Impending Minimum Wage hike causing restaurants to close

[Starlight]

you can earn as much as you can get other people to pay you. With a limited labor pool you can ask more for your work because your employer doesn't have a lot of choices. The more you expand the labor pool the more people will compete for jobs, so the employer can pay less and still get someone to do the job. This isn't necessarily bad, if more jobs are needed than the labour pool increases, but with more and more efficient technology companies need fewer workers to satisfy more customers. As a result his profit relative to your income grows.

Modern technological development has lead to productivity increases at a fairly steady rate of about 1% per year over the last 150 year period. So if the part of your explanation about efficient technology were correct, wouldn't we have seen a fairly steady rise in income inequality over that 150 year period, rather than seeing it very high in the pre-industrial period, then very low in the 40s-60s, and then rapidly increasing since the 80s?

I agree that a larger labor pool competing for a fixed amount of jobs would cause inequality. So yes: At times where unemployment is high, I think we are likely to see inequality go up, because competition for jobs lowers wages. However, there aren't a fixed number of jobs. A higher population simply results in more total jobs. So immigration increasing the size of the labor market is not going to be a particularly great explanation because it also increases the size of the job market.

So looking at US unemployment rates:

The period 1940 to 1980 is not hugely different to the period 1980 to the present, and so can't really explain why income inequality has been increasing since 1980 but not prior to that.

I think calling New Zealand's policies "Reagonomics" is really stretching it, but sure.

NZ policies were actually labelled Rogernomics after our finance minister of the time, Roger Douglas.

According to this gap net migration does appear to have increased somewhat in NZ since the 80s, though it oscillates wildly in some years:

Overall, the average is steady, there's no clear systematic increase like with US migration.

NZ inequality also doesn't appear to have risen at the same rate as the US.

Inequality has risen throughout the Western world in recent decades, but the US is an extreme case. So I grant you that it's plausible that whatever factors are causing inequality in the rest of the Western world are being made worse by large scale immigration in the US. Piketty in his book suggests that the reason for the US being different is that highly paid managers in the US (CEOs especially) are paid an order or magnitude more than in other Western nations, and he thinks the reasons for this are cultural and circumstantial - a lot of CEOs in the US essentially set their own salaries by themselves appointing people to a salary review board to set their salary for them, and they experience little to no cultural push-back for choosing to set their salaries ridiculously high.

I'm loathe to use a small country like NZ as a datapoint since I suspect your policies are as much driven by international reality as they are by its inhabitants' whims.

Okay, that's potentially fair. However, we're just about the only nation in the world that is far enough away from other countries to totally prevent illegal border crossings. So we're a good datapoint in terms of comparing immigration rates, because literally thousands of miles of ocean make a better fence at keeping out the illegal immigrants than any fence the US could build on the Mexican border.

Let's use the UK instead then. Their income inequality spiked massively in the period 1985-1990 and has remained high but fairly level ever since:
d4fc.jpg
Their net migration was zero or close to it until 1994 when it shot up and has remained high since. So that's not a great explanation: The migration post-dates the massive spike in income inequality. What was happening in the UK in the 1980s that might be able to explain changes in wealth distribution? Answer: Thatcherism, the single biggest change in UK government economic policy from WWII until now (exactly like Reaganomics in the US, or Rogernomics in NZ) implementing neo-liberal economic policy in the UK.

Thus we see that in the US, NZ and the UK, a massive spike in wealth inequality correlates chronologically with the deliberate introduction of neo-liberal government policies designed to tax the rich less, globalize, deregulate, reduce union influence, open up the labor market etc, that were labelled Reaganomics / Rogernomics / Thatcherism after their instigators due to the fact that they were parallel contemporary movements all doing roughly the same things. Essentially, the deliberate introduction of neo-liberal economic policies in a systematic way to these Western countries as part of deliberate government policy is exactly the point at which wealth inequality suddenly spiked in those countries.

I totally agree that it is very reasonable to discuss which of the economic policies (eg globalization vs lower taxes on the wealthy vs undermining of unions) contributed the most to the rise of inequality. They are potentially hard effects to disentangle because they happened simultaneously in most western countries as part of the massive switch to neo-liberal economics.

Capital gains taxes (which is how people get really, really rich) have been fairly uniform, so his theory is unlikely.

He says there are two relatively equal sources of super-richness currently in play in the Western world: (1) Capital gains from inherited assets, (2) Super-highly paid CEOs and upper-managers.

Capital gains taxes address the first. Income taxes on wages address the second. I would personally tend to count capital gains taxes as a type of "income tax" more generally, since capital gains are a type of income, so if "income tax" includes capital gains tax then 'income tax' addresses both concerns. (I take it for granted that the tax rate on capital gains ought to be at least as high as the tax rate on wages.)

Capital gains taxes have slightly decreased over time. There was significant reduction of capital gains taxes in the 80s, and another significant reduction in the 2000s. So I don't think lower capital gains taxes are totally off the hook in terms of explaining increasing wealth inequality (blue line):

It's possible that income taxes helped "reduced inequality" by just leaving a handful of super-rich dynasties at the top and smacked everybody who's rich but not bill gates rich back into the middle class.

Piketty discusses also how various government interventions during and between the two world wars basically annihilated nearly all the super-rich dynasties: Basically the governments just said "we need lots of money for the war effort and recovery, all your money is ours now" to all the upper-class. Those series of extra-ordinary government asset seizures is not reflected by any background graphs about capital gains tax rates. So by 1950, the super-rich dynasties of the upper class basically didn't exist in the same way as they had existed pre-WWI, so at that point there was no longer any need for huge capital gains taxes to keep the super-rich in check. However, the 90% income tax rates on the top tax brackets would certainly have stopped any Bill Gates types from zooming to super-duper-richness.

If they are useful to workers once the labour pool is limited again the workers will bring them back themselves.

Quite a few laws have been passed which make this very difficult. Even if in future there was strong demand for them, it would be a big uphill battle against various laws and judicial decisions to bring them back.

[jordanriver]

It wouldn't, but the key to remember is large companies can afford to take some hits on their bottom line while smaller shops; not quite so much. If you can make more barriers for competition to have to cross; the better it is if you happen to be a large company. That is a key that many people miss. Raises in min wage don't hurt those rich fat cats. It hurts middle class people though.

if you notice the graph, and the simplistic solution I offer,
...my solution changes nothing on the rest of the numbers.

the only thing that happens is a a couple of dimes added to the dollar (that's just 4 nickles, less than a whole quarter) goes to the laborers.

It takes nothing away from the owner, it does not add to the cost of the supplies and it does not add to the utilities ...

the only thing that changes is the laborers get a bigger check without the owners getting a smaller check. Its no skin off their back.

and their competition has to add that twenty cents to each dollar too, so there is no change in the price competition either.

Why should the owners balk?

[Sparko]

Also, if restaurants are pricing themselves out of my comfort zone, I can pack a lunch at home, and cut way back on "eating out". I cannot, however, make my own gasoline -- and I still need to get to work to earn money.

exactly. eating at home or bringing your lunch is healthier too.

People already are eating out less because of the rising costs of just about everything. I bring my lunch to work, and it costs me about $2/day. Eating out around here runs about an average of $7-14 day. So I am saving about $25 to $60 a WEEK by bringing my lunch. Same with dinner. The only time I eat out any more is when I get together with friends or I am out traveling away from home.

If the restaurants go any higher, more people will do the same. Pretty soon they will drive themselves out of business and there will be more unemployment. Who wants to go to McDonalds or Bob Evans and spend $20 on a meal? Who can afford to?

[Mountain Man]

Do we need to see those private and public sector job growth comparisons between Reagan and Obama again?

Sure, if you really want to go there.

Source: Forbes

more people have been added to the food-stamp rolls than the job rolls under Obama.

http://www.forbes.com/sites/kylesmit...bs-and-growth/

© Copyright Original Source

[Mountain Man]

jordanriver]I don't think the economy is going to tank if Americans have to pay $1.20 for a mcchicken sandwich.

[ liberal think ] But this is a tax that disproportionally impacts POOR people! [ / liberal think ]

Actually, the flaw in liberal thinking is that people won't change their behavior in response to government policy. For instance, they think that if McDonand's sells 5-million McChicken sandwiches a month at $4, they will continue selling 5-million McChicken sandwiches a month even if the price increases to $5.20. The flaws in such thinking are readily apparent to anybody who isn't a low-information moron.

[Sparko]

I don't think the economy is going to tank if Americans have to pay $1.20 for a mcchicken sandwich.

How are you calculating your numbers? Increasing someones wage from $7.50 to $15 is not a 20% increase. It is a 200% increase. A doubling of their wage. And on top of that, there are payrol taxes, unemployment insurance, social security wages that the employer has to pay behind the scenes. So that $15/hour you are paying the employer actually is going to costs you more like $20-$25 per hour as an employer. So you are going to to be closer to a 300% increase in labor costs. So you want to spend $3 for a dollar menu item? How about a $12 Big Mac?

Not to mention the increase in other things like the actual materials used in the food and packaging. After all those companies that make the materials have to increase the pay to THEIR employees too. So the material costs will go up along with the wages. It's a snowball rolling downhill.

[Cow Poke]

Actually, the flaw in liberal thinking is that people won't change their behavior in response to government policy.

EGGzackly... like putting a lavish tax on yachts, not realizing that people could just stop buying yachts in the US, and get them elsewhere. Liberals are SO STUPID that they think everybody else is just as stupid as they are.

For instance, they think that if McDonand's sells 5-million McChicken sandwiches a month at $4, they will continue selling 5-million McChicken sandwiches a month even if the price increases to $5.20. The flaws in such thinking are readily apparent to anybody who isn't a low-information moron.

One of the components of WISDOM is the ability to understand the concept of unintended consequences. Liberals don't have that kind of wisdom.

HOWEVER, they can GOOGLE to beat the band!!!!

[Bill the Cat]

would you be willing to pay 20 more cents for a dollar menu item, so the minimum wage workers could get a $6.00 an hour increase (Go from $8.00 hr to $14.00 hr)

There are several industries that pay less than $14 an hour to their employees. How about the gas station attendant? Or the checkout girl at Lowe's? Or the clerk at the dry cleaner's? And how about tipped employees that still only make $2-$3 an hour before tips? The problem is that it won't just be a single $0.20 change. It will be across everything you pay. And there is only a finite money pool for the sort that buys a McChicken sandwich (me being among them). Redistribute some of that from one place, and it has to come from another. Someone will end up losing, and I can guarantee it won't be the 1%. It will be the lower middle class who AGAIN bears the burden of giving the lowest classes a little bit more, thus pulling the lower middle class closer to the poverty line. Raising the minimum wage also favors those who already have jobs at the expense of the unemployed.

Source: http://www.alec.org/wp-content/uploads/Raising_Minimum_wage.pdf

Recent studies have shown that there is little to no relationship between an increased minimum wage and reductions in poverty. These studies find that, although some lower-skilled workers living in poor families see their incomes rise when the minimum wage increases, others lose their jobs or have their hours substantially cut.

Sabia, Joseph J., and Richard V. Burkhauser. “Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor?” Southern
Economic Journal. 2010. 76 (3), 594.

© Copyright Original Source

[Cow Poke]

exactly. eating at home or bringing your lunch is healthier too.

People already are eating out less because of the rising costs of just about everything. I bring my lunch to work, and it costs me about $2/day. Eating out around here runs about an average of $7-14 day. So I am saving about $25 to $60 a WEEK by bringing my lunch. Same with dinner. The only time I eat out any more is when I get together with friends or I am out traveling away from home.

If the restaurants go any higher, more people will do the same. Pretty soon they will drive themselves out of business and there will be more unemployment. Who wants to go to McDonalds or Bob Evans and spend $20 on a meal? Who can afford to?

One of the tricks that USED to work for fast food places was to heavily discount their main items - the big burger or sandwich - to make it up by charging outrageous prices for drinks and fries, and "supersizing" it on top of that. People have gotten wise to that. A $1.99 Whopper seems like a good value, but the "combo" becomes $8.00.

[Cow Poke]

How about the gas station attendant?

My grampa told me about those!

Or the checkout girl at Lowe's? Or the clerk at the dry cleaner's? And how about tipped employees that still only make $2-$3 an hour before tips? The problem is that it won't just be a single $0.20 change. It will be across everything you pay. And there is only a finite money pool for the sort that buys a McChicken sandwich (me being among them). Redistribute some of that from one place, and it has to come from another. Someone will end up losing, and I can guarantee it won't be the 1%. It will be the lower middle class who AGAIN bears the burden of giving the lowest classes a little bit more, thus pulling the lower middle class closer to the poverty line. Raising the minimum wage also favors those who already have jobs at the expense of the unemployed.

And, AGAIN, it's the poorest people who will be the most negatively impacted by even modest increases in the prices that will be affected. So this bleeding heart "let's help the poor by raising the minimum wage" is classic "we want to feel good about ourselves" liberalism.

[jordanriver]

How are you calculating your numbers? Increasing someones wage from $7.50 to $15 is not a 20% increase. It is a 200% increase. A doubling of their wage. And on top of that, there are payrol taxes, unemployment insurance, social security wages that the employer has to pay behind the scenes. So that $15/hour you are paying the employer actually is going to costs you more like $20-$25 per hour as an employer. So you are going to to be closer to a 300% increase in labor costs. So you want to spend $3 for a dollar menu item? How about a $12 Big Mac?

Not to mention the increase in other things like the actual materials used in the food and packaging. After all those companies that make the materials have to increase the pay to THEIR employees too. So the material costs will go up along with the wages. It's a snowball rolling downhill.

I already showed where the money comes from in POST 43 .

The total sales increase of 20% would be strictly for the laborers of the business.


Except for the fact it would not be voluntary, the increase would be the same as if the customers added a 20% tip.

...how would it be any different than the restaurant bills that add a gratuity to the bill automatically? Its just a separate cost to the customer.

....exactly what is the problem with a "tax" like that , if it only benefits the laborers?

[jordanriver]

There are several industries that pay less than $14 an hour to their employees. How about the gas station attendant? Or the checkout girl at Lowe's? Or the clerk at the dry cleaner's? And how about tipped employees that still only make $2-$3 an hour before tips? The problem is that it won't just be a single $0.20 change. It will be across everything you pay. And there is only a finite money pool for the sort that buys a McChicken sandwich (me being among them). Redistribute some of that from one place, and it has to come from another. Someone will end up losing, and I can guarantee it won't be the 1%. It will be the lower middle class who AGAIN bears the burden of giving the lowest classes a little bit more, thus pulling the lower middle class closer to the poverty line. Raising the minimum wage also favors those who already have jobs at the expense of the unemployed.

Source: http://www.alec.org/wp-content/uploads/Raising_Minimum_wage.pdf

Recent studies have shown that there is little to no relationship between an increased minimum wage and reductions in poverty. These studies find that, although some lower-skilled workers living in poor families see their incomes rise when the minimum wage increases, others lose their jobs or have their hours substantially cut.

Sabia, Joseph J., and Richard V. Burkhauser. “Minimum Wages and Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working Poor?” Southern
Economic Journal. 2010. 76 (3), 594.

© Copyright Original Source

if a person gets a 75% increase in their paycheck, how is going to hurt them if the trade off is a 20% increase in the cost of their trip to McDonalds?

[jordanriver]

....and price increases? Look, prices been going up for decades , but still more people than ever are eating at these places,
...the only reason some places might not look as busy is not because there are less customers, but because the market gets saturated with more businesses .

[Bill the Cat]

if a person gets a 75% increase in their paycheck, how is going to hurt them if the trade off is a 20% increase in the cost of their trip to McDonalds?

You are looking at this from an individual standpoint. I've already cited why this will be a disaster. The impact will not only be on their trip to McDonalds, but on their visit to the gas station, their shopping at Wal-Mart, their entertainment expenses, etc. By shifting the minimum wage for one, you shift it for all, and there goes that perceived increase in purchasing power eaten up in price hikes. And the unintended result is on those that make JUST OVER minimum wage. Their purchasing power suddenly decreased by 20% at a minimum, pushing them further into debt.

[Cow Poke]

Except for the fact it would not be voluntary, the increase would be the same as if the customers added a 20% tip.

...how would it be any different than the restaurant bills that add a gratuity to the bill automatically? Its just a separate cost to the customer.

The restaurants where they automatically add a gratuity are generally higher end restaurants, and "minimum wage" is not a factor -- these would be more likely much LOWER wages, where tips are the bulk of the compensation.