On January 24, 2019, Jon Multimode writes on Foundation for Economic Education (FEE):
Until voters recognize that politicians have incentives that are often quite different from their own, we’re likely to continue to see harmful legislation of this kind.
York City’s minimum wage jumped more than 15 percent overnight on January 1, and employers are already cutting workers’ hours as a result.
CBS has the story.
Jon Bloostein operates six New York City restaurants that employ between 50 and 110 people each. The owner of Heartland Brewery and Houston Hall, Bloostein said the effect of the higher minimum wage on payroll across locations represents “an immense cost” to his business.
“We lost control of our largest controllable expense,” he told CBS MoneyWatch. “So in order to live with that and stay in business, we’re cutting hours.”
A Terrible Way to Fight Poverty
Cutting hours was not Bloostein’s only option, one might say. And it’s true. But cutting hours was not the only option he took.
Bloostein also cut staff positions. For example, instead of being greeted by a host or hostess, customers are greeted by a sign. He also increased menu prices.
“[It] will cost more to dine out,” Bloostein said. “It’s not great for labor, it’s not great for the people who invest in or own restaurants, and it’s not great for the public.”
Bloostein is just one restaurant owner, you might say. But he is not alone. A New York City Hospitality Alliance survey shows that 75 percent of restaurants said they planned to cut employees hours in response to the wage hike. Nearly half (47 percent) said they’d cut jobs.
The outcome is hardly a surprise. These are the signature responses to steep wage hikes forced onto businesses (those that manage to bear the costs and stay open, anyway).
However pure the intentions of New York politicians might be, the minimum wage will have a dire impact on those who can least afford it: young, poor workers who will not be afforded important job experience. It’s a terrible way to fight poverty, The New York Times (once) observed:
The idea of using a minimum wage to overcome poverty is old, honorable – and fundamentally flawed. It’s time to put this hoary debate behind us and find a better way to improve the lives of people who work very hard for very little.
Politicians, it seems, have trouble learning this simple fact. Last week, House Democrats proposed a bill to double the federal minimum wage to $15. (Perhaps they were inspired by Nicolas Maduro, who days beforepassed a 300 percent minimum wage increase.) And 22 states saw increases in the minimum wage in 2019.
We’ve seen time and again that the minimum wage harms those it purports to help, so why do such laws continue to be written?
Conflicting Incentives
The great economist Ludwig von Mises sheds light on the question.
“No politician is any longer interested in the question whether a measure is fit to produce the ends aimed at,” Mises wrote in The Ultimate Foundation of Economic Science.“What alone counts for him is whether the majority of the voters favor or reject it.”Politicians, Mises is saying, have incentives quite different from workers. And incentives matter a lot.
Politicians, Mises is saying, have incentives quite different from workers. And incentives matter a lot.
The authors of the best-selling book Freakonomicscontend that “incentives are the cornerstone of modern life.” This rule applies to everyone, including “experts” who “use their informational advantage to serve their own agendas.”
Until voters recognize that politicians have incentives that are often quite different from their own, we’re likely to continue to see harmful legislation of this kind.
Gary Reber Comments:
Americans need an income to support a family and meet their living expenses. BUT…
Unfortunately the effects of minimum wage hikes are not short term. They are an endless cycle. The call is to raise the minimum wage to increase purchasing power. Corporations and business do not pay expenses, they merely roll them into their prices to cover them. Once that has been done, increased prices consume the increased minimum wage and consumers that were impacted are right back in the same economic position.
There are ONLY five ways to deal with forcing a 2X minimum wage increase: 1) raises prices on the products and services offered by the employer/OWNER(s) of the business impacted, which are passed onto the business’ customers, 2) further reduce non-human marginal costs of producing such as the cost of materials, etc. 3) save labor by reducing the number of people employed or employ part time labor to avoid paying benefit costs, 4) replace human workers with non-human workers such as machines, robotics, computerization, etc. and 5) reduce profitability of the business
Paying people less than the market wage rate is unjust. That’s obvious. It’s practically the definition of injustice, to pay people less than the market rate, or to withhold pay. Stop and think about it. An employer is buying someone’s labor. If labor is worth X per day at the market rate, but an employer is forced to pay 2X per day, isn’t the employer being cheated? People tend to want to do things in the most efficient way possible, and get as much as possible for the least amount of effort or cost.
Doing more with less comes naturally if you work for yourself, or you own whatever is doing the work, e.g., productive capital. You want as much as you can get for as little cost or effort as possible. No one is harmed, because you bear the cost, whether high or low. You benefit, because you pay.
The wage system distorts this natural tendency, a virtue, into something vicious, that is, a vice. A worker who has only his or her labor to sell is going to want as much as he or she possibly can get for it. Naturally, he or she are also going to want to give as little as he or she can get away with.
If he or she was the only one involved, there would be no problem. Unfortunately, there is the person who is buying the labor, and the people who are buying the good or service that the labor, in part, is being used to produce. If the worker has power, the employer pays more. If the worker does not have power, the employer will pay less. Wages will be just only in the rare instance in which the propertied employer and propertyless worker have equal power.
The only way out is to give workers a stake in keeping costs low so that the natural tendency to do more with less works in favor of everybody, not against them. An aggressive program of expanded capital ownership, such as proposed in the Capital Homestead Act, is therefore not only consistent with nature, it is in everybody’s best interest, morally and economically.
Support the enactment of the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act) athttp://www.cesj.org/learn/capital-homesteading/, http://www.cesj.org/…/capital-homestead-act-a-plan-for-get…/, http://www.cesj.org/…/capita…/capital-homestead-act-summary/ andhttp://www.cesj.org/learn/capital-homesteading/ch-vehicles/. And The Capital Homestead Act brochure, pdf print version athttp://www.cesj.org/…/uploads/2014/11/C-CHAflyer_1018101.pdf and Capital Homestead Accounts (CHAs) at http://www.cesj.org/…/ch-v…/capital-homestead-accounts-chas/
