I weep for Los Angeles. The “fight for 15” has made it to the LA City Council and is now poised to pass, setting the stage for a $15 minimum wage by 2020.
Progressives are celebrating of course, but thankfully there are some who understand that this is a bridge too far. Both Jordan Weissman and Danny Vinik of Slate and The New Republic respectively expressed reservations about such an exorbitant hike in the minimum wage, despite their favorable stances on progressive and union economics. Weissman frets that the available economic research “doesn’t really tell us anything about what happens because of an increase along the lines of what Los Angeles is now poised to pass,” while Vinik worries that “this isn’t a small hike and the employment effects could be significant.”
They are right to worry even as they celebrate the effectiveness of the “grass roots” (scare quotes for the fact that this is entirely a Big Labor driven initiative) campaign to agitate for a higher wage. Where they go astray is in their reliance on the “research” of experts and economists because as anyone paying attention knows, an economist or think tank or lobbying interest can produce the research they want to bolster support for a given policy. Data manipulation and rosy projections of a policy’s impact are the rule rather than the exception in Washington. An army of experts is just as fallible as an army of the first four hundred names in the Boston phone book, and in fact most of us would opt for the latter. Instead, progressives are never going to face reality unless they are forced to reckon with their glaring failures.
Fortunately, they seem to think that skepticism of the $15/hr minimum wage is just noise coming from conservative scolds who hate poor people. This kind of dismissive arrogance is going to be their undoing. Whereas Detroit and Baltimore and most major American cities under the thumb of one party Democratic rule took decades to succumb to the market distortions and bad incentives that go hand-in-hand with progressive economics, Seattle, San Francisco and Los Angeles – all who have adopted $15 minimum wages – are going to crater much faster if they adhere to utopian visions of egalitarian societies brought about by coercive meddling in the most basic and essential of all economic tenets: supply and demand.
It still boggles the mind that we have to keep repeating this, but if you arbitrarily hike the cost of labor, an equal and opposite reaction is inevitable. Either the employer will reduce his suddenly higher (doubled!) labor costs by reducing the amount of labor generally (i.e. layoffs) or he is going to raise prices to account for higher costs. That means $7 Big Macs sold through electronic kiosks. In fact it means a whole lot of robots replacing a whole lot of humans as employers find it cost effective to install automation in place of low-skilled workers making $15 an hour. Progressives seem to believe that costs can be magically deferred, or else ignored altogether. This juvenile, childish, ignorant view of the market explains how so many call for companies to pay their employees double what they earn now, because they can “afford” it.
One question: when did we cease treating fast food jobs as the entry level, foot-in-the-door opportunities that they are and instead as vocations in need of proper benefits?
I almost wish the LA measure took effect immediately, as I am eager to get this experiment underway and then over with, as it is going to be anything but pleasant for the residents of my beloved home town. $15/hr is insane. You’re going to see franchises hightailing it to Nevada and Arizona, a massive spike in unemployment, and a huge influx of robots. Remember when George H.W. Bush was raked over the coals for being in awe of an grocery store checkout automation? Prepare yourself for legions of frustrated people whose exasperation at encountering machines and kiosks in every store is compounded by the fact that everything is twice as expensive as before. Progress!
Obviously LA has some time before they implement this folly, so there is hope that someone with sense will get the ear of the city council during the next five years. And as Megan McArdle explains in her warning for Los Angeles, most noticeable impacts from minimum wage distortions tend to take a while:
When the minimum wage goes up, owners do not en masse shut down their restaurants or lay off their staff. What is more likely to happen is that prices will rise, sales will fall off somewhat, and owner profits will be somewhat reduced. People who were looking at opening a fast food or retail or low-wage manufacturing concern will run the numbers and decide that the potential profits can’t justify the risk of some operations. Some folks who have been in the business for a while will conclude that with reduced profits, it’s no longer worth putting their hours into the business, so they’ll close the business and retire or do something else. Businesses that were not very profitable with the earlier minimum wage will slip into the red, and they will miss their franchise payments or loan installments and be forced out of business. Many owners who stay in business will look to invest in labor saving technology that can reduce their headcount, like touch-screen ordering or soda stations that let you fill your own drinks.
This is right, but it is a summary of what typically occurs with small increases in the minimum wage. LA and Seattle and San Francisco are each flirting with stratospheric wage hikes, on the order of 80-100%. Thus, all of the symptoms and reactions by business McArdle outlines will still occur, just much faster. You will see major layoffs, major automation and major corporate flight from Washington and California if these states don’t wise up and walk back these wage increases. I assume this is what will happen, especially once politicians start getting browbeaten by their preferred business interests as well as by their less well off constituents suddenly faced with soaring prices for food and basic essentials. But all this does beg the question: why are they doing it?
Unions. By raising the minimum wage unions enjoy a higher corresponding wage floor from which to bargain in the future. Once a minimum wage is set, it affects contractors across the economy. Bids for public and private sector work must compete with union wage edicts to have any chance at the bid. This serves to crowd at smaller competitors and secure easy access for unions. And it similarly lifts the baselines for pension and benefit negotiations in addition to wages. In short, every single minimum wage initiative in America is about fattening the pockets of unions at the expense of the working poor, who are doubly affected by this union greed in the form of higher prices and fewer available jobs.
But we’re supposed to cheer on the “Fight for 15” and take to the streets to rail against corporate greed. But who is being greedy here? Somehow this mosaic of heroic workers in solidarity loses some romance once you realize they are just props for a larger union agenda, one that doesn’t give an actual damn about poor people or jobs. Unions by and large live by the wisdom of Michael Mulgrew, the former president of the New York United Federation of Teachers, who said
“If someone takes something from me, I’m going to grab it right back out of their cold, twisted, sick hand, and say it is mine. You don’t take what is mine. And I’m going to punch you in the face and push you in the dirt.”
Beautiful. It is also the prevailing wisdom of unions and the Democratic Party. This same sentiment animates progressive objection to reforming the welfare state or anything to do with public pensions. Same with cutting federal spending or eliminating waste. Right now the Ex-Im Bank is close to going the way of the dodo, something all of us on the free market right are cheering with heightened enthusiasm since it will be the first actual elimination of a federal anything in as long as I can remember. This worthless avatar of abject cronyism purports to serve America’s economic interest by providing taxpare loans to companies that deal heavily in exports. In practice the bank is an unfair bonanza for two large companies, Boeing and GM, who enjoy protection from smaller competitors without crony access to the bank’s largess. Conservatives and libertarians in Congress are close to declaring victory by not renewing the bank’s charter. Democrats are threatening to walk from the trade deal if Ex-Im is not renewed. What a farce of a position that is for a party purporting to stand against cronyism and speak for the little guy. Ex-Im is most definitely not about the little guy, rather it is federal bank for handing out favors to connected corporations. Not even Elizabeth Warren will allow it to expire, proving how sincere she is about reducing the incestuous and toxic relationship between big business and big government.
In the end, when it comes time to let a useless federal program sunset, the left rallies in unison to condemn it as heartless and bad for the economy. Because for the left, anything that reduces government at all is bad for the economy. The inverse of never wanting to allow government programs to disappear is always wanting to make more government appear, which is thew motivation behind the “fight for 15.” This is all about expanding union power and reducing private commercial autonomy in the market. The result will be more robots and less humans in the workplace.
While it is possible that Brett and Jermaine might welcome the robot revolution, the rest of us will be screwed. Straighten up, Los Angeles.