○As of April 1st of this year, more than 60 California fast food restaurant chains Nationwide Stores (e.g., McDonald’s and Chipotle, but not Bill’s Burgers, Dick Church’s Diner, or other off-brand restaurants in the state that do not have national locations) have a minimum wage of $16 to $20 per hour for all workers. 25 percent. It is thought that the intention is to improve the lives of targeted low-wage workers.
Governors and legislators who support higher wages believe that this limited mandate would limit other fine-dining restaurants (such as fast-casual and casual dining such as Applebee’s, Islands, and Panera’s) as well as establishments with low-wage workers (such as They may have reasoned that stores (stores) would also be forcibly removed. Dollar General) to match mandated fast food minimums. why? That’s because failing to meet the new minimum standards could tempt workers who earn less than $20 an hour to move to covered fast-food restaurants for higher wages.
But supporters would be wrong.
Pre-measured effects of minimum wage increases
Numerous academic studies have shown that minimum wage increases for fast food (especially this high in an unprecedentedly narrow market range) are likely to result in targeted restaurants reducing staff by either laying off employees or reducing operating hours. much more likely to cause . This applies even to workers who: keep They may move to uncompensated jobs with lower wages and fewer hours, but with more hours at higher-level restaurants. (If you work 40 hours a week and make $16 an hour, your total pay is $640. If you work only 25 hours a week and make $20 an hour, your weekly pay is $500, a 22% reduction.)
Of course, fast food restaurants will be selective among their employees and disproportionately fire less skilled and less productive employees. Note, however, that a decline in fast food employment could translate into an increase in the supply of workers to open-air fine dining restaurants. Increased supply will put downward pressure on workers’ wages and benefits. This is the impact wage hike advocates have on the market. You probably haven’t considered it.
Again, these restaurants are highly selective among new applicants, disproportionately selecting relatively less skilled and less productive workers for interviews. This means that the lowest-ranking low-skill/low-productivity workers will suffer the most in terms of ending up on the unemployment line, which is probably not what proponents expected. is not exactly true.
Lost fringe and higher job demand
Political supporters who are certain of the results of the minimum wage study may object loudly: “Most past statistical studies of minimum wage increases have found a small percentage decrease in employment among targeted worker groups (generally less than 3% of targeted workers) and hours worked.” ” They would be right, for the literature they reviewed.. But they are not fools and have found other ways to legally respond to government orders with the aim of partially, if not completely, offsetting the increase in labor costs due to higher monetary wage rates. It overlooks that it cannot be recognized or utilized.
Employers should note that mandated monetary wage increases are not the only way to compensate workers, and for some or a small number of eligible workers (particularly those who: We are well aware that it may not be the most important form of compensation. children who need flexible schedules).
Employers also face competitive market pressures to control labor costs and increase profits in financial markets. Employers who do not comply with minimum wage obligations by reducing labor costs (perhaps because they want to be “nice” to workers) may be left with relatively higher production costs, higher prices, and lower sales than employers. There is a gender. Please make a cut. Current competition can force all competitors to respond, even if they don’t want to participate.
Employers facing above-market minimum wages may be forced to replace covered workers with non-covered “non-human workers,” such as kiosk order takers or “burgerbots.” Labor cost savings will have to offset increases in money wages. ” These “tech workers” have an enviable market wage advantage over their human competitors. legal California’s minimum wage is $0.00.
Employers may also reduce or eliminate the (minimum) fringe benefits they provide to workers, such as flexible scheduling, time off to take college classes, and even limited health benefits. You can also. Employers who can’t cut redundancies are always likely to increase their work demands. Employers can do this because raising the minimum wage reduces work opportunities. In fact, when fast-food restaurants cut back on employees, many restaurants will be forced to hand over some or all of the jobs of those employees to their remaining employees. And much of the lost benefits will never be recognized by the government’s minimum wage watchdog.
Reasons why job losses due to minimum wage increases are “small”
Workers’ lost benefits, not understood by minimum wage advocates, are one of the reasons reformers continually argue that fast food workers are inadequately compensated, and that minimum wage increases would One of my views is that this is one of the reasons why it appears to be an ineffective policy to lift people out of “poverty.” As fellow economist David Newmark of the University of California, Irvine, argues: wall street journal. Another unknown reason is that wage increases for poor workers who receive multiple benefit programs may mean a loss in benefits beyond what would be gained by raising the minimum wage. .
why? This is for a simple but difficult to understand reason. As economist Craig Richardson and I have shown, most welfare program benefits are reduced as the incomes of eligible workers increase, and that eligible minimum wage workers are paid by the wealthy. You will face an even higher marginal tax rate, which is even higher than your marginal income tax rate. 100 percent (this means that some workers who qualify for California’s minimum wage on welfare will lose more benefits than they gain from the $4 minimum wage increase) , as a result of their intangibility, there is little incentive for them to continue working.
Why were past minimum wage increases so “small”?
Apparently, proponents of wage increases argue that the reported “marginal” employment effects of past wage increases are based on how small the increases were (as small as 10%, sometimes spanning several years) They also don’t seem to realize that this is mainly due to how easy it was. Employers need to offset low increases in wage costs by reducing marginal workers and increasing labor demand, as well as by increasing prices and replacing unskilled workers with more skilled (more productive) workers. There is.
“California may be conducting a social experiment in poverty relief that could spark regret among its supporters and dampen enthusiasm for raising the minimum wage among supporters in other states.”
Because California’s minimum wage increase is so large (and not phased in), employers may soon run out of ways to develop offsets for the $4 wage increase. , which means that a minimum wage increase of 25% can be expected to have a disproportionate employment effect (far beyond the “tiny” percentage effect reported in almost every statistical study to date). ). California may be conducting a social experiment in poverty relief, and it could well cause regret among its supporters and dampen enthusiasm for raising the minimum wage among supporters in other states.
Why are eligible workers who remain employed likely to be worse off than those who leave?
Typically, economists’ arguments for and against raising the minimum wage are that workers who keep their jobs are better off because of the increase, but workers who are laid off are worse off because they have to accept job loss or unemployment. , leading to a much-touted conclusion. The low-wage jobs uncovered by the hike. This facile reasoning, which has been steadfastly upheld for decades, is probably also misguided. My explanation is simple. When employers provide fringe benefits to workers, they are likely to reduce their costs by increasing worker productivity and/or by lowering wages (resulting from an increase in the number of potential workers). They expect to be covered. In other words, if benefits are reduced due to wage increases, value The value of the fringe workers lose (say, $5 an hour) tends to be worth more than the minimum wage increase (in California’s case, $4 an hour). It also means that corporate profits will be higher than if there were no adjustment to benefits other than wages.
Do you ever suspect that covered workers are affected by non-monetary wages, often in invisible ways? A bartender at a local casual-dining restaurant recently reported that his restaurant was He reported that he just hired two employees whose hours have been cut at Chipotle in the center (starting April 1), and his restaurant is trying to maintain employment in Orange County’s tight labor market. It gave me a chance to expand my business. To increase your starting salary. A manager at a local Chick-fil-A says her company matches the mandated $4 raise with a starting salary of $1 above the state minimum requirement of $20, but does not set the standard for annual raises. Reported that it has changed. Rather than giving raises based on both length of service and responsibility, the company now offers higher pay only when responsibility increases.
As a result, a mandatory minimum wage increase would nullify many mutually beneficial market transactions and make many workers’ lives even worse online. Although workers may receive higher monetary wages, they tend to lose benefits and have to meet greater labor demands. The very workers this bill was supposed to help tend to become net losers over time.
Ending comment
Lawmakers appear to have gotten the economist’s message. His federal minimum wage of $7.25 has not been increased since 2009. genuine As a result, the minimum has worsened by 40% since 2009.
However, this real wage reality does not mean that the current living conditions of workers covered only by the federal minimum wage are worse. Market minimum wages continue to rise in most states. Even if California did not have a state minimum today, as evidenced by the fact that many businesses, including fast food restaurants, were paying more than the $16 state minimum before April 1st. No company in the state can pay the federal minimum and get away with it. Some restaurants were paying upwards of $20 an hour and had better employee benefits than a few years ago.
Despite this, many state politicians continue to support raising the minimum wage. The reason is not as clear-cut as one might think. “Politicians want to help poor workers” or “Politicians simply don’t understand the economics of a minimum wage in a competitive market.” These are not important points, but they seem too obvious and easy for my academic leanings. I believe that both proponents and opponents of minimum wage increases believe that the political forces behind raising the minimum wage are stronger than the economic forces. But that’s not a comfortable acceptance.
footnote
(1) See for example “Both sides have the economics wrong when it comes to the minimum wage.” Written by Richard B. McKenzie Regulation. Summer 2021.
(2) David NewmarkCalifornia’s crazy ‘fast food’ minimum wage goes into effect.’ wall street journal, March 31, 2024. Paywall.
(3) Craig J. Richardson and Richard B. McKenzie; “Progressives’ desire to help the poor ends up hurting them.” Economics and the Free Library, September 6, 2021.
*Richard McKenzie is Professor Emeritus of Economics at the Merage School of Business at the University of California, Irvine. He is also the most recent author of the following books: Reality is difficult: Contrarian debates on hot-button economic issues. And a book coming soon (June 2024) Rationality has evolved! Why don’t you have a choice when you have a choice?
For more articles by Richard B. McKenzie: archive.
