Only Government, Government Contractors, Wall Street, International Mega Corporations, Military Industrial Complex, Pharmaceutical Industrial Complex, and Virtual Business Monopolies Like Google, Microsoft and Amazon Can Pay Workers Wages Unrelated to the Value of Their Work

Restaurants in Seattle Going Dark as $15 an Hour Minimum Wage Looms

Inferior food at higher prices delivered by over-worked servers during restricted hours: recipe for failure. 

March 14, 2015

PJ Media - I like this simple, elegant explanation from Reason’s Ronald Bailey about the value of labor and the minimum wage:

If all other factors remain equal, the higher the price of a good, the less people will demand it. That’s the law of demand, a fundamental idea in economics. And yet there is no shortage of politicians, pundits, policy wonks, and members of the public who insist that raising the price of labor will not have the effect of lessening the demand for workers. In his 2014 State of the Union Address, for example, President Barack Obama called on Congress to raise the national minimum wage from $7.25 to $10.10 an hour. He argued that increasing the minimum wage would “grow the economy for everyone” by giving “businesses customers with more spending money.”

A January 2015 working paper by two economists, Robert Pollin and Jeanette Wicks-Lim at the Political Economy Research Institute at the University of Massachusetts Amherst, claims that raising the minimum wage of fast food workers to $15 per hour over a four-year transition period would not necessarily result in “shedding jobs.” The two acknowledge that the “raising the price of anything will reduce demand for that thing, all else equal.” But they believe they’ve found a way to “relax” the all-else-being-equal part, at least as far as the wages of fast food workers go. Pollin and Wicks-Lim argue that “the fast-food industry could fully absorb these wage bill increases through a combination of turnover reductions; trend increases in sales growth; and modest annual price increases over the four-year period.” They further claim that a $15/hour minimum wage would not result in lower profits or the reallocation of funds away from other operations, such as marketing. Amazing.

Seattle is going to put that theory to a real world test. Starting April 1, businesses in the city will be forced to raise the minimum wage to $11 an hour, reaching $15 an hour by 2017 for large businesses and 2019 for smaller companies. There are allowances if a business offers health insurance benefits, but all businesses will be paying employees $15 an hour in salary, tips, or benefits by 2021.


This has caused great consternation among Seattle area eateries – not just fast food places.

Shift Washington:

Seattle’s $15 minimum wage law goes into effect on April 1, 2015. As that date approaches, restaurants across the city are making the financial decision to close shop. The Washington Policy Center writes that “closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.”

Of course, restaurants close for a variety of reasons. But, according to Seattle Magazine, the “impending minimum wage hike to $15 per hour” is playing a “major factor.” That’s not surprising, considering “about 36% of restaurant earnings go to paying labor costs.” Seattle Magazine,

“Washington Restaurant Association’s Anthony Anton puts it this way: “It’s not a political problem; it’s a math problem.”

“He estimates that 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.

“With the minimum wage spike, however, he says that 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.”

Restaurant owners, expecting to operate on thinner margins, have tried to adapt in several ways including “higher menu prices, cheaper, lower-quality ingredients, reduced opening times, and cutting work hours and firing workers,” according to The Seattle Times and Seattle Eater magazine. As the Washington Policy Center points out, when these strategies are not enough, businesses close, “workers lose their jobs and the neighborhood loses a prized amenity.”

A spokesman for the Washington Restaurant Association told the Washington Policy Center, “Every [restaurant] operator I’m talking to is in panic mode, trying to figure out what the new world will look like… Seattle is the first city in this thing and everyone’s watching, asking how is this going to change?”

By decoupling the value of labor from the real world of supply and demand, the consequences are a reduction in the overall value of labor and the forced increase in prices that will lessen demand. If your electric, gas, water, phone, and other overhead costs go up 35%, you are going to be forced to raise prices on your products, and reduce your workforce numerically as well as the number of hours worked per employee. Why would an increase of that magnitude in labor costs not result in the same outcome?

Bailey chalks up this nonsense to economic ignorance. Hard to disagree with that. Relying on crackpot theories to push this ruinous policy will soon be shown to be a monumental mistake. Not only will restaurants and other small businesses be forced to close. But there will be few entrepreneurs willing to take a chance and open a business in the city.

That means a net loss in jobs and economic activity. But for the rich voters in King County, that hardly matters. It’s so “progressive” to pay someone a wage unrelated to the value of their work. Too bad those who can least afford to be a casualty of this progressive experiment will suffer the most.

"It is depressing how little so many know about the economics of a small business. But as I read the comments it is clear that many of you are under the illusion (successfully pounded into your heads by the anti-capitalists) that all businesses are hiding a huge pot of money and all business owners are "fat cats" just looking for a chance to "screw" their employees. Shame on this ignorance. I have a small business just clinging through this economy and thankfully I am not located in Seattle. I would be forced to close with this increase in wages and 4 employees who have been with me for several decades would lose their jobs. How many who think this is such a great deal even know that payroll taxes on the employer (business owner) will increase along with the wage increase? How many of you care? Keep messing with "free" enterprise and all you will have left are those big corporate stores you all rail about because you will have very very successfully put the Ma and Pa businesses out. And then, instead of looking in the mirror squarely at the mentality responsible, you will feel smug satisfaction in blaming the business owner. Unbelievable. But you've been trained well." - CJF

"Weather or not a business can absorb government imposed new costs is really asking if the customers will be willing to absorb them. This is fundamental. There is no such thing as a business tax payer - only business revenue collectors. Theoretically if all businesses have to pay the new costs, then prices adjust upward and everything continues as is - but at a higher cost to consumers. Unfortunately, restaurants don't just compete with one another, they compete with eating at home, eating less, eating different , family run road wagons, etc. So there will be pain in the industry. But the idea that business owners will now be paying more of their "fair share" is ludicrous. All business taxes and hyper regulations are an assault on the consumer, most notably the middle class. Period, end of story." - MRG01

"I will make a prediction how this play out. The upper middle and upper class who don't mind paying $20 for lunch or $40 for dinner will not notice paying more. The restaurants they generally patronize will stay open. However, the restaurants used by the working class and lower class will lose customers, some will close, and those customers will simply eat out less often. There will also be fewer jobs for young people and low skilled people. So more people will share apartments, fewer inexpensive cars will get sold, more people will need state assistance and taxes will have to go up." - StereoSpace

"You're right on your points regarding the working class and lower class. Frankly, taxpayers have been subsidizing low wage businesses for decades. Employees who only get minimum wage but no benefits get welfare and food stamps to supplement their pay but those costs are hidden to the customer. Customers should be paying full price of a business's employees' wages and other costs and not be getting a subsidy. Or do the progressives think that it's a right to be able to eat in restaurants or get your house cleaned? Businesses who employ illegals and skip unemployment compensation, etc... are even worse." - wrd9