Raising Wages, Lowering Jobs

One of the arguments against raising the minimum wage is that it will do more harm to poor people than it will do good. By raising the minimum wage many employers who work on tight profit margins will be forced either to lay off employees or go out of business. It doesn't help a single mom trying to make a few extra bucks if her wage is raised to $15 an hour but her hours are reduced to zero. Nor does it help lower income people when the businesses at which they shop have to charge their customers more in order to pay the higher labor cost, or when a business that might have added an extra worker or two decides to forego taking on the additional cost.

This article reports that that's the very thing that's beginning to happen in Seattle as a result of the town fathers' decision to raise the city's minimum wage:

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."

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."

A spokesman for the Washington Restaurant Association told the Washington Policy Center, “Every [restaurant] operator I’m talking to is in panic mode, trying to figure out what the new world will look like… Seattle is the first city in this thing and everyone’s watching, asking how is this going to change? Seattle is rightly famous for great neighborhood restaurants. That won’t change. What will change is that fewer people will be able to afford to dine out, and as a result there will be fewer great restaurants to enjoy. People probably won’t notice when some restaurant workers lose their jobs, but as prices rise and some neighborhood businesses close, the quality of life in urban Seattle will become a little bit poorer.”

If raising the minimum wage is a good idea why not eliminate poverty altogether and raise it to $50 an hour? The answer is obvious, of course. Businesses couldn't handle it, and would have to close down, but many of them can't handle an increase to $15 an hour either. So why is the city requiring them to do it?

Maybe these businesses could apply to Washington for subsidies to pay their workers, sort of like how people can apply for subsidies to pay their increased health care premiums under Obamacare.