On June 13, 2017, Jeremy Bagott writes in The Fresno Bee:
In a pair of affluent coastal California counties, the canary in the mineshaft has gotten splayed, spatchcocked and plated over a bed of unintended consequences, garnished with sprigs of locally sourced economic distortion and non-GMO, “What the heck were they thinking?”
The result of one early experiment in a citywide $15 minimum wage is an ominous sign for the state’s poorer inland counties as the statewide wage floor creeps toward the mark.
Consider San Francisco, an early adopter of the $15 wage. It’s now experiencing a restaurant die-off, minting jobless hash-slingers, cashiers, busboys, scullery engineers and line cooks as they get pink-slipped in increasing numbers. And the wage there hasn’t yet hit $15.
As the East Bay Times reported in January, at least 60 restaurants around the Bay Area had closed since September alone.
A recent study by Michael Luca at Harvard Business School and Dara Lee Luca at Mathematica Policy Research found that every $1 hike in the minimum wage brings a 14 percent increase in the likelihood of a 3.5-star restaurant on Yelp! closing.
Another telltale is San Diego, where voters approved increasing the city’s minimum wage to $11.50 per hour from $10.50, this after the minimum wage was increased from $8 an hour in 2015 – meaning hourly costs have risen 43 percent in two years.
The cost increases have pushed San Diego restaurants to the brink, Stephen Zolezzi, president of the Food and Beverage Association of San Diego County, told the San Diego Business Journal. Watch for the next mass die-off there.
But what of California’s less affluent inland counties? How will they fare?
Christopher Thornberg, director of UC Riverside’s Center for Economic Forecasting and Development, told the San Bernardino Sun that politicians should have adopted a regional approach. He said it would been better to adapt minimum-wage levels to varying economies – something like the Oregon model, the nation’s first multi-tiered minimum-wage strategy.
Oregon’s minimum-wage law is phased, with increases over six years. By 2022, the minimum will be $14.75 an hour in Portland, $13.50 in midsize counties and $12.50 in rural areas.
“That makes sense,” Thornberg told the Sun. “That’s logical.”
California is even more varied economically than Oregon. Thornberg believes hiking wages in blanket fashion will spark layoffs and edge low-skilled workers out of the job market.
In the Central Valley, wages for all workers, on average, are lower than those of the coastal counties.
U.S. Census Bureau data show about 21 percent of workers in Bakersfield earned from $8 to $12 per hour in 2015, the most recent year for which data was available. In Fresno, 32 percent of workers were in that wage group, and in Modesto about 25 percent. Contrast that with Santa Clara County, home of Silicon Valley, which registered only 12.5 percent at that level.
The state’s diverse unemployment rates tell a similar tale. Unemployment in Bakersfield was 9.5 percent; 8.8 percent in Fresno, and Stanislaus County notched 7.9 percent. Compare that to Silicon Valley’s unemployment rate – 3.2 percent.
“Part of our whole concern with (the $15 wage) is it’s a one-size-fits-all,” Rob Lapsley, president of the California Business Roundtable, told The Sacramento Bee last year. “Areas with double-digit unemployment, this is scaring them to death.”
Jamil Dada, chairman of the Riverside County Workforce Development Board, told the Sun that he believed the state’s Inland Empire will be hit harder than other parts of the state.
“It might be tolerable in the coastal regions,” he said. “Their business environment is completely different.”
As politicians insert their sausage fingers into subtle market mechanisms, scarcity and unintended consequences will ensue.
Joining San Francisco’s restaurant die-off was rising star AQ, which in 2012 was named a James Beard Award finalist for the best new restaurant in America. The restaurant’s profit margins went from a reported 8.5 percent in 2012 to 1.5 percent by 2015. Most restaurants are thought to require margins of 3 and 5 percent.
If what’s happening with one early adopter of the $15 wage progression is any indication, locally famous inland hash houses and burger joints from Calexico to the Cow Counties will disappear as mandated wages climb to $15 statewide. And that will only be the start of things.
http://www.fresnobee.com/opinion/opn-columns-blogs/article155979969.html
But raising the minimum wage was supposed not to kill jobs or create operational costs that would squeeze profit margins and result in business closures. Wasn’t it?
Using common sense, if raising the minimum wage will not kill jobs then why not raise the minimum wage to $25.00 or $50.00 or $100.00 per hour? Of course there are consequences that either are reflected in job elimination, increased prices or business closures. Virtually never are the OWNERS of corporations willing to reduce profits, which often are marginal.
If wage levels were not a factor there would be also no reason for ANY company to exit production in the United States and move production to foreign lands with significantly less labor costs. Also, there is the impact on pricing levels, as any increases in the cost of production or service always results in pricing increases.
If this were not the case, then no companies would be compelled to seek other non-human more cost-efficient means of production or to move production to foreign countries whose workers are paid far less than Americans. Increasingly, companies are seeking more efficient and less long term costs that non-human technology can deliver to reduce their operating costs, provide higher build quality, automate service, and maximize profits for their OWNERS. As is virtually always the case, the OWNERS of companies do not want to reduce profits.
What the proponents of raising the minimum wage fundamentally are addressing is that low-paid American workers need to earn more income.
We need to begin focusing on the means for people to earn more income, and not solely dependent on earnings from jobs, which are being destroyed with tectonic shifts in the technologies of production. We need to implement financial mechanisms to finance future economic growth and simultaneously create new capital asset owners. This can be accomplished with monetary reform and using insured, interest-free capital credit (without the requirement of past savings, a job or any other source of income), repayable out of the future earnings in the investments in our economy’s growth.
But how, you ask, can such an OWNERSHIP CREATION solution be implemented?
We can and should do more to create universal capital ownership not only for workers of corporations but ALL citizens. What I believe is crucial to solving economic inequality and building a future economy that can support general affluence for EVERY citizen is to address concentrated capital ownership, the fundamental cause of economic inequality. The obvious solution is to de-concentrate capital ownership by ensuring that all future wealth-creating, income-producing capital asset formation will be financed using insured, interest-free capital credit, repayable out of the future earnings of the investments, creating ownership participation by EVERY child, woman, man. This should be about investment in real productive capital growth, not speculation as with the stock exchanges. But the problem is the vast majority of Americans have no savings, or at best extremely limited savings, insufficient to be meaningful as increasingly Americans are living week to week, month to month, and deeply in consumer debt. So forget about proposals for tax credits, retirement and health savings accounts. There is no feasible way that past savings can continue to be a requirement for investment if we are to simultaneously create new capital owners with the productive growth of the economy. The current economic investment system is structured based on the requirement of past savings used directly or as security collateral for capital credit loans. But past savings are not necessary as viable capital formation projects pay for themselves. This is the logic of corporate finance.
Capital acquisition takes place on the logic of self-financing and asset-backed credit for productive uses. People invest in capital ownership on the basis that the investment will pay for itself. The basis for the commitment of loan guarantees is the fact that nobody who knows what he or she is doing buys a physical capital asset or an interest in one unless he or she is first assured, on the basis of the best advice one can get, that the asset in operation will pay for itself within a reasonable period of time – 5 to 7 or, in a worst case scenario, 10 years (given the current depressive state of the economy). And after it pays for itself within a reasonable capital cost recovery period, it is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.
Still, there is at least a theoretical chance, and sometimes a very real chance, that the investment might not pay for itself, or it might not pay for itself in the projected time period. So, there is a business risk. This can be solved using private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept). On a larger scale, the path to solve the security issue, that is, the risk can be absorbed by capital credit insurance or commercial risk insurance. Thus, in order to achieve national economic democracy, we need a way to handle risk management in finance by broadly insuring the risks. Such capital credit insurance would substitute for the security demanded by lenders to cover the risk of non-payment, thus enabling the poor and others with no or few assets (the 99 percenters) to overcome the collateralization barrier that excludes the non-halves from access to productive capital.
One feasible way is to lift ownership-concentrating Federal Reserve System credit barriers and other institutional barriers that have historically separated owners from non-owners and link tax and monetary reforms to the goal of expanded capital ownership. This can be done under the existing legal powers of each of the 12 Federal Reserve regional banks, and will not add to the already unsustainable debt of the Federal Government or raise taxes on ordinary taxpayers. We need to free the system of dependency on Wall Street and the accumulated savings and money power of the rich and super-rich who control Wall Street. The Federal Reserve System has stifled the growth of America’s productive capacity through its monetary policy by monetizing public-sector growth and mounting Federal deficits and “Wall Street” bailouts; by favoring speculation over investment; by shortchanging the capital credit needs of entrepreneurs, inventors, farmers, and workers; by increasing the dependency of with usurious consumer credit; and by perpetuating unjust capital credit and ownership barriers between rich Americans and those without savings.
The Federal Reserve Bank should be used to provide interest-free capital credit (including only transaction and risk premiums) and monetize each capital formation transaction, determined by the same expertise that determines it today – management and banks – that each transaction is viably feasible so that there is virtually no risk in the Federal Reserve. The first layer of risk would be taken by the commercial credit insurers, backed by a new government corporation, the Capital Diffusion Reinsurance Corporation, through which the loans could be guaranteed. This entity would fulfill the government’s responsibility for the health and prosperity of the American economy.
The Federal Reserve Board is already empowered under Section 13 of the Federal Reserve Act to reform monetary policy to discourage non-productive uses of credit, to encourage accelerated rates of private sector growth, and to promote widespread individual access to productive credit as a fundamental right of citizenship. The Federal Reserve Board needs to re-activate its discount mechanism to encourage private sector growth linked to expanded capital ownership opportunities for all Americans (Section 13(2) Federal Reserve Act).
Until we address concentrated capital ownership and implement solutions to simultaneously broaden capital ownership by creating new capital owners with the growth of the productive economy, money power will reside in the hands of politicians and bankers, not in the hands of the citizens. That is why, to reform the system leaders and advocates for economic justice must focus on money, how it should be created and measured, how it should be controlled and why a more realistic and just money system is the key to universal and equal citizen access to future ownership opportunities as a fundamental human right. Then prosperity and economic democracy can serve as the basis for effective and non-corruptible political democracy, an ecologically sustainable environment, and global peace through justice.
Support Monetary Justice at http://capitalhomestead.org/page/monetary-justice.
Support the Capital Homestead Act (aka Economic Democracy Act) at http://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/, http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/ and http://www.cesj.org/learn/capital-homesteading/ch-vehicles/.
