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Harvard Study: raising minimum wage makes restaurants more likely to fail (1 Viewer)

Chaka said:
Not at all.  Any level on which you want to point differences by parsing language is merely a distraction from the point.
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It's unclear what your point is- if it's the first comment, I think you're absurd. If it's the second, I agree with it (to some degree). They aren't remotely the same thing, however.

Chaka said:
Virtually everyone who has any degree of economic success in this life on some level (sometimes overt, sometimes subtly) believes that they are entirely self made and did not experience any form of luck or assistance on the way.
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Chaka said:
I am saying that when telling the story of their success people emphasize (exaggerate) their personal accomplishments and understate, or completely ignore, all the help and luck they had along the way.

Don't take that to mean that successful people don't work hard to achieve, of course many (most) do, or that hard work won't lead to success. It's just that is not the only factor and may not be the most important one. If it only took hard work then a lot of the working poor would not be working poor. Look into the stories of some of the working poor they put in an insane amount of work and more often than not they are not rewarded for it. You need help and luck along the way.
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humpback said:
It's unclear what your point is- if it's the first comment, I think you're absurd. If it's the second, I agree with it (to some degree). They aren't remotely the same thing, however.
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Not unclear in the least. My guess is you are taking exception with the words "entirely" and "any". If you prefer to read them as "mostly" and "much" knock yourself out (if you have a problem with "Virtually every" that's on you).

As I said, parsing language distracts from the point.  

People who believe they are self made rarely, if ever, are telling the whole story.  To be fair, they may not even understand the whole story but be it a lie of commission, or a lie of omission or just plain ignorance they still aren't telling the whole story.

 
Chaka said:
Not unclear in the least. My guess is you are taking exception with the words "entirely" and "any". If you prefer to read them as "mostly" and "much" knock yourself out (if you have a problem with "Virtually every" that's on you).

As I said, parsing language distracts from the point.  

People who believe they are self made rarely, if ever, are telling the whole story.  To be fair, they may not even understand the whole story but be it a lie of commission, or a lie of omission or just plain ignorance they still aren't telling the whole story.
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I prefer to read the actual words that were written, not pretend that you used different words.

The reason I replied is because I honestly couldn't tell if you were saying that statement was a myth. It's now clear that you were not, but your statement is ridiculous. Most people realize that at least a small portion of their success is due to luck/circumstances.

 
drummer said:
What I am saying is the price of housing in SF is way over valued IMO, and maybe she would should think about not buying into that market. 

Professional athletes complain about the price of housing there. It's just the way it is in the Bay Area
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I think we can all agree with that. Probably the single biggest factor as to why I live in the Twin Cities and not in the Bay area. 

 
the moops said:
I think we can all agree with that. Probably the single biggest factor as to why I live in the Twin Cities and not in the Bay area. 
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A buddy of mine who still lives in SF and has for almost 20 years has had it. He is now moving to Durham NC. I won't move back to SF, although Napa is still a place I would love to reside in. 

 
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Actually they also mentioned how a raise in a 3 star restaurant rent also leads to more closures. In fact any cost increase to a mediocre restaurant is likely to increase it chances of closing. Because they generally have blah food and worse service they can't make any kind of price increase to cover costs and so they go down. And it should be remembered about 60% of all new restaurants fail in year one. About 80% fail within 3 years. Regardless of wage changes. Lousy restaurants with piss poor management fail every day in place that haven't raised wages in years. It should further be pointed out that their study says nothing about how these closures actually affect employment. So closures in and of themselves may not be all that impactful to employees or the local economy.

 
NCCommish said:
Actually they also mentioned how a raise in a 3 star restaurant rent also leads to more closures. In fact any cost increase to a mediocre restaurant is likely to increase it chances of closing. Because they generally have blah food and worse service they can't make any kind of price increase to cover costs and so they go down. And it should be remembered about 60% of all new restaurants fail in year one. About 80% fail within 3 years. Regardless of wage changes. Lousy restaurants with piss poor management fail every day in place that haven't raised wages in years. It should further be pointed out that their study says nothing about how these closures actually affect employment. So closures in and of themselves may not be all that impactful to employees or the local economy.
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only thing worse than being a server in a restaurant is being an investor.  It's not like people are making fortunes in the restaurant biz unless they have 10-12 of them.  Plus, the smaller ones treat their staff like family.  They don't want to pay them little, they just have no choice.

 
Chaka said:
And now with the myths.

Virtually everyone who has any degree of economic success in this life on some level (sometimes overt, sometimes subtly) believes that they are entirely self made and did not experience any form of luck or assistance on the way.

The assistance pointed to in the study above is effectively a myth. It isn't assistance if a person cannot take advantage of it and frankly it isn't even there when they need it most.

How much more should a single parent have to work to get out of they cycle of poverty, than a person who had far more advantages in life to help them be successful? Is working multiple jobs while having to take public transportation to work and day care twice a day (point being what could be a 20-40 minute commute in a car can easily turn into a 3 hour commute if you have to rely on public transportation) while relying on their employer to be understanding of their life constraints. What happens when one of the children gets sick? Where does the money come from to pay for that or cover lost wages (opportunity costs)? Where does the lost time at work get made up, if they are not fired because they had to miss a day, or several, to care for a sick child? If they are lucky enough to have a car what happens when it breaks down?  The vast majority of the poor are hard working people trying to care for their families just like the rest of us. But one negative life event, like an illness or broken down vehicle, that many of us view as an inconvenience can be insurmountable for them. Public assistance isn't fixing their car, it isn't providing in home care for sick family, so the parent can continue to work the social safety net, that people like to tout in the study referenced above is a myth.
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Posts like this show inexperience with the working class as well as with their managers. Most people are not hard workers. Most warehouse/crew/shop managers are thrilled when they get one. 

So sure the warehouse guy that climbs the ladder to ceo is pretty much a myth, but the guy that moves up to warehouse lead at a small company and ends up as warehouse supervisor at another and then perhaps warehouse manager, is incredibly real and just takes some work ethic.

 
So on the subject at hand it basically says mediocre independent restaurants can't stand cost pressure because they aren't good enough to justify price increases. 

So what we have here is reading a headline getting your bias confirmed and running with it. Without really knowing what the study does or does not say.

And in fact that headline runs counter to the real world experience of people in this business saying that the rising wages have corresponded to more sales and profits for them. Study after study makes it clear that in the overall minimum wage increases don't negatively impact employment and it is accepted economic basics that the people who benefit most from a rising minimum wage spend it stimulating the economy.

Need to do better Tim.

 
NCCommish said:
So on the subject at hand it basically says mediocre independent restaurants can't stand cost pressure because they aren't good enough to justify price increases. 

So what we have here is reading a headline getting your bias confirmed and running with it. Without really knowing what the study does or does not say.

And in fact that headline runs counter to the real world experience of people in this business saying that the rising wages have corresponded to more sales and profits for them. Study after study makes it clear that in the overall minimum wage increases don't negatively impact employment and it is accepted economic basics that the people who benefit most from a rising minimum wage spend it stimulating the economy.

Need to do better Tim.
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In New York City, rent is the factor that restaurants point to more often.  You see successful restaurants, places that are doing well, close when the lease comes up for renewal.  

Dany Meyer, top 3 NYC restauranteur, closed Union Square Cafe (they have published their own cookbook) because the rent went up.  The landlord is asking 54 grand a month for a not-huge space.  Priced out of a neighborhood he helped revitalize.  

That's not even a very good example, there are much better ones here, where you see signs from busy places, ''Closing party, lost our lease!''

But how do you tell owners to take less rent?  You don't, of course.  So the only places that can afford leases are chain drugstores and Starbucks, and banks.  Which is all we have here anymore.  

 
massraider said:
In New York City, rent is the factor that restaurants point to more often.  You see successful restaurants, places that are doing well, close when the lease comes up for renewal.  

Dany Meyer, top 3 NYC restauranteur, closed Union Square Cafe (they have published their own cookbook) because the rent went up.  The landlord is asking 54 grand a month for a not-huge space.  Priced out of a neighborhood he helped revitalize.  

That's not even a very good example, there are much better ones here, where you see signs from busy places, ''Closing party, lost our lease!''

But how do you tell owners to take less rent?  You don't, of course.  So the only places that can afford leases are chain drugstores and Starbucks, and banks.  Which is all we have here anymore.  
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Yeah I have seen this happen recently. A very popular seafood restaurant in place for at least 20 years and I mean packed regularly, was forced to close when the landlord nearly tripled their rent because a neighborhood Walmart was moving into the shopping center. Guy just couldn't afford it without a massive price increase that would have killed him anyway. In fact that closed several very long running businesses in that center.

 
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parasaurolophus said:
Posts like this show inexperience with the working class as well as with their managers. Most people are not hard workers. Most warehouse/crew/shop managers are thrilled when they get one. 

So sure the warehouse guy that climbs the ladder to ceo is pretty much a myth, but the guy that moves up to warehouse lead at a small company and ends up as warehouse supervisor at another and then perhaps warehouse manager, is incredibly real and just takes some work ethic.
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FTR I have been a small business owner since 2007, in California no less which most agree is not the most "business friendly" state. But, unlike some other business owners I don't mind contributing to a worker friendly economy.

Saying that "Most people are not hard workers..." is simply a fallacy. Of course there are plenty of people that are average workers, by definition there has to be (it's the fat part of the bell curve) if everyone was exceptional then exceptional would become average. But there is a big difference between being average and not working hard.

And of course hard work is a key component but it takes far more than just hard work to move up the ladder, be it from the warehouse or the board room. If it took only hard work the poverty problem in our country would be far smaller than it is today. One needs some combination of opportunity, assistance and a more than a bit of good ol' fashioned "right-place-right-time" luck.

 
massraider said:
In New York City, rent is the factor that restaurants point to more often.  You see successful restaurants, places that are doing well, close when the lease comes up for renewal.  

Dany Meyer, top 3 NYC restauranteur, closed Union Square Cafe (they have published their own cookbook) because the rent went up.  The landlord is asking 54 grand a month for a not-huge space.  Priced out of a neighborhood he helped revitalize.  

That's not even a very good example, there are much better ones here, where you see signs from busy places, ''Closing party, lost our lease!''

But how do you tell owners to take less rent?  You don't, of course.  So the only places that can afford leases are chain drugstores and Starbucks, and banks.  Which is all we have here anymore.  
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Rent is too damn high!

 
drummer said:
A buddy of mine who still lives in SF and has for almost 20 years has had it. He is now moving to Durham NC. I won't move back to SF, although Napa is still a place I would love to reside in. 
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I used to think that I would have a retirement home in Napa.  Now that you have to spend $200-300 a day to taste wine, I can actually care less about being there anymore.  Napa used to be so much fun however, the business side of the tasting rooms has all but wiped that away from me now. 

 
It’s hard for me to care about the loss of low wage jobs when unemployment is less than 4%. (And, yes, I know about discouraged workers.)

I’m not a fan of that proposed NYC law though.

 
Juxtatarot said:
I view it as society subsidizing companies by allowing them to pay workers below a livable wage.  If a company can't afford to appropriately pay it's employees, yes, I think they should go out of business.  The challenge for our society should be to create/maintain livable wage jobs.  Not to enable this cycle of dependency on government.
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I hold exactly the opposite view.

I fully support a social safety net -- what you seem to be referring to as a "cycle of dependency on government." I think a Basic Income Guarantee would be the best solution. If that's not politically feasible, a whole range of voucher-type things -- food stamps, Section 8 housing, Medicaid, expanded Social Security, etc. -- would be next best.

Income inequality -- poverty, specifically -- is a real problem. We're a rich society, so we're not helpless to do something about it, and we should. "Do something" is pretty vague, though. We should try to do something that's effective, and that causes as few harmful side-effects as possible. It also has to be politically feasible.

Minimum wage laws have a few things going for them. The two main ones are: (1) they almost certainly are progressive rather than regressive on the whole (i.e., insofar as they represent a transfer from Group 1 to Group 2, it is very likely that Group 1 is wealthier than Group 2*); and (2) they do enjoy wide political support. If the choice is between having a minimum wage and doing nothing, I'd vote for having a minimum wage. And that may actually be our choice at the current margin -- which is to say that expanding Social Security and the like may not be politically feasible right now. If we're going to have more poverty relief presently, increasing the minimum wage might be our only real choice.

(*This is not completely obvious. Minimum wage laws price the least-skilled workers, the ones who are already at the lowest rungs of income, out of the market. It makes the poorest of the poor less likely to find employment, which is a regressive effect. But taken as a whole, the effect on low-wage workers as a group, is to restrict output and raise prices -- exactly as a monopolist would. Monopolists do this because even though they'll sell fewer widgets, the higher price per unit more than makes up for it. The same is likely true in the labor market, where even though fewer people will be employed, the higher wage per worker will make workers in general -- though not each individual worker -- better off as a group.)

If so, that would be a shame, in my view, because it's a poor choice compared to various alternatives.

The problem with minimum wage laws is that, as with all price controls, they screw up markets that otherwise function very well at doing what they're supposed to do.

One thing that markets aren't good at, because it's not what they're supposed to do, is to provide everyone with a living wage. Bananas are also not good at this. That doesn't mean that bananas are horrible and evil and should be avoided. It just means that if we want to provide everyone with a living income, we should not rely on bananas for that purpose. The results would be bad. It's kind of the same principle (although admittedly a bit less stupid) to rely on the labor market to provide everyone with a living income. We can try by forcing price controls onto it, but there will be some unfortunate consequences.

To understand those consequences, we first have to understand what markets do really well, and how. But I'll skip over that part because it involves a lot of typing. Suffice it to say that in a free labor market, while not everyone will earn a living wage, employment would be high, and the trade-off between monetary and non-monetary compensation would be in line with workers' preferences [as long as they are fully informed and are rational about things like safety risks, which can be debated, but that's kind of another topic]. The effects of minimum wage laws include reducing employment and/or pushing compensation from non-monetary to monetary in a proportion that decreases worker satisfaction overall.

In more concrete terms, when you raise the minimum wage from $9 to $10, it could reduce employment, at least by a little, but the more prominent effect is likely to be reduced non-monetary perks -- employers turning down the air conditioning at work, offering fewer (or worse) employer-sponsored meals, offering fewer paid personal days, and so on. When you raise the minimum wage from $9 to $15, it will very likely reduce employment.

If there were no better options, that might just be the cost of reducing income inequality, and therefore just something we'd have to live with.

But there should be better options.

Let's say that a worker is really worth $9/hr based on his productivity, but we want him to earn $15/hr because that's what he needs to live on and be at least semi-comfortable. One possibility is to say "whoever hires him has to pay him what he's worth plus an extra $6/hr so that he earns a living wage." A better alternative, IMO, is to say "whoever hires him can pay him what he's worth and the government will chip in an extra $6/hr out of general tax revenues so that he'll have a living income." The second one is better, IMO, because while taxes have a negative effect (Google "deadweight loss"), it is almost certainly less negative than a price floor. Taxing-and-subsidizing is better than price controls. Taxing-and-subsidizing will still drive marginal companies out of business and reduce the total workforce -- but by a much smaller amount based on everything I know about the subject. (Which, full disclosure, I'm not an expert on. But I do think I understand the basics.)

So while I fully support poverty-relief policies in general, and would support an increase to the minimum wage if that were the only realistic choice, almost any reasonable alternative would be better, IMO. A BIG would be far superior.

(I'm glossing over a lot of details that require further explanation, but this post is already too long.)

 
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Maurile Tremblay said:
I hold exactly the opposite view.

I fully support a social safety net -- what you seem to be referring to as a "cycle of dependency on government." I think a Basic Income Guarantee would be the best solution. If that's not politically feasible, a whole range of voucher-type things -- food stamps, Section 8 housing, Medicaid, expanded Social Security, etc. -- would be next best.

Income inequality -- poverty, specifically -- is a real problem. We're a rich society, so we're not helpless to do something about it, and we should. "Do something" is pretty vague, though. We should try to do something that's effective, and that causes as few harmful side-effects as possible. It also has to be politically feasible.

Minimum wage laws have a few things going for them. The two main ones are: (1) they almost certainly are progressive rather than regressive on the whole (i.e., insofar as they represent a transfer from Group 1 to Group 2, it is very likely that Group 1 is wealthier than Group 2*); and (2) they do enjoy wide political support. If the choice is between having a minimum wage and doing nothing, I'd vote for having a minimum wage. And that may actually be our choice at the current margin -- which is to say that expanding Social Security and the like may not be politically feasible right now. If we're going to have more poverty relief presently, increasing the minimum wage might be our only real choice.

(*This is not completely obvious. Minimum wage laws price the least-skilled workers, the ones who are already at the lowest rungs of income, out of the market. It makes the poorest of the poor less likely to find employment, which is a regressive effect. But taken as a whole, the effect on low-wage workers as a group, is to restrict output and raise prices -- exactly as a monopolist would. Monopolists do this because even though they'll sell fewer widgets, the higher price per unit more than makes up for it. The same is likely true in the labor market, where even though fewer people will be employed, the higher wage per worker will make workers in general -- though not each individual worker -- better off as a group.)

If so, that would be a shame, in my view, because it's a poor choice compared to various alternatives.

The problem with minimum wage laws is that, as with all price controls, they screw up markets that otherwise function very well at doing what they're supposed to do.

One thing that markets aren't good at, because it's not what they're supposed to do, is to provide everyone with a living wage. Bananas are also not good at this. That doesn't mean that bananas are horrible and evil and should be avoided. It just means that if we want to provide everyone with a living income, we should not rely on bananas for that purpose. The results would be bad. It's kind of the same principle (although admittedly a bit less stupid) to rely on the labor market to provide everyone with a living income. We can try by forcing price controls onto it, but there will be some unfortunate consequences.

To understand those consequences, we first have to understand what markets do really well, and how. But I'll skip over that part because it involves a lot of typing. Suffice it to say that in a free labor market, while not everyone will earn a living wage, employment would be high, and the trade-off between monetary and non-monetary compensation would be in line with workers' preferences [as long as they are fully informed and are rational about things like safety risks, which can be debated, but that's kind of another topic]. The effects of minimum wage laws include reducing employment and/or pushing compensation from non-monetary to monetary in a proportion that decreases worker satisfaction overall.

In more concrete terms, when you raise the minimum wage from $9 to $10, it could reduce employment, at least by a little, but the more prominent effect is likely to be reduced non-monetary perks -- employers turning down the air conditioning at work, offering fewer (or worse) employer-sponsored meals, offering fewer paid personal days, and so on. When you raise the minimum wage from $9 to $15, it will very likely reduce employment.

If there were no better options, that might just be the cost of reducing income inequality, and therefore just something we'd have to live with.

But there should be better options.

Let's say that a worker is really worth $9/hr based on his productivity, but we want him to earn $15/hr because that's what he needs to live on and be at least semi-comfortable. One possibility is to say "whoever hires him has to pay him what he's worth plus an extra $6/hr so that he earns a living wage." A better alternative, IMO, is to say "whoever hires him can pay him what he's worth and the government will chip in an extra $6/hr out of general tax revenues so that he'll have a living income." The second one is better, IMO, because while taxes have a negative effect (Google "deadweight loss"), it is almost certainly less negative than a price floor. Taxing-and-subsidizing is better than price controls. Taxing-and-subsidizing will still drive marginal companies out of business and reduce the total workforce -- but by a much smaller amount based on everything I know about the subject. (Which, full disclosure, I'm not an expert on. But I do think I understand the basics.)

So while I fully support poverty-relief policies in general, and would support an increase to the minimum wage if that were the only realistic choice, almost any reasonable alternative would be better, IMO. A BIG would be far superior.

(I'm glossing over a lot of details that require further explanation, but this post is already too long.)
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What are your thoughts on Andrew Yang's proposals for UBI?

 
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dickey moe said:
What are your thoughts on Andrew Yang's proposals for UBI?
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I think calling it a "Freedom Dividend" is needlessly corny, but I'm not a marketing guy. Other than that, I think it's great (though it may need to start off at a lower amount than his proposed $1,000/mo in order to gain traction -- but again, I'm not a marketing guy).

 
timschochet said:
It should be obvious to anyone that the government cannot simply order wages to be raised without economic consequences, mostly negative. But apparently it isn't. 
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government-our elected officials don't know junk about entry level jobs or the willingness of young people to want in at any level to show they can work & succeed.   Another socialistic overreach.

 
Maurile Tremblay said:
I fully support a social safety net -- what you seem to be referring to as a "cycle of dependency on government." I think a Basic Income Guarantee would be the best solution. If that's not politically feasible, a whole range of voucher-type things -- food stamps, Section 8 housing, Medicaid, expanded Social Security, etc. -- would be next best.
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The second one is the only palateable option.  BIG has a big issue in that, for a percentage of folks that would receive it, they would utilize those monies very poorly and end up exactly where they started - needing the second option.  (Note that many folks would benefit, but it's impossible to separate the two populations). I think we'd also have more of an idle hands issue, but that's more difficult to predict.

In other words, there is a reason why we dole out assistance programs in a regimented way; it helps structure lives so they at least have a place to stay and food to eat no matter how personally derelict they are.

A BIG is far inferior.

 
dickey moe said:
Should do wonders for entrepreneurship in NYC.
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Straight out of France.  Employers will be very hesitant to hire because they can't fire or downsize.  Those populations that need that first job (the best way to get a job is to have had a job) will get crushed.  We already have a significant issue with employment of the young in poorer urban settings.  This does them no favors at all.

 
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irishidiot said:
government-our elected officials don't know junk about entry level jobs or the willingness of young people to want in at any level to show they can work & succeed.   Another socialistic overreach.
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political bias aside, from what i understand of the studies in seattle, it seems like raising the minimum wage are make it more difficult for people get an entry into the working world and that this could be an issue long-term if this is implemented more in other places.

another downside is that restaurants (and other businesses) will adapt in the high-minimum wage locations by using technology and improving processes, thus reducing the need for employees, and then these gains will be replicated in many other markets that don't have the high minimum wage, thus making more difficult for workers everywhere.

though there is also apparently a view that most low-wage jobs will be eliminated fairly soon anyway, so might as well try to get more money to those at the bottom sooner...

http://www.econtalk.org/jacob-vigdor-on-the-seattle-minimum-wage/

https://evans.uw.edu/policy-impact/minimum-wage-study

(Sorry if this was all covered originally.  haven't read the whole thread.)

 
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