction workers are unionized, but Democratic politicians, in deference to the AFL-CIO, have kept Davis-Bacon in place to protect them. Because most black construction workers aren't union members, however, the law has the effect of freezing them out of jobs. It also serves to significantly increase the costs of government projects, since there are fewer contractors to bid on them than there would be without Davis-Bacon.

Analysis of this issue launched Mr. Williams's career as a public intellectual, and in 1982 he published his first book, "The State Against Blacks," arguing that laws regulating economic activity are far larger impediments to black progress than racial bigotry and discrimination. Nearly 30 years later, he stands by that premise.

"Racial discrimination is not the problem of black people that it used to be" in his youth, says Mr. Williams. "Today I doubt you could find any significant problem that blacks face that is caused by racial discrimination. The 70% illegitimacy rate is a devastating problem, but it doesn't have a damn thing to do with racism. The fact that in some areas black people are huddled in their homes at night, sometimes serving meals on the floor so they don't get hit by a stray bullet—that's not because the Klan is riding through the neighborhood."

Comment: A very good read.