As many of you are aware, this has been a long running theme through my blog: Microeconomic principles are pretty rock solid. "Pitchfork Economics" recently had a podcast episode with an economist who found that raising the minimum wage actually increases employment! I believe the flaw in his logic/conclusion will be found out in the long run analysis of labor markets. You can force businesses to pay a higher wage against their will, but you cannot stop them from substituting capital for labor!
California recently raised the minimum wage for a fast food worker to approximately $20/hr. In addition, a committee was formed to implement future minimum wage hikes in the industry. I got to thinking about this when I visited a recently opened Habit Burger in my neighborhood. When we walked in, we were greeted with the order kiosks displayed in the first photo above. Not a single employee working behind the "counter." In addition, with my economic radar up, I stood around and watched the operation. Two cooks manning the grill, one manager putting out the completed orders, and one employee cleaning, helping, etc. Four people total, and three of them looked to be over 30. If this represents the model going forward, how exactly can you make an argument that raising the minimum wage for fast food workers increases employment? Seriously? When the minimum wage proposal was first floated, I connected with a gentleman on LinkedIn who runs McDonalds's restaurants on the east coast. He informed me that they were already looking at automation; however, raising wages like this would definitely push them to adopt technology over employees. I also included a picture above illustrating White Castle's implementation of AI drive through bots! I've also read articles where fast food restaurants are trying robotic cooks. This all increases employment, how?
To me the long term implications are clear. Fewer employees will work in the fast food industry, ceteris paribus. I had to throw in the classic economic caveat -- ceteris paribus, which means "all else being equal." For instance, if suddenly fast food becomes the way to eat, and demand soars, employment could actually increase. In addition, fewer young people will be employed in the industry (see my age observations above). Think about all the young people over time who got their first job working fast food. Going forward, not so much, and what an economic loss that will create. Also, when government gets involved in the market place, why not $40/hr minimum? Why $20? To me, that has always been the beauty of free markets. Price is determined by the "invisible hand" in order to balance demand with supply. Tampering with this basic microeconomic principle can have very real economic consequences.
Another unintended consequence of this minimum wage increase: employees in other industries are now demanding the same, or more. Why should I work for you making $15/hr when fastfood workers are getting $20/hr? This is partly behind the run-up in food prices. Field workers wages have risen, and this eventually works its way through to the price of agricultural products on the grocer's shelves.
I'll never forget one of the classic examples of government market interference which I used in every economics class I ever taught. It involved the efforts of D.C. Mayor, Marion Barry, to raise tax revenue in the capital. This was an interesting example on multiple fronts as Mayor Barry had also been caught on a grainy video smoking crack cocaine. He decided to raise revenue by increasing the tax on gasoline sold in the district by 6%. Guess what? With the price increase, folks started buying their gas elsewhere. By the end of the first month gasoline sales had fallen almost 30%! Over 200 gas station employees were laid off, and tax revenue actually fell. Needless to say, the tax was rescinded, but at what cost? What makes us think that we can improve upon the free market system? I'm reminded of the quote by one of my all time favorite leaders:
‘The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of Socialism is the equal sharing of miseries.’
Winston Churchill, House of Commons, 22 October 1945
The unemployed, as a result of these government blunders, can surely attest to this...
Comments