Franchise group files to block [Seattle's] $15 minimum-wage phase-in

[Trausti]

Why did they use $10.10 for the survey? Most pundits on the left consider anything under $15, plus full health care and retirement benefits, to be an unlivable wage.

Probably because that was the number being considered at the federal level.

If the new Seattle minimum wage was to $10.10, don't think the franchises would be suing.

 

[SimpleDon]

Sigh, sorry that that was so long. The real economy is complicated and there are no answers that aree short enough to satisfy the short attention span of this type of forum.

 

[ksen]

Probably because that was the number being considered at the federal level.

If the new Seattle minimum wage was to $10.10, don't think the franchises would be suing.

The franchises aren't suing over the amount of the increase. They're suing over being lumped in with big businesses and having a shorter time to phase it in than other smaller businesses.

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Sigh, sorry that that was so long. The real economy is complicated and there are no answers that aree short enough to satisfy the short attention span of this type of forum.

You better not be sorry.

I always read your posts in their entirety . . . unless it's in response to lumpen/freetrader because fuck that.

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Don, you also make a good point when you bring up the executive labor market. If increased wages ALWAYS leads to unemployment than why is the CEO labor market booming even though their pay has tripled since the 1990s?

 

[SimpleDon]

I'm trying to understand how you are trying to apply it here. If people do think that increasing the minimum wage doesn't cause other problems, then why can't we raise the minimum wage to a million dollars an hour?

So doesn't then the argument become where along a curve or a straight line before the effects become seen?

The struggle that economists face is that the economy has a time constant, it can adapt to a broad range of change but the question is how quickly can it? It would depend on how high the increase is and how quickly you implement it. Your million dollars an hour is much too much high obviously, unless you implement it over say ten thousand years.

The 10.10 that they are talking about at the federal level is what the minimum wage would have been if it had simply kept up with inflation over the last thirty years plus of economic policy infatuation with suppressing wages to increase profits to further enrich the rich. As such it is a very safe increase. Seattle's 15 dollars isn't too far off from the same thing adjusted for the higher costs of living in an urban setting.

 

[jonatha]

I believe $10.10 is where the minimum wage would be if it had kept pace with inflation since 19xx....

 

[coloradoatheist]

So doesn't then the argument become where along a curve or a straight line before the effects become seen?

The struggle that economists face is that the economy has a time constant, it can adapt to a broad range of change but the question is how quickly can it? It would depend on how high the increase is and how quickly you implement it. Your million dollars an hour is much too much high obviously, unless you implement it over say ten thousand years.

The 10.10 that they are talking about at the federal level is what the minimum wage would have been if it had simply kept up with inflation over the last thirty years plus of economic policy infatuation with suppressing wages to increase profits to further enrich the rich. As such it is a very safe increase. Seattle's 15 dollars isn't too far off from the same thing adjusted for the higher costs of living in an urban setting.

Instead of looking at it from the past, you also need to look at it from the costs. It's not just the marginal theory of productivity, but just basic cash in minus cash out. A $5 an hour increase in wages is a $10K per year per employee increase in costs, not counting the extras so it's about $12K per employee. Five employees and a business is looking at an extra $60K in costs. So the question is what percentage of businesses can find way to absorb that costs. They need to do a combination of raise prices, take the profit hits, or find a way to reduce those costs.

 

[SimpleDon]

That would be an argument along the lines of "The negative effects of a higher minimum wage can be seen a $X/hr <insert relevant data to backup claim of X here>. Since $X/hr is lower than the $15 Seattle minimum wage, negative effects will be seen as a result."

Unfortunately, that is not the argument you made, and the one you did make was rather ridiculous, but not unexpected.

Not necessarily. The argument is over how the curve or straight line is and the effect of job loss on an increase in minimum wage.

An increase in the minimum wage or any wage for that matter won't cause job losses. It is a question of how quickly the economy can adapt to the change.

Because we have spent the last thirty years intentionally reducing wages and demand in the economy it should react quickly and positively to an increase in wages at the lower end of the scale.

 

[coloradoatheist]

Not necessarily. The argument is over how the curve or straight line is and the effect of job loss on an increase in minimum wage.

An increase in the minimum wage or any wage for that matter won't cause job losses. It is a question of how quickly the economy can adapt to the change.

Because we have spent the last thirty years intentionally reducing wages and demand in the economy it should react quickly and positively to an increase in wages at the lower end of the scale.

Is there any price level at which a business can't make up for the extra money they have to pay in expenses? Is it $5 an hour $10 an hour $20 an hour? And now we haven't been intententionally reducing wages and if you look at what you expect, prices are tied to labor costs, that's what we see if you believe that wages have stayed stagnant.

 

[SimpleDon]

Typically an increase in wages comes out of profits if a single business does it in a competitive market. If you believe in supply and demand setting prices this is pretty obvious, you have done nothing to effect either supply or demand. But even if you take the more reasonable approach that the business is setting their prices to maximize their profits it also stands to reason that increased wages come out of profits since you have already maximized your profits, increased wages have to cut profits.

But that is not what we are talking about here, a single business increasing wages. We are talking about all of the competitors having to increase wages.

Actually, in this case, it's more akin to the former than the latter. In the short term, only large businesses are required to increase their wage to $15 per hour. Small businesses have up to 7 years longer to scale up to that rate from the current $10 (I believe). That's a fairly substantial discrepancy in minimum wage between small and large businesses.

In this particular case, the position of the franchise association is that many of them are more like small businesses than like large businesses. They believe that it is detrimental to their businesses to hit them with this increase in wages when their similar sized competitors do not face the same increase in operation costs. It places them at a government-sponsored competitive disadvantage. Now, it might be all well and good to say that McDonald's should be paying the $15 just like the other big companies... but not all franchises are McDonald's.

To be honest, I'm not entirely certain why they aren't scaling in the wage increase over a specified time line for all businesses, rather than giving some small businesses preferential treatment.

I think that it is because of the overt protection that we give to small business as a reflex action, viewing them as the corner hardware store run by kindly old Mr. Greenjeans when the truth is that most small businesses are the professional practices of lawyers, doctors, dentists, architects, etc. The other one that we seem to have the same kind of nostalgia for is the family farm, even though the vast majority of farms are run by corporations.

But the exclusions really don't matter, raising the minimum wage for the majority of minimum wage workers will raise them for almost all of them. The reason is competition, businesses will compete with one another for the minimum wage workers. The wages will rise to the minimum wage even for those working for exempt employers.

 

[SimpleDon]

The struggle that economists face is that the economy has a time constant, it can adapt to a broad range of change but the question is how quickly can it? It would depend on how high the increase is and how quickly you implement it. Your million dollars an hour is much too much high obviously, unless you implement it over say ten thousand years.

The 10.10 that they are talking about at the federal level is what the minimum wage would have been if it had simply kept up with inflation over the last thirty years plus of economic policy infatuation with suppressing wages to increase profits to further enrich the rich. As such it is a very safe increase. Seattle's 15 dollars isn't too far off from the same thing adjusted for the higher costs of living in an urban setting.

Instead of looking at it from the past, you also need to look at it from the costs. It's not just the marginal theory of productivity, but just basic cash in minus cash out. A $5 an hour increase in wages is a $10K per year per employee increase in costs, not counting the extras so it's about $12K per employee. Five employees and a business is looking at an extra $60K in costs. So the question is what percentage of businesses can find way to absorb that costs. They need to do a combination of raise prices, take the profit hits, or find a way to reduce those costs.

I have said repeatedly that I believe that the marginal productivity theory is bullsh*t. But it is the theory that proponents of the free market advance to show that the market can self-regulate without government interference. That too is bullsh*t.

Yes, this is why the increases have to be implemented slowly over time to allow the market to adapt. And yes, prices aren't set by supply and demand. Prices are set by the owner to an average cost of production plus a profit resulting in a price that he thinks that he can get the sales volume needed to pay back his investment and his work.

Someone here said that they thought that supply and demand sets prices but the cost plus overhead and profit set price establishes a floor below which the supply and demand set price can't go. In reality he or she is close to the truth but a bit backwards. The owner sets a cost plus price and the demand for the product determines the amount of sales for the product at that price. Virtually every business looks at average costs and sales volume. I doubt that any business calculates or cares what the marginal product is, what it costs them.

In addition there are a lot of factors that effect the demand for a product besides the price; advertising, convenience, reputation, etc. At least fifty percent of the employees of almost any modern corporation are working to distance the corporation's products from market forces. To enable them to charge a higher than market price. And they succeed for the most part.

So yes, prices will go up.

 

[coloradoatheist]

Instead of looking at it from the past, you also need to look at it from the costs. It's not just the marginal theory of productivity, but just basic cash in minus cash out. A $5 an hour increase in wages is a $10K per year per employee increase in costs, not counting the extras so it's about $12K per employee. Five employees and a business is looking at an extra $60K in costs. So the question is what percentage of businesses can find way to absorb that costs. They need to do a combination of raise prices, take the profit hits, or find a way to reduce those costs.

I have said repeatedly that I believe that the marginal productivity theory is bullsh*t. But it is the theory that proponents of the free market advance to show that the market can self-regulate without government interference. That too is bullsh*t.

Yes, this is why the increases have to be implemented slowly over time to allow the market to adapt. And yes, prices aren't set by supply and demand. Prices are set by the owner to an average cost of production plus a profit resulting in a price that he thinks that he can get the sales volume needed to pay back his investment and his work.

Someone here said that they thought that supply and demand sets prices but the cost plus overhead and profit set price establishes a floor below which the supply and demand set price can't go. In reality he or she is close to the truth but a bit backwards. The owner sets a cost plus price and the demand for the product determines the amount of sales for the product at that price. Virtually every business looks at average costs and sales volume. I doubt that any business calculates or cares what the marginal product is, what it costs them.

In addition there are a lot of factors that effect the demand for a product besides the price; advertising, convenience, reputation, etc. At least fifty percent of the employees of almost any modern corporation are working to distance the corporation's products from market forces. To enable them to charge a higher than market price. And they succeed for the most part.

So yes, prices will go up.

Marginal productivity is like those physics problems where they said ignore friction for now. It's a basic framework for the general case. And I would only use it for self-regulation a little bit.

The issue with phasing in the MW increase is what you are trying to avoid. As the expenses for MW goes up the prices go up to match it and then MW workers are back where they started. The question is how fast everything can reconverge and how many people it affects.

 

[SimpleDon]

An increase in the minimum wage or any wage for that matter won't cause job losses. It is a question of how quickly the economy can adapt to the change.

Because we have spent the last thirty years intentionally reducing wages and demand in the economy it should react quickly and positively to an increase in wages at the lower end of the scale.

Is there any price level at which a business can't make up for the extra money they have to pay in expenses? Is it $5 an hour $10 an hour $20 an hour? And now we haven't been intententionally reducing wages and if you look at what you expect, prices are tied to labor costs, that's what we see if you believe that wages have stayed stagnant.

Yes, of course there is a price increase that businesses can't absorb at one time. It is the cost increase that increases the price to a point that it reduces the demand for their product below the break even point.

And of course we suppressed wages to increase profits. Google "supply side economics." Starting in the 1980's we started intentionally suppressing wages in order to increase profits to increase the money available for capital investment. The extra money available for investment would be used to build new factories that would provide jobs for all and widespread prosperity. The wage suppression worked, wages barely kept up with inflation while profits soared and large amounts of money were accumulated for possible investment. What didn't happen was that business investment dropped instead of increasing and the rate of GDP growth dropped,

The Republicans want to double down on supply side economics and they campaign every year to reduce taxes yet again on the rich. They seem certain that if we give it another couple of decades it will start paying off for the non-rich.

I am surprised that you didn't hear about this. We suppressed wages by suppressing the unions, by offshoring most of our manufacturing, exposing our labor to competition from countries that paid people pennies an hour. Their were a lot more suppression methods that we used including letting the minimum wage drop below the level of inflation, effectively reducing it, but these are the two big ones. We reduced taxes on the rich and increased them on the poor and the middle class. The federal government tax cuts were paid for with government debt, usually by selling government bonds to the people whose taxes we were cutting.

Before supply side economics the wages and profits split the gains from productivity increases in half. After supply side economics all of the gains from productivity increases went to profits. If the split had stayed at fifty fifty like it was before 1980 then the average household income today would be about $90,000 a year instead of about $55,500 a year. Over the thirty years it is 15 to 20 trillion dollars that supply side redistributed to profits and to the rich. And the excess capital has played havoc with our economy, creating one asset bubble after another, leading up to the huge one in home mortgages that nearly bankrupted the entire economy in 2008 when it popped.

 

[ZiprHead]

So a burger flipper's wages go up 25%. He can prepare, say, 300 $2.00 burgers per hour. How much does the price of each burger increase to cover the new cost?

The point being that MW workers would not be "back to where they started".

 

[Jayjay]

Since we are asking ridiculous questions I have some for you. Why don't we drive all of the wages down towards zero? If increasing wages causes unemployment wouldn't we eliminate it by pushing down everyone's wages? Wouldn't you gladly see your own wages lowered to keep everyone employed?

Lowering my wage, or wage of anyone else who is already employed, wouldn't increase employment because the empoyment rate among the employed is already by definition 100%.

That's like saying that if painting your house red makes it prettier, why wouldn't you paint it red twice to make it twice as pretty?

 

[coloradoatheist]

So a burger flipper's wages go up 25%. He can prepare, say, 300 $2.00 burgers per hour. How much does the price of each burger increase to cover the new cost?

The point being that MW workers would not be "back to where they started".

It depends on the ranges of businesses that are affect, how much they can raise prices, or will they start cutting hours before raising prices.

 

[ksen]

The struggle that economists face is that the economy has a time constant, it can adapt to a broad range of change but the question is how quickly can it? It would depend on how high the increase is and how quickly you implement it. Your million dollars an hour is much too much high obviously, unless you implement it over say ten thousand years.

The 10.10 that they are talking about at the federal level is what the minimum wage would have been if it had simply kept up with inflation over the last thirty years plus of economic policy infatuation with suppressing wages to increase profits to further enrich the rich. As such it is a very safe increase. Seattle's 15 dollars isn't too far off from the same thing adjusted for the higher costs of living in an urban setting.

Instead of looking at it from the past, you also need to look at it from the costs. It's not just the marginal theory of productivity, but just basic cash in minus cash out. A $5 an hour increase in wages is a $10K per year per employee increase in costs, not counting the extras so it's about $12K per employee. Five employees and a business is looking at an extra $60K in costs. So the question is what percentage of businesses can find way to absorb that costs. They need to do a combination of raise prices, take the profit hits, or find a way to reduce those costs.

Australia's current MW in US$ is $15.87. The price of their Big Mac? $4.81. The price of a Big Mac in the US? $4.80.

Big Mac Price Index
Australian MW
Currency converter

I don't know about you, but I am willing to pay one more penny so US McDonald's workers can start making $15/hr.

 

[ZiprHead]

So a burger flipper's wages go up 25%. He can prepare, say, 300 $2.00 burgers per hour. How much does the price of each burger increase to cover the new cost?

The point being that MW workers would not be "back to where they started".

It depends on the ranges of businesses that are affect, how much they can raise prices, or will they start cutting hours before raising prices.

There are a lot of businesses out there that are just paying for extra hours out of the goodness of their hearts?

 

[Loren Pechtel]

So a burger flipper's wages go up 25%. He can prepare, say, 300 $2.00 burgers per hour. How much does the price of each burger increase to cover the new cost?

The point being that MW workers would not be "back to where they started".

It's not just the burger flipper, it's the whole chain.

And when the people that were making something above minimum wage see their purchasing power eroded by the inflation and demand more (and get it--they have skills enough in demand they could get more than minimum wage) you'll end up with enough inflation to erode away all the gains, you'll be right back where you started except with the damage caused by the inflation dragging everything down a bit.

 

[ZiprHead]

So a burger flipper's wages go up 25%. He can prepare, say, 300 $2.00 burgers per hour. How much does the price of each burger increase to cover the new cost?

The point being that MW workers would not be "back to where they started".

It's not just the burger flipper, it's the whole chain.

And when the people that were making something above minimum wage see their purchasing power eroded by the inflation and demand more (and get it--they have skills enough in demand they could get more than minimum wage) you'll end up with enough inflation to erode away all the gains, you'll be right back where you started except with the damage caused by the inflation dragging everything down a bit.

How much of the price of a $2.00 burger is the labor?

 

[J842P]

It's not just the burger flipper, it's the whole chain.

And when the people that were making something above minimum wage see their purchasing power eroded by the inflation and demand more (and get it--they have skills enough in demand they could get more than minimum wage) you'll end up with enough inflation to erode away all the gains, you'll be right back where you started except with the damage caused by the inflation dragging everything down a bit.

How much of the price of a $2.00 burger is the labor?

Labor is a fixed cost so it depends on the volume of burgers sold.