A $15 minimum wage proving not all gain with no pain
Original Article: http://www.ocregister.com/articles/wage-716363-minimum-rolf.html
Author: Michael Saltsman
Publication Date: May 2016
Newspaper: OC Register
Topics: Minimum Wage
The Supreme Court recently rejected a legal challenge to Seattle’s $15 minimum wage, but the jury’s still out on the law’s job market impact. David Rolf, president of Washington state’s powerful SEIU Local 775 and an architect of the “Fight for $15,” isn’t willing to wait. He’s been speaking on the East and West Coasts to promote his new book that shares the name of the wage campaign he helped launch.
Unfortunately for Rolf, the festivities should be put on hold. While the true outcome on employment of Seattle’s experiment with $15 will take longer to determine because of its phase-in and “total compensation” provision, the early evidence isn’t promising.
A University of Washington survey of Seattle employers found that 30 percent either planned to, or already had, reduced staff in response to the wage requirement. This finding is in line with a recent summary of the latest academic research, published by the Federal Reserve Board of San Francisco, which found that “a higher minimum wage results in some job loss for the least-skilled workers – with possibly larger adverse effects than earlier research suggested.”
The anecdotal evidence is also worrying. A Z Pizza franchise on Broadway was forced to close, putting 12 employees out of work, because of the costs associated with an accelerated minimum wage increase. For Tamarind Tree, a popular Vietnamese restaurant on 12th Avenue, a staff reduction of roughly 20 percent was necessary to adapt to the costs of the law.
The downtown restaurant Icon Grill cut paid time off by as much as three weeks to compensate for the new minimum wage. And furniture store Retrofit Home will no long offer part-time jobs to students or entry-level jobs because the higher wage means management can no longer afford to train employees. “[Y]ou will only be able to work here coming in with a complete skill set,” said owner Jon Milazzo.
Similar consequences have been observed in the Bay Area, where cities have also enacted minimum wage increases of the variety that Rolf is promoting. For instance, numerous San Francisco restaurants have closed in the past year, citing the coming $15 minimum wage as a determining factor.
Oakland, which raised its minimum wage from $9 to $12.25 last year, saw grocery stores and restaurants close in its Chinatown neighborhood partially because of the wage hike. In adjacent Berkeley, where the minimum wage is $12.53, the popular coffee shop Mokka will close this summer primarily because of the minimum wage increase. (More stories are available at FacesOf15.com.)
In his book, Rolf claims that such stories shouldn’t exist because of the big profits earned by businesses. He argues that, for instance, McDonald’s can afford $15 because “the company’s profit, after wages are paid, works out to $18,200 per employee.” If only it were true. Rolf’s calculation is based on the corporation’s operating profit, not its net profit after taxes and other expenses are paid.
More troubling, though, is that Rolf only includes the payroll costs of McDonald’s Corp., ignoring the data for independent franchisees who operate close to 90 percent of the company’s locations. This oversight means that Rolf’s reported profit-per-employee is nearly three times higher than the actual number. (A typical McDonald’s franchisee with an estimated 23 employees per store earns a profit-per-employee of $6,700.)
The hard economics of dramatic wage hikes mean that, in the academic mainstream there’s little debate about the wisdom of his proposal: A University of New Hampshire survey of labor economists found that 72 percent oppose a broad $15 mandate. Even backers of higher minimum wages, including Clinton administration economist Harry Holzer and Obama administration economist Katharine Abraham, have declined to endorse $15.
The empirical evidence doesn’t lend support to Rolf’s thesis that a $15 minimum wage is all gain and no pain – despite what his book might claim.