Prices are related to supply and demand. When supplies are low relative to demand, prices go up. When supplies are high relative to demand, prices go down. When demand goes down relative to supplies, prices go up. When demand goes up relative to supplies, prices go down. When prices are set, then supply or demand will change to reach a new equilibrium.
I’m not aware of any valid evidence of exceptions. The relationship applies even in centrally-planned Communist countries, where supply and demand are impacted by central planning bureaus set both price levels and production goals. If the price is set lower than the price that would be negotiated between buyers and sellers, then shortages occur. If the price is set higher than the price that would be negotiated between buyers and sellers, then products sit unsold in warehouses, or more likely, get stolen and sold on the black market.
The same relationship exists in the market for hourly labor. If the price of labor is set higher than the price that would be negotiated between employer and employee, then a shortage of jobs occurs.
In Seattle, the city council unanimously passed a law phasing in $15/hr minimum wage, which at the time was the highest in the country. Proponents of the law immediately deemed it a success, without waiting for much less looking for any evidence of higher unemployment.
If you claim that “all swans are white”, you can’t prove that statement by showing me a white swan. You can’t prove it at all; you can only show me that your good-faith effort to find a non-white swan hasn’t produced any…yet. Your claim is good until and unless you go to someplace like Australia, where black swans occur. Absence of evidence does not constitute evidence of absence.
Similarly, if you claim that raising minimum wage doesn’t increase unemployment, then to support that claim, you need to make a good-faith effort to look for people who lost their jobs after the wage increase.
The first restaurant to announce layoffs was zPizza on Capitol Hill near Seattle Central Community College. The owner didn’t just lay off all her staff—she had to shut down. She said she didn’t want to lay off her staff, but she didn’t know how to make payroll.
Instead of looking for evidence of job losses themselves, proponents of the minimum wage increase were quick to discount the evidence found by others:
You might remember that a few months ago, the Seattle zPizza location announced its looming closure and said the city’s $15 minimum wage law was to blame.
The story became national news, offered as a cautionary tale about the impact of higher wages. Never mind local unemployment is below 4%. Never mind that more than a dozen pizza joints were hiring that very week. Never mind that there are more restaurants licensed for business in Seattle than before the $15 law passed.
Now a new pizza place is set to move into the very same location that zPizza is leaving.
Remember that pizza place that said it was closing because of $15? Everything they said was wrong.
Remember that pizza place that said it was closing… When did pizza places ever say anything? It was the owner who said it was closing. This misattribution is part of a pattern of inaccuracies, generalities, and distortions in the author’s thought processes.
Everything they said was wrong. Assuming “they” is the owner, the article doesn’t provide a single specific example of anything she said that is wrong. It doesn’t provide a single example of anything that anyone else said that is wrong. The whole editorial is full of non-sequiturs—that is, reasons that don’t logically justify their claims.
“Never mind that more than a dozen pizza joints were hiring that very week.” How is that relevant? Assuming that the claim is true, what matters is whether the trend is rising above its moving average, or falling.
Now a new pizza place is set to move into the very same location that zPizza is leaving. How is it that the new management is able to make positive cash flow when the previous management couldn’t? Oh, here’s how:
The space of more than 1,700 square feet cost her more than $7,000 in rent each month. Shah-Burnham said 33 percent of her budget went toward labor costs, and raising the wages that fast would have been unsustainable.
She closed the shop after July 4.
Now the space will become Ian’s Pizza, which currently has four stores in Wisconsin and one in Colorado.
Because they have fewer than 500 employees at these stores, Ian’s Pizza will be on a different schedule.
For small employers, they must pay $15 an hour by 2021. For small employers who pay health benefits, they must pay $15 an hour by 2019, which includes a minimum of $12 in cash and a minimum of $3 in benefits.
A tale of two pizza joints: Seattle’s minimum wage for franchise owners
The new pizza operator isn’t required to pay the higher minimum wage yet! The previous one was on a different schedule because of the size of her parent company—which in no way changed her costs or profit margins. In other words, the new pizza restaurant Working Washington offers as “proof” that the higher minimum wage rate wouldn’t result in higher unemployment isn’t actually paying the higher rates!
The lobbyists for the minimum wage increase didn’t disclose this information. They’re only looking for evidence to support their bias, not evidence that contradicts their bias. They’re trying to prove that all swans are white by looking for white swans, not black swans.
It’s worth addressing another argument for higher minimum wages: that wages in general are not keeping up with the cost of living.
That’s true, but irrelevant. The assumption is that corporate profits are keeping up with, or maybe even surpassing, the cost of living, and that workers aren’t getting their fair share.
Which corporations are we talking about? Halliburton? Apple Computer, with its offshore sweatshops? How about all the companies that have hiring preferences for holders of H1B visas? These are not major sources of employment within the USA. At least in the USA, most wage-earners work for a small business, the ones with thin profit margins.
Stagnating wages are a symptom of “peak economy”; nobody can simply regulate them higher, without triggering higher prices elsewhere. It’s a game of trying to minimize your own losses.
There are a number of possible ways that employers can respond to rising minimum wages. They might have to shut down their business completely, especially if they were never particularly well-capitalized in the first place, which is generally true of small businesses. That’s what happened to zPizza. They can automate more of their operations, which is what bigger and better-capitalized businesses tend to do. That’s what several fast-food restaurant chains are planning to do, replacing cashiers and order-takers with automated kiosks. Some can use subsidized labor, and a few can get away with using black-market labor. The overall trend will be net loss of job.
- Plan to enter the workforce as something comfortably above “entry level” labor. Being able to do so requires job-ready skills and experience.
- Don’t start a business that is dependent on entry-level labor; it will be expensive relative to its productivity.
- Beware of starting a business that is vulnerable to the job losses of low wage earners. An example would be low-income housing; your tenants would stop paying the rent after losing their jobs.