Posts tagged with: Seattle

fight forRobert Reich seems to be a smart man. He served under three presidents, and now is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley. His video (below) says raising the minimum wage is the right thing to do. Unfortunately, he gets it all wrong.

Donald Boudreaux of the Cato Institute notes a couple of errors in Reich’s thinking. First,

Ignoring supply-and-demand analysis (which depicts the correct common-sense understanding that the higher the minimum wage, the lower is the quantity of unskilled workers that firms can profitably employ), Reich asserts that a higher minimum wage enables workers to spend more money on consumer goods which, in turn, prompts employers to hire more workers.  Reich apparently believes that his ability to describe and draw such a “virtuous circle” of increased spending and hiring is reason enough to dismiss the concerns of “scare-mongers” (his term) who worry that raising the price of unskilled labor makes such labor less attractive to employers.

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closedSeattle has now mandated an increase in minimum wage. The economic ramifications are being felt, especially throughout the restaurant industry.

Several Seattle restaurants have done away with tipping, but are adding a mandatory service charge on a customer’s bill.

Restaurants often operate on thin margins, so higher wages quickly impact profitability. As opposed to tips, a service charge becomes part of the restaurant’s overall revenue. The restaurateurs say the service charge component will be used exclusively for employee wages, benefits and payroll expenses.

While this may solve the economic issue for some restaurants, the mandatory minimum wage increase is causing others to simply close their doors. (more…)

Seattle-mystWhen I was growing up I had a buddy—let’s call him “Bob”—who was constantly asking, “What happens if we do . . . ?” Bob’s curiosity, however, only led him to wonder about foolish actions. He never pondered, for example, what would happen if we all volunteered at the senior citizens center. Instead, his thinking ran more along the lines of what would happen if we jumped off the senior citizens center.

The reaction of me and the rest of my friends was always, “Let’s find out!” But we were more prudent than Bob (or maybe just more cowardly) so we’d encourage him to try whatever reckless idea he had in mind so we could learn from his experience. We learned, for instance, that if jump off the 3-story senior citizens center, a stack of cardboard boxes will not be enough to sufficiently break your fall.

Bob’s shenanigans would daily provide for us what social scientists would call a “natural experiment.” A natural experiment is a study of the effect of an independent variable, which has not been planned or manipulated by the researchers, on a dependent variable. (The word ‘natural’ in the term natural experiment therefore refers to an event that is not planned by the researchers.)

The city of Seattle is about to pull a Bob, by foolishly raising the minimum wage to $15 per hour. The effect on the citizens of Seattle will be almost entirely harmful. But it will provide a natural experiment on the effect of raising the minimum wage laws that the rest of American can learn from. Anyone who isn’t already convinced that increasing the minimum wage has a detrimental impact on employment and harm minority workers will, in a few years, have solid proof. We will all be able to look to Seattle to see the difference between good, albeit naive, intentions and sound economic policy.

Here are some of the effects I predict the policy will have in the next three years:
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