Ending the Minimum-Wage Subsidy
May 20, 2015 11:34 AM EDT
By Barry Ritholtz
This week, Los Angeles became the third major West Coast city and the biggest in the U.S. to agree to raise the minimum wage to $15 an hour, an increase that will go into effect by 2020. Los Angeles follows Seattle, which will require employers with 500 workers or more to pay $15 by 2017. San Francisco will require the $15 hourly minimum by 2018.
The Seattle increase in particular has caused all sorts of analytical errors from people who should know better. Seattle Magazine ran one article with the headline “Why Are So Many Restaurants Closing Lately?,” which cited the wage increase as among the reasons. This was quite surprising, given the lack of any notable rise in restaurant closings, which are running at about the same pace as before the minimum wage increase. Even more telling, permits for new restaurants are rising. The data overwhelmingly disproves the assertion that the minimum wage increase is leading to restaurant closings -- or is discouraging people from opening new ones.
That was only the most obvious error, but the rest of the blessedly data-free article was equally innumerate. This is an attribute of the modern news media: Instead of original reporting, there is a regurgitation of prior tweets, posts, anecdotes and second- and third-hand sources. Anyone could have easily looked up the actual numbers on restaurant closing and permits, as one of my colleagues did last month. The details can be found in “A Pizza Place Closes in Seattle,” and “Jobless in Seattle? Not Yet, Anyway” (See Part I and Part II.)
What we know about the minimum wage is that modest increases have a negligible effect on employment, and usually work as a net economic positive to the region that passes them. The groundbreaking research by economists David Card and Alan Krueger has been confirmed by lots of subsequent research. This has become a pet subject for me, discussed many times before (see this, this and this).
So why all the hand-wringing by the business community?
In short, raising the minimum wage is a wealth transfer. That is what has so many fast-food franchise owners up in arms.
more...
http://www.bloombergview.com/articles/2015-05-20/a-15-wage-will-end-tax-subsidy-for-fast-food
