About the author
Mark Perry Tweets
DC restaurants survived the Great Recession quite well, but are now struggling with the ‘Great Minimum Wage Hikes’
View related content: Carpe Diem
I wrote a few days ago on CD about some of the economic fallout from DC’s minimum wage law (currently $10.50 an hour, rising to $11.50 in less than six months): a) Wal-Mart just announced it is backing out of plans to open two new supercenters on the city’s east side, citing rising labor costs as one reason, and b) restaurant job growth in the District has stalled out over the last few years and turned negative in 2015, at the same time that suburban restaurants are adding thousands of new positions.
In response to: a) some criticism from Richard in the comments below that post (“I think your graph(s) are not completely fair. You are misleading the casual reader I feel.”) and b) a suggestion by Morganovich, I present the new chart above of restaurant employment in DC (dark blue line) and the suburbs of DC (light blue line) from January 2006 to November 2015 with both series displayed on an index scale that is equal to 100 in January 2006. Here are some observations:
1. Like my previous graph, this one shows that DC restaurants were barely affected by the Great Recession, with almost uninterrupted job growth at a time when suburban restaurant employment decreased by nearly 6,000 jobs (and by 3.8%). The relatively minor loss of city food jobs in late 2008 and early 2009 were quickly recovered by late 2009 bringing the District’s restaurant employment to an all-time high by late 2009. In contrast, it wasn’t until early 2011 that suburban restaurants finally recovered all of the recession-related job losses.
2. In the four-year period preceding DC’s first minimum wage hike to $10.50 an hour on July 1, 2014, the city’s restaurant jobs grew an annual rate of 6.1% (and by an average of 2,500 jobs annually), which was higher than the 3.6% growth rate for food jobs the DC suburbs. But once the District’s first minimum wage hike went into effect on July 1, 2014, the city’s restaurant hiring stalled and the growth in food jobs fell to less than 0.40% on annual basis, and only 230 new food jobs were added over the last 16 months (or only about 14 per month). Another way to understand the slowdown in DC restaurant hiring is to consider that the city’s restaurant industry used to add more than 200 new jobs every month (and as many as 300 per month in some years like 2012), and it now takes more than a year to add that many jobs.
In contrast, restaurant employment growth in the suburbs continued to increase since DC’s minimum wage law took effect, and in fact actually accelerated to nearly 4% growth on an annual basis since July 2014. In terms of restaurant jobs, nearly 9,000 new jobs have been added over the last 16 months in restaurants located in the suburbs surrounding DC, which struggled to create only 230 new food jobs during that period. As I mentioned in my previous post, the minimum wage either didn’t increase for suburban restaurants (all of the Virginia suburbs, where the minimum wage is $7.25 an hour and most of the Maryland suburbs where the minimum wage is $8.25 an hour) or increased but remained below the District’s minimum wage (it’s $9.55 an hour in two Maryland counties: Prince George’s and Montgomery).
Bottom Line: Using a different graphical method using an index scale to compare restaurant employment in DC to the suburbs, we have the same conclusions: Restaurants in DC were able to withstand the severe economic effects of the Great Recession in 2008-2009 with only a negligible and short-lived adverse effect on restaurant staffing levels. In contrast DC restaurants are having a much harder time dealing with the city’s “Great Minimum Wage Hikes” of 2014-2016, which may be largely responsible for the significant stagnation in restaurant hiring over the last 16 months. Compared to the 2010-2014 period when DC restaurant hiring was booming at an annual growth rate of 6% and compared to the ongoing boom in restaurant hiring in the suburbs surrounding DC at nearly 4% annual growth, hiring at the city’s restaurants has stalled out to a growth rate close to zero. And with DC restaurants facing another $1 an hour wage increase on July 1, the great DC restaurant stagnation might continue for a long time.
View related content: Carpe Diem
….. is from Ludwig von Mises, writing in Human Action:
A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.
Fallout from DC’s minimum wage law: Wal-Mart abandons plans to expand and the city’s restaurants shed jobs
View related content: Carpe Diem
I wrote on CD last week that some early evidence suggests that DC’s minimum wage law is having a pretty devastating effect on the city’s restaurant employment and presented some of that evidence in the top graph above. Looking at the city’s monthly restaurant employment over the last decade and comparing DC food jobs to the surrounding suburbs in Virginia and Maryland, I concluded that: a) the city’s restaurants survived the Great Recession pretty well without any major job losses, especially compared to the loss of nearly 6,000 food jobs in the surrounding suburban areas, and b) the city’s restaurants are now facing a much bigger struggle following the city’s passage of a minimum wage law in January 2014 that will raise the District’s minimum wage to $11.50 an hour in less than six months. At the same time, the DC suburban restaurants are booming with strong hiring last year of nearly 5,000 new food jobs that brought the area’s restaurant employment to an all-time high in November (see top chart).
The bottom chart is new and brings another perspective to the struggle DC restaurants are now facing. In the five-year period between January 2010 and December 2014, DC restaurants were hiring an average of 187 new food workers every month. Last year though, restaurant hiring stalled out, likely due to rising labor costs, and the city’s food jobs fell by an average 21 every month in 2015 (through November). If jobs had continued to be added at the 2010-2014 rate of 187 per month, there would now be nearly 50,000 jobs instead of the current level below 48,000, which is a gap of more than 2,000 DC food jobs that weren’t created last year due most likely to the current $10.50 minimum wage along with the pending increase to $11.50 on July 1. Add to that known damage of rising labor costs, the additional damage that could come from the successful passage of a $15 minimum wage ballot initiative scheduled for this November, and you’ve got an economic reality that just doesn’t support restaurant expansion in DC. The rising minimum wages in DC and around the country ultimately aren’t really so much about politics as they are more simply about “restaurant and retail math.” And that math of $10.50, $11.50 and $15 an hour labor costs just doesn’t work well for the profitability and survival of restaurants and retailers in a hyper-competitive industry with razor thin margins.
And the fallout from DC’s “economic death wish” — a city minimum wage that might soon be $15 an hour — isn’t only restricted to the District’s restaurants. It is now being reported that Wal-Mart will abandon its plan to open two new supercenter stores on the city’s east side, citing the District’s rising minimum wage, currently at $10.50 an hour, rising to $11.50 in July, and then possibly going up to $15 if the proposed ballot measure is successful this November. That kind of “retail math” just doesn’t work. Here are links to several news reports:
1. Washington Post. “District leaders furious Walmart breaking promise to build stores in poor neighborhoods.”
2. Investor’s Business Daily. “D.C. Minimum-Wage Woes Grow As Wal-Mart Balks.”
3. Forbes (Tim Worstall). “DC’s Minimum Wage Really Does Cost Jobs At Walmart.”
Bottom Line: Expect more economic fallout in DC and other US cities with minimum wage laws that make doing business for restaurants and retailers in those cities economically unfeasible. Whether it’s a small local diner or a large retailer like Wal-Mart, restaurateurs and retailers operate in extremely competitive, “cutthroat” industries with razor-thin margins of 1-6%, leaving very little, if any, room for absorbing labor cost increases of 50-100% that many businesses who hire minimum wage workers are now facing. The economic reality is that restaurants and retailers don’t have a “magic pile of money sitting around” that voters and politicians assume must exist when they burden those businesses with significant, government-mandated wage hikes. The reality of the minimum wage is very simple: it’s one of the most effective business-repellents a city can implement, which is a hard economic lesson that DC should now be learning before it does further economic damage to the city with the pending $15 an hour ballot measure.
View related content: Carpe Diem
Below is my op-ed in today’s Investor’s Business Daily “How the Shale Revolution Has Reduced Geopolitical and Price Risk“:
Despite America’s recent re-emergence as an energy superpower, thanks to revolutionary, Made-in-the-USA extraction technologies, we are still coming to grips with how U.S. shale production has completely rearranged the world’s energy order. As the price of oil plummeted below $30 per barrel, explanations for the collapse have focused on Saudi market strategy and concern about China’s jittery economy, not on the emergence of shale in America.
Even as the U.S. rig count has retreated (see chart above), shale remains the key to understanding the global oil landscape. The lack of geopolitical risk in the oil marketplace is an important clue.
Consider that despite all of the turmoil in key oil-producing regions, namely the Middle East, oil prices have not spiked. They have only continued to slide. Geopolitical risk, which tends to wreak havoc on oil prices at the most inopportune times, is nonexistent. Nothing — not Russian intervention in Syria, not ISIS attacks on Libyan oil infrastructure, not the torching of the Saudi Embassy in Tehran — has been able to stop the oil price collapse.
It’s tempting to dismiss the lack of risk considerations as simply a reflection of the size of the oil glut or the concerns about China’s economy. But that would be wrong. The prices for oil futures contracts get us closer to the real story. Contracts for Brent crude oil futures don’t rise above $50 per barrel until mid-2020. Geopolitical risk hasn’t just been removed from the oil marketplace for the next few months or year, but for the next five years.
What is going on here? Does turmoil in the Middle East suddenly no longer matter? The American shale oil model has changed the world oil marketplace for the foreseeable future. Shale producers’ ability to quickly throttle down or ramp up upstream investment spending, drilling and production, as oil prices change, is viewed as an effective shock absorber against any potential oil price spikes.
Though U.S. oil production has remained stubbornly strong (see chart above) since oil prices began their slide more than a year ago, domestic production is expected to fall this year with $30 per barrel oil. The most recent forecast from the Energy Department calls for a nearly 8% decrease in oil output in 2016 over last year, with further production declines predicted for 2017.
Oil traders have seemingly come to a consensus that even as global investment in new production has been slashed and rigs idled, an uptick in prices would trigger a near-immediate response from U.S. shale fields. The relatively short time between investment decisions and the addition of new production to the market in the new shale model poses quite a contrast to other unconventional sources of production — take slow-developing, deep-water drilling projects in the Gulf of Mexico.
It might seem questionable to continue to promote the vital importance of the American shale revolution. Boasting about it now as the U.S. drilling rig count evaporates might even seem foolhardy. But the oil market has fundamentally changed since shale technologies emerged in America as a free-market triumph.
The full measure of the shale oil model’s impact will be tested when the current crude glut clears and geopolitical risk returns, which is a near certainty. As oil prices eventually rise, will production from America’s shale oil fields rise in tandem and absorb the shock?
The next president is likely to find out, and the answer will almost certainly be “yes.” And maybe that president will do something President Obama has never done — acknowledge the game-changing shale revolution as the most extraordinary energy success story in U.S. history.
Isn’t it something of a miracle that gas is below $2 per gallon and cheaper than almost any liquid consumers buy?
View related content: Carpe Diem
John Stossel wrote this at the end of May 2013 when the price of gas in the US was about $3.65 per gallon:
Annoyed by the price of gas? Complaining that oil companies rip you off? I say, shut up. Even if gas costs $4 per gallon, we should thank Big Oil. Think what they have to do to bring us gas.
Oil must be sucked out of the ground, sometimes from war zones or deep beneath oceans. The drills now bend and dig sideways through as much as 7 miles of earth. What they discover must be pumped through billion-dollar pipelines and often put in monstrously expensive tankers to ship across the ocean.
Then it’s refined into several types of gasoline, transported in trucks that cost hundreds of thousands of dollars. Finally, your local gas station must spend a fortune on safety devices to make sure we don’t blow ourselves up while filling the tank. And it still costs less per ounce than the bottled water sold at gas stations.
Now that gas is below $2 per gallon, let’s consider a long list of liquids besides the bottled water sold in gas stations that are more expensive than gasoline, and in some cases, a lot more expensive. The table above displays the prices of 38 beverages and other common liquid household and food products, based mostly on the retail prices I observed at a large grocery store I visited in January of last year (I’m assuming retail prices haven’t changed much in the last year, although I did update the price of a gallon of milk).
At the top of the list is the cost of the liquid ink in a typical Hewlett Packard printer cartridge. At a cost of $18 for about 15 milliliters of ink in a cartridge, that works out to more than $4,500 per gallon for the ink you use in your deskjet or inkjet printer. Some of the other more pricey liquids on the list are Nyquil, which costs more than $100 per gallon based on a cost of 84 cents per ounce, and premium vodka at a price of more than $75 per gallon when you’re paying $30 for 1,500 ML. Household cleaning liquids and detergents are pretty expensive per gallon — you’re likely paying more than $20 per gallon for Windex window cleaner, more than $18 per gallon for Tide laundry detergent and almost $18 per gallon for Dawn dish detergent. Your mouthwash, shampoo and hair gel will set you back anywhere between $15 and $45 per gallon. Orange juice is almost $12 per gallon and milk at $3.30 per gallon is 74% more expensive than gas today. Sure, you can find some bottled water cheaper than $2 per gallon, but then consider that the price of gas includes an average of almost 50 cents per gallon in federal and state taxes, and I’ll bet that you’ll find almost no other liquid that you buy is cheaper than gas at today’s price of $1.92 per gallon (and less than $1.50 before the average US tax per gallon of $0.48).
As Stossel commented almost three years ago when gas was almost double today’s price, we should really be thanking Big Oil for the miracle of today’s $2 gas. On a per gallon basis, gasoline is one of the cheapest liquids consumers buy – only some bottled water is cheaper as the list above illustrates. And think about how easy and cheap it is to capture and bottle water compared to the very complicated and expensive process requiring billions of dollars of capital equipment and infrastructure that is required to extract crude oil from miles below the ground or from deep below the world’s oceans. And that’s just the beginning. The crude oil then has to be transported globally to the refineries that also require billions of dollars of capital investment and infrastructure to convert and refine crude oil into the gasoline that goes into your car’s gas tank. Likewise, producing and bottling all those other liquids like milk, orange juice, and mouthwash is relatively easy, simple and cheap compared to producing gasoline.
We should also thank America’s risk-taking petropreneurs who spent billions of dollars and many decades trying to “crack the code” that eventually unlocked oceans of unconventional oil trapped in shale rock formations miles below the ground that had previously been inaccessible. Thanks at least in part to the revolutionary drilling technologies of hydraulic fracturing and horizontal drilling, we now have the cheapest gas in history when adjusted for increased fuel economy and higher wages.
Bottom Line: When gasoline is the cheapest liquid you buy (except maybe for some bottled water), as the list above illustrates, you know that gasoline is a real bargain at under $2, just as it would be at $4! It’s something of a miracle and an amazing blessing that gasoline is so cheap, and something we should all stop and appreciate the next time we stop at the pump and fill up our cars with one of the cheapest consumer liquids on the planet, perhaps while drinking some $28 per gallon Red Bull!
Related I: See today’s related CNBC article “Gas cheaper than water? Not so fast.”
Related II: In today’s IBD (“Don’t Thank Obama For $30 Oil“), Steve Moore takes Obama to task for trying to take credit for our $2 per gallon gas in his State of the Union address:
It might have been the biggest jaw-dropping moment during the State of the Union address. “We’ve cut our imports of foreign oil by nearly 60%, and cut carbon pollution more than any other country on Earth,” President Obama proclaimed. “Gas under two bucks a gallon ain’t bad, either.”
Sure, Mr. President. Take a bow for the smashing success of the domestic oil and gas industry you have tried to destroy.
View related content: Carpe Diem
Now that new detailed Census Bureau data are available for US household income in 2014, and just in time for Obama’s final State of the Union address tonight, I present my annual post titled “Explaining Income Inequality by Household Demographics” (see my previous versions of this analysis for years 2009, 2010, 2011, 2012 and 2013).
In December of 2013, President Obama called America’s “dangerous and growing” income inequality the “defining challenge of our time,” and he said he planned to put the topic of income inequality at the center of his agenda during the remainder of his second term. More recently the World Economic Forum cited income inequality in November 2014 as the top threat facing the world in 2015 based on a survey of about 1,800 leaders from academia, business, government, and non-profits. And just yesterday, VP Joe Biden praised Sen. Bernie Sanders for “offering an authentic voice on income inequality.” Biden also told CNN that Hillary Clinton has “come forward with some really thoughtful approaches to deal with the issue of income inequality.
The president and vice-president, the World Economic Forum, and presidential candidates Sanders and Clinton are not alone in their concerns about income inequality – there’s been a lot of discussion on the issue in recent years, especially concerns about “increasing income inequality.” The popularity of that concern is demonstrated by more than 63,000 Google search results for the term “increasing income inequality.” However, there’s apparently not as much attention or concern about “explaining income inequality” (there are only 5,000 Google search results for that term), and that’s the topic that this post will attempt to address.
Most of the discussion on income inequality focuses on the relative differences over time between low-income and high-income American households. But it’s also informative to analyze the demographic differences among income groups at a given point in time to answer the questions like: How are high-income households different demographically from low-income households that would help us better understand income inequality? For low-income households today who aspire to become higher-income households in the future, what lifestyle and demographic changes might facilitate that trajectory to a higher income?
The chart above shows some key demographic characteristics of US households by income quintiles for 2014, using updated data from the Census Bureau’s Annual Social and Economic Supplement. Below is a summary of some of the key demographic differences between American households in different income quintiles in 2014:
1. Mean number of earners per household. On average, there are significantly more income earners per household in the top income quintile households (2.0) than earners per household in the lowest-income households (0.42). It can also be seen that the average number of earners increases for each higher income quintile, demonstrating that one of the main factors in explaining differences in income among US households is the number of earners per household. Also, the unadjusted ratio of average income for the highest to lowest quintile of 16.1 times ($194,053 to $11,676), falls to a ratio of only 3.5 times when comparing “income per earner” of the two quintiles: $97,027 for the top fifth to $27,800 for the bottom fifth.
2. Share of households with no earners. Nearly 63% of US households in the bottom fifth of Americans by income had no earners for the entire year in 2014. In contrast, only 4.1% of the households in the top fifth had no earners in 2014, providing more evidence of the strong relationship between household income and income earners per household.
3. Marital status of householders. Married-couple households represent a much greater share of the top income quintile (78.1%) than for the bottom income quintile (16.9%), and single-parent or single households represented a much greater share of the bottom one-fifth of households (83.1%) than for the top one-fifth (21.9%). Like for the average number of earners per household, the share of married-couple households also increases for each higher income quintile, from 17% (lowest quintile) to 34.3% to 48% (middle quintile) to 64% to 78% (highest quintile).
4. Age of householders. More than 7 out of every 10 households (70.9%) in the top income quintile included individuals in their prime earning years between the ages of 35-64, compared to fewer than half (43.4%) of household members in the bottom income quintile who were in that prime earning age group last year. The share of householders in the prime earning age group of 35-64 year olds increases with each higher income quintile, from 43.4% to 71%.
Compared to members of the top income quintile of households by income, household members in the bottom income quintile were 1.5 times more likely (22% vs. 14.7%) to be in the youngest age group (under 35 years), and more than twice as likely (34.5% vs. 14.5%) to be in the oldest age group (65 years and over).
By average age, the highest three income groups are the youngest (49-50 years) and the lowest income group is the oldest (54.2 years).
5. Work status of householders. About four times as many top quintile households included at least one adult who was working full-time in 2014 (76.8%) compared to the bottom income quintile (only 18.8%), and nearly five times as many households in the bottom quintile included adults who did not work at all (68.8%) compared to top quintile households whose family members did not work (14%). The share of householders working full-time increases at each higher income quintile (18.8% to 46.1% to 60.5% to 69.7% to 76.8%).
6. Education of householders. Family members of households in the top fifth by income were 4.5 times more likely to have a college degree (62.2%) than members of households in the bottom income quintile (only 13.7%). In contrast, householders in the lowest income quintile were about 12 times more likely than those in the top income quintile to have less than a high school degree in 2014 (25.1 % vs. 2.1%). As expected, the Census data show that there is a significantly positive relationship between education and income.
Bottom Line: Household demographics, including the average number of earners per household and the marital status, age, and education of householders are all very highly correlated with household income. Specifically, high-income households have a greater average number of income-earners than households in lower-income quintiles, and individuals in high income households are far more likely than individuals in low-income households to be well-educated, married, working full-time, and in their prime earning years. In contrast, individuals in lower-income households are far more likely than their counterparts in higher-income households to be less-educated, working part-time, either very young (under 35 years) or very old (over 65 years), and living in single-parent households.
The good news is that the key demographic factors that explain differences in household income are not fixed over our lifetimes and are largely under our control (e.g. staying in school and graduating, getting and staying married, etc.), which means that individuals and households are not destined to remain in a single income quintile forever. Fortunately, studies that track people over time indicate that individuals and households move up and down the income quintiles over their lifetimes, as the key demographic variables highlighted above change, see CD posts here, here and here. And Thomas Sowell pointed out in his column “Income Mobility” that:
Most working Americans who were initially in the bottom 20% of income-earners, rise out of that bottom 20%. More of them end up in the top 20% than remain in the bottom 20%. People who were initially in the bottom 20% in income have had the highest rate of increase in their incomes, while those who were initially in the top 20% have had the lowest. This is the direct opposite of the pattern found when following income brackets over time, rather than following individual people.
It’s highly likely that most of today’s high-income, college-educated, married individuals who are now in their peak earning years were in a lower-income quintile in their prior, single, younger years, before they acquired education and job experience. It’s also likely that individuals in today’s top income quintiles will move back down to a lower income quintile in the future during their retirement years, which is just part of the natural lifetime cycle of moving up and down the income quintiles for most Americans. So when we hear Obama, Bernie Sanders, Hillary Clinton and the media talk about an “income inequality crisis” in America, we should keep in mind that basic household demographics go a long way towards explaining the differences in household income in the United States. And because the key income-determining demographic variables are largely under our control and change dynamically over our lifetimes, income mobility and the American dream are still “alive and well” in the US.
How about government-mandated ‘living temperature laws’? Sound absurd? Well, so are minimum (‘living’) wage laws
View related content: Carpe Diem
In an excellent post at the Cafe Hayek blog, Don Boudreaux makes a cogent and convincing case that government-mandated price controls like minimum wage laws are damaging to the economy and society because they: a) misrepresent reality and spread false information (i.e. “lies”) about economic conditions, b) are a form of government censorship and the economic equivalent of fraudulent reporting, and c) inflict economic damage on society that make us all less prosperous. Here’s a slightly shortened version of Don’s argument (my emphasis):
Price controls – any government-imposed price controls, be they price ceilings (such as prohibitions on so-called “price gouging” in the aftermaths of natural disasters) or price floors (such as minimum wages) – blind us to the full range of reality that we would see and respond to absent such controls. Price controls distort and restrict our vision. They misrepresent reality. They spread lies about the relative values that buyers attach to different goods and services and about the relative sacrifices that suppliers must make to exchange different goods and services with buyers.
Price controls are a form of government censorship of people’s ability to communicate to each other information about economic reality. Price controls are the economic equivalent of fraudulent reporting – the economic equivalent of arrogant, idiotic, and brutish government officials ordering newspapers and magazines and websites to report that X occurred when in fact X did not occur, and also of such government officials threatening to cage or kill journalists who report truthfully that Y occurred.
People who support government-imposed price controls believe that society is made more prosperous, harmonious, or fair by institutionalized deceptions.
Don’s discussion of the adverse effects of government price controls (i.e. “government lies”) reminded me of a similar argument that I’ve made several times before on CD pointing out the damaging defects of government price controls by comparing them to government temperature controls. Here’s an updated version of my government temperature control analysis that last appeared on CD in October 2013. I make reference to pending Congressional legislation (H.R. 1010) that would increase the federal minimum wage to $10.10 per hour from its current $7.25 (“The Fair Minimum Wage Act”).
Q: Couldn’t the government intervene in the market for temperature-reading equipment to counteract “excessively low” winter temperatures or “excessively high” summer temperatures, just like federal, state and city governments intervene in the labor market for unskilled and limited-experience workers to counteract “excessively low” wages for those workers (or intervene to outlaw “excessively high” prices following natural disasters)? Let me explain.
In Defense of the Minimum Wage Law:
Unskilled and limited-experience workers are at the mercy of greedy, cold-hearted, ruthless, profit-seeking employers, and minimum wage workers getting paid just $7.25 an hour do not even earn enough to pay the bills, much less aspire to the American Dream. Without some kind of government intervention in the unskilled labor market, employers will ruthlessly exploit unskilled workers, and pay them unacceptably low wages that undermine our economy.
To counteract this injustice in the labor market for unskilled workers, our collective sense of fairness and justice demands legislation that will force employers to pay a minimum wage of $10.10 per hour following the passage of the Fair Minimum Wage Act (or to $15 an hour if the “Fight for 15” movement and its advocates like Bernie Sanders and the NY Times editorial board are successful). Wages below that minimum are unconscionably low and are actually “immoral” according to one of the bill’s original co-sponsors, and will be outlawed by the federal minimum wage legislation, with violations subject to penalties, fines and possible jail time for any employer paying hourly wages below the government-mandated minimum wage of $10.10.
In Defense of the Minimum Temperature Law (or Living Temperature Laws):
Even though this winter is relatively mild so far in the US, the thousands of cold weather-related deaths that take place annually in the UK, the US and elsewhere firmly establish that we are at the mercy of a very cruel, ruthless, merciless, cold-hearted, and uncaring force: Mother Nature.
Something must be done about this unacceptable situation. Without some kind of government intervention in the market for low temperature readings being registered on existing thermometers and thermostats, Mother Nature will continually and ruthlessly expose the elderly in the UK, America and other cold climate countries to harsh winter conditions of unconscionably low temperatures. Who among us wouldn’t agree that these excessively low winter temperatures are unfair, unreasonable, unjust and even immoral?
To counteract this inherent cold weather injustice and Mother Nature’s ongoing lack of concern for cold Brits and Americans, our collective sense of fairness and justice requires legislation that will force all thermostats and thermometers sold in the United Kingdom and the United States to have a minimum, reasonable and fair temperature reading of let’s say 0 degrees Fahrenheit. As part of a newly proposed “Fair Minimum
Wage Temperature Act of 2016” for the US, all existing thermometers and thermostats in homes, offices, and businesses should be immediately replaced with new temperature-reading equipment with a minimum reading of 0 degrees Fahrenheit.
Any temperatures below that minimum (e.g. -10 degrees F. or -20 degrees F.) are considered to be unfair, immoral and unconscionably low, and will be illegal and outlawed by the Fair Minimum Temperature Act of 2016, with violations subject to penalties, fines and possible jail time for thermostat manufacturers continuing to sell thermostats with temperature readings below the government-mandated minimum temperature. Further, all news and weather reports, all TV and radio stations, and all newspapers and websites are immediately prohibited from quoting any temperatures below the federally mandated minimum of 0 degrees F.
If successful this winter, subsequent legislation for a “Fair Maximum Temperature Act of 2016” should be considered for summer months, e.g. a maximum allowable temperature reading of 85 degrees Fahrenheit on all thermostats to control Mother Nature’s unfair “temperature gouging” and “temperature scalping” during the hot summer months, frequently leading to weather-related deaths. Let’s all rally around “Living Temperature Laws” to promote more comfortable living in America.
Bottom Line: If the proposed Minimum/Maximum Temperature Laws seem ridiculous, that’s because they are totally ridiculous. And so is the
Minimum Wage Law.Unfair Government Mandate Preventing Thousands of Unskilled Workers from Finding a Job. Forcing employers to pay an unskilled worker $10.10 per hour (or $12 as proposed by Hillary Clinton and $15 an hour as is currently being proposed by Bernie Sanders and the NY Times, among others) won’t change the reality that many of those workers are actually only worth $7 or $8 per hour in the labor market. The artificially high minimum wage causes distortions and inefficiencies in the unskilled labor market because the minimum wage does not accurately and truthfully reflect many workers’ true productivity, and it’s like creating a government-mandated fantasy world (or government censorship and lies, according to Don above). A disconnect is created between the true measure (e.g. $7 per hour) and an artificial, government-mandated measure ($10.10, $12 or $15 an hour), of a worker’s value or productivity.
Likewise, imposing minimum and maximum temperature laws (“living temperature laws”) would create a government-mandated fantasy world about weather conditions, with a disconnect between the true temperature (e.g. -20 degrees or 100 degrees F) and an artificial government-mandated minimum or maximum temperature (0 degrees or 85 degrees F). And just like the minimum wage law creates distortions and havoc in the labor market, so would the minimum temperature law create havoc for Americans, because thermostats would be conveying inaccurate measures of the true temperature when it is extremely cold or hot.
When it comes to the weather, what we want is the most precise measure possible of the temperature, and we get those readings from accurate thermostats and thermometers, not from artificial, fantasy readings from instruments regulated by government-mandated minimum or maximum (“living”) temperature laws. When it comes to maximizing the efficiency of the labor market, what we want are accurate, truthful and precise measures of worker productivity, and we get those from market wages, not from artificial, government-mandated minimum (“living”) wage laws.
Economic Conclusion: There are really only ever two choices: a) market-determined prices and wages that reflect accurate, up-to-date, honest, and truthful information about conditions of supply and demand (think of frequent changes in the market price for a barrel of oil as one example), or b) government-mandated prices and wages that reflect dishonest, deceptive, untruthful, fraudulent, inaccurate, false and distorted information about market conditions (e.g. a worker whose productive labor value is worth only $5 an hour to an employer who now cannot be paid less than $10.50 or $15 an hour). Likewise, there are only two choices: a) accurately determined temperature readings from reliable temperature-measuring instruments, or b) inaccurate, deceptive and fraudulent temperature readings from temperature-reading instruments that have been limited and distorted by government fiat.
Q: For those who agree that government-mandated temperature control laws would be a total disaster, how then is it possible for you to support government-mandated price and wage controls?
Update: Good comment from Twitter about this CD post: “I support Living Temperature Laws.”
Seattle food jobs ‘soaring’? At only 0.67% growth last year and by several comparisons, ‘anemic’ seems more accurate
View related content: Carpe Diem
Writing in Forbes, Erik Sherman writes an article with the bold headline “Seattle Food Jobs Soar After $11 Minimum Wage Starts.” Sherman reports BLS employment data showing that the “Net gain from January to November was 900 [Seattle food] jobs,” which is displayed graphically in the top chart above (light blue line). Further, Sherman writes:
It’s impossible to say that the increased minimum wage, or anticipation of the hike, had no influence on the number of food jobs. Perhaps restaurant employment would have grown faster (although that would have been out of step with the overall historical trends in the area). Maybe some number of restauranteurs or food franchise owners gave up and closed shop with increased wages adding to other pressures. But what is clear is that the $11 minimum wage failed to crush restaurant employment as opponents apparently hoped to prove.
If Seattle food jobs are really “soaring,” I guess the main question would be “soaring compared to what?” And by several different relevant comparisons, I come to a much different conclusion: food jobs in Seattle have actually stagnated quite dramatically starting in January of last year (see top chart above). Consider that in 2013 net Seattle area restaurant hiring increased by 6% followed by a nearly 5% growth in restaurant employment in 2014. In contrast, restaurant jobs in the rest of the state increased by 3.6% in 2013 and actually fell by -0.2% in 2014. On May 1, 2014, the Seattle city council passed a $15 an hour minimum wage law that mandated increases to $11 an hour on April 1, 2015 followed by further increases to $13 an hour starting last week and $15 an hour next January 1 (the phase-in schedule varies by business size and fringe benefits provided). So it would make sense that Seattle restaurant owners, some anticipating pending increases in labor costs of 62% for minimum wage employees (from $9.25 an hour in 2014 to $15 by as early as next January), would cut back on hiring starting at the beginning of last year – and that’s exactly what we see in the top chart above. Here are some other observations about the data trends highlighted in the three charts above:
1. As Sherman acknowledges, there’s been a +900 job gain at Seattle area restaurants in the first 11 months of last year. But on a percentage basis that’s only a 0.67% increase in food employment last year. Is that “soaring?” And again the most relevant question would be “soaring compared to what?” Well, let’s start by comparing Seattle restaurant job gains to the rest of the state (subject to a minimum wage of $9.47 an hour both last year), where restaurant jobs increased by 6,700 jobs last year and by a whopping 7.7% — or 11.5 times the growth rate of Seattle restaurant jobs. Food jobs “soaring”? Certainly in the rest of the state, but definitely not in Seattle!
2. The second chart above highlights the differences discussed above (7.7% growth for non-Seattle restaurant jobs in Washington state vs. 0.67% for Seattle last year) and provides some additional comparisons to help address the question: “Soaring compared to what?” On a national basis, restaurant hiring increased by 2.7%, which was more than four times the 0.67% growth in Seattle restaurant hiring last year. Some addition context is provided by comparing Seattle restaurant job growth of 0.67% last year to overall payroll job growth over the same period for the Seattle area (2.2%, or 3.3 times the Seattle restaurant employment), the entire state (2.0%, or 3 times Seattle restaurants) and the country (1.5%, or 2.2 times Seattle restaurants). Therefore, we could conclude that Seattle restaurant jobs (at 0.67%) are not “soaring” compared to: a) restaurant job growth in the rest of the state (7.7%) and the country (2.7%) last year or b) compared to overall payroll growth in Seattle (2.2%), the state (2.0%) and the US last year (1.5%).
3. How does Seattle MSA restaurant job growth of 0.67% last year in the new era of the “$15 an hour Seattle minimum wage” compare to previous comparable periods historically? The bottom chart above displays Seattle area restaurant job growth during the period between January and November in each of the 26 years back to 1990 (earliest year available). Except for years during recessions (1991, 2001, 2008 and 2009), Seattle restaurant job growth at 0.67% last year was the weakest year for hiring in the last quarter century! Seattle food jobs “soaring” last year? Certainly not compared to any of the past non-recessionary years since 1990!
Bottom Line: Seattle is leading the national movement toward imposing a $15 minimum wage on America’s employers who hire unskilled and limited experience workers, including restaurant workers. Many restaurant owners in the Seattle area are facing $5.80 an hour (and 62%) increases in their labor costs as the city’s minimum wage goes from $9.25 to $15 an hour. It shouldn’t be surprising then that the city on the leading edge of “Fight for $15” experienced sluggish growth in area restaurant hiring last year. By a number of relevant comparisons, Seattle food jobs are really not “soaring,” but have demonstrated very weak growth starting in January of last year. Compared to the growth last year in food jobs in the rest of the state (+7.7%) and the rest of the country (+2.7%) as demonstrated in the top two charts above, and compared to previous years over the last quarter century (see bottom chart above), the 0.67% growth last year in Seattle restaurant payrolls can’t be described as “soaring.” Terms like lackluster, feeble and anemic seem more accurate based on the data displayed in the three charts above.
Related: Among academic and professional economists, nearly three-quarters (72%) oppose a $15 an hour federal minimum wage and only 5% strongly support it, according to a recent survey conducted by the University of New Hampshire Survey Center.
Update 1: In response to several comments from “John of the Prairie/John A.” I present the new chart below of restaurant jobs in Seattle’s neighboring state of Oregon and its major city – Portland. Oregon has a uniform state minimum wage of $9.25 an hour that was in effect last year and will stay the same this year. How do food jobs in Portland compare to the rest of the state when there is no difference in minimum wage? Well, as might be expected there’s not much difference when there’s no significant difference in labor costs.
For example, in the last four full years (2011-2014) restaurants jobs in Portland grew at rates of 2.3%, 4.7%, 3.7% and 5.3% , which were comparable to food job growth rates in the rest of the state of 2.1%, 3.6%, 4.3% and -0.4%. In the first 11 months of last year, Portland food jobs grew at 3.3% vs. 3.9% in the rest of the state. Therefore, in Washington’s neighboring state of Oregon, which has a uniform state minimum wage, we see similar growth rates in restaurant jobs in the state’s major city (Portland) and the rest of the state outside Portland. That’s a much different restaurant job pattern than we see in the state of Washington (top chart above), where there is a significant departure in restaurant employment growth rate following the passing of a city minimum wage in Seattle that raised labor costs for city restaurants well above the rest of the state.
Update 2: See bottom chart below that displays: a) Atlanta MSA food services employment vs. b) Georgia state food services employment without the Atlanta MSA. Like for Portland and Oregon, Atlanta and Georgia are covered by the same minimum wage law. And also like Portland and Oregon, we see similar growth rates in restaurant jobs in Atlanta and the rest of the state. And in 2015, restaurant jobs grew much faster in Atlanta (4.7%) versus restaurant employment in the rest of the state (0.30%). Further, while not shown here graphically, we find a similar pattern in New Orleans vs. the rest of the state of Louisiana (where the minimum wage is the same) — restaurant employment in New Orleans grew last year at a 3.8% rate compared to a growth rate in the rest of the state of 0.1%.