It must be nice to be a progressive; you never have to worry about the real-world consequences of your actions. Fighting for social justice? Great! Let’s raise that minimum wage in the interests of (all bow) fairness. Surely those petit bourgeois small business owners can afford it — they’re probably making more money than they should, anyway. It’s time to spread the wealth around. You, the city councilors and progressive voters of Seattle know better than any shop owner what he can afford to pay!
Strangest thing about choices: they have consequences.
Seattle’s $15 minimum wage law goes into effect on April 1, 2015. As that date approaches, restaurants across the city are making the financial decision to close shop. The Washington Policy Center writes that “closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.”
Of course, restaurants close for a variety of reasons. But, according to Seattle Magazine, the “impending minimum wage hike to $15 per hour” is playing a “major factor.” That’s not surprising, considering “about 36% of restaurant earnings go to paying labor costs.” Seattle Magazine,
“Washington Restaurant Association’s Anthony Anton puts it this way: “It’s not a political problem; it’s a math problem.”
“He estimates that a common budget breakdown among sustaining Seattle restaurants so far has been the following: 36 percent of funds are devoted to labor, 30 percent to food costs and 30 percent go to everything else (all other operational costs). The remaining 4 percent has been the profit margin, and as a result, in a $700,000 restaurant, he estimates that the average restauranteur in Seattle has been making $28,000 a year.
“With the minimum wage spike, however, he says that if restaurant owners made no changes, the labor cost in quick service restaurants would rise to 42 percent and in full service restaurants to 47 percent.”
Restaurant owners, expecting to operate on thinner margins, have tried to adapt in several ways including “higher menu prices, cheaper, lower-quality ingredients, reduced opening times, and cutting work hours and firing workers,” according to The Seattle Times and Seattle Eater magazine. As the Washington Policy Center points out, when these strategies are not enough, businesses close, “workers lose their jobs and the neighborhood loses a prized amenity.”
I imagine reaction of residents must be like that of fans of a beloved local bookstore were shocked when it closed after The Special City raised its minimum wage — they cry “I had no idea!”.
Damn straight. It’s also called “magical thinking,” in which you get to do whatever you want with no blow-back. Then you wake up and realize it was all a dream.
Like I’ve written many times before, there are basic rules of economics our economically illiterate progressive compatriots need to hear. Again:
Labor is a cost, because the business owner has to provide wages and, often, benefits that cost him more money. When a government mandate increases that cost, the business owner has three choices: pass the cost along to the customer, who may decide it’s too much and stop shopping there; cut employee hours and stop hiring to save on labor costs, thus costing potential jobs and putting a burden on workers still employed; and, finally, just decide it’s not worth it anymore and close up shop. In the low-margin bookseller business, Borderlands’ owner chose the last course as the only one viable.
Do recall this mandated wage increase comes on top of any additional expenses required under Obamacare. No wonder owners in the thin-margin restaurant business are calling it quits!
Dan Mitchell calls it “Destroying Jobs with Innumerate Compassion.” Perfect.
Of course, this won’t stop the progressives who run the LA city council from making a similar mistake, here, because… magical thinking.
Via Rick Moran, who also quotes a great explanation from Reason about the connection between the value of labor and the minimum wage.