Why the Los Angeles Minimum Wage is a Triumph of Stupidity

Mish Shedlock  |

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In yet another triumph of stupidity over common sense, a move that is sure to cost jobs, slow growth, and encourage more robotic replacement of workers, Los Angeles' Minimum Wage is now on track to increase to $15 by 2020

I side with Gonzalez on the "simple math," and Englander on "competitive disadvantage." This move is 100% guaranteed to cost jobs. Proponents of such measures inevitably say things like "studies show that hikes in minimum wages don't hurt employment." Such studies only look at the "seen." Population trends and productivity have kept growth intact. Employment rose in spite of hikes in minimum wages, not because of those hikes.

The obvious fact is that many struggling businesses will go under - that effect will likely be seen. What we won't see is how many stores, businesses and franchises will not open because of labor costs. It's hard now to estimate the push on businesses to further automate, but wage and benefit hikes certainly pressure businesses in that direction.

Councilman Paul Koretz said "This is an experiment. If anyone tells you they know exactly how this is going to go…they’re not being honest with you." Well, I don't pretend to know "exactly" how this is going to go, but I do know the consequences will be slower growth, fewer stores and higher unemployment than there would be, otherwise.

San Francisco recently hiked the minimum wage to $15. In immediate response, Borderlands Books announced it would close. A second bookstore owner, Brian Hibbs, owner and operator of iconic comic-book and graphic-novel shop on San Francisco’s Divisadero Street Comix Experience and supporter of the wage hike had second thoughts once he saw the math.

Hibbs calculated that the $15-an-hour minimum wage will require a staggering $80,000 in extra revenue annually. The amusing thing is that Hibbs describes himself as a "progressive capitalist."

“We’re for a living wage, for a minimum wage, in principle. But I think any law that doesn’t look at whether people can pay may not be the best way to go," says Hibbs. For icing on the hypocrite's cake, Hibbs asks "Why can’t two consenting people make arrangements for less than x dollars per hour?"

I wrote about Hibbs in Capitalism for Me, Socialism for Thee; Progressive Capitalism? There is no such thing as "progressive capitalism." The idea is as ridiculous as being a Jewish Christian Atheist. In response to Capitalism for Me, Socialism for Thee, several readers said businesses can just raise prices. For books that have a set price, it's not that easy, but even in cases where stores can raise prices, what about the decline in traffic?



Fast food dining and retail shopping is not price inelastic. The cost of fast food is already prohibitive, so hiking prices is 100% guaranteed to cost some traffic. The bigger unseen is store expansion. Rising labor costs will have every business cutting expansion plans over what they would have done in the absence of these wage hikes. Economic common sense is all it takes to realize that already weak growth prospects just got a lot worse.

 

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