The problem with the Orange County Register analysis by the CEO of the company that owns the Carl’s Jr. and Hardees chains of the effects California’s increase in the minimum wage is that he completely discounts the possibility of price increases. Is demand really that elastic and prices really that inflexible?
I think that supporters of a $15 minimum wage are too quick to throw the workers who will lose their jobs under the bus, too focused on large cities, and too focused on the big corporations and not nearly enough on the franchisees. I don’t think the minimum wage issue can be decided on an a priori basis.
Gee, the Reaganite white guy who pays himself 291 times what he pays his employees is worried for the minimum wage worker is he? What a fraud.
Cut executive pay, raise the price of a burger five cents and then drop dead, Mr. Puzder.
I think it’s actually a bit more complicated than that. Assuming the figures he cites are correct, you’d need to increase prices by something like 10%. That’s more like a quarter than it is like five cents. How much will that affect sales? I have no idea but I don’t think he does, either.
And the margins at the franchises are tight. Cutting execute pay won’t do much for the franchisees. Trimming the franchise fee might, though.
“I don’t think the minimum wage issue can be decided on an a priori basis.”
That’s fair enough. But to posit that prices can be raised without effect begs the question of why fast food joints are systematically underpricing their products today.
In a perfect world wouldn’t we have a formula for minimum wage as a function of cost of living? That would obviously vary by locality, costs being much higher on say, Martha’s Vineyard than in Kansas City. The areas with the highest costs of living have the highest incomes and a rise in burger prices would be irrelevant. Cheaper cost of living, lower wages, smaller price hits.
I’m not sure how to respond to a hypothetical that begins by positing perfection. If you mean no adverse effect on the demand for labor why bother with the details? Just set an arbitrarily high rate.
In a perfect world……
We need a government Bureau of Perfect World Pricing. Michelle could do burger portion control; Bloomberg could handle the soda. Paul Krugman could dictate prices. And Bernie Sanders could bitch about profits while promising free Happy Meals for everyone.
Hillary would of course be too busy telling people she was “no ways too tired” and avoiding that ever present sniper fire to take an executive role, a principled position doncha know.
My answer was harsher than I’d intended. Let’s try again.
The degree to which the demand for labor responds to changes in the price of labor, e.g. wages, the hourly rate, is called “the elasticity of demand of labor with respect to price” or “the price elasticity of demand”. The phrase “in a perfect world” suggests (at least to me) zero elasticity or, as it would also be called, perfect inelasticity.
I think that’s a very unrealistic assumption. Even economists who favor an increase in the minimum wage believe that wages have some effect on the demand for labor. My concern is over just how elastic the demand for labor is.
If it’s very inelastic increasing the minimum wage isn’t a bad strategy. If it’s very elastic it is. The only way to determine which is the case is by doing it gradually.
The problem is that if you raise the wage too slowly everything else has time to adjust, and the raise becomes moot. If you raise it too quickly, the system will seize up, and you will throw a lot of people out of work immediately. You need to raise it at a rate such that it stays ahead of price increases, but it does not throw too many people out of work.
The first decision is how many people are you willing to throw out of work. This should be a percentage, and it should be noted that this number will be disproportionately minority.
As to government control and regulations, we know that they work. Venezuela is a perfect example. If it is good enough for Venezuela, it is good enough for everybody.
(Let me help the clueless. In a financialized economy, it is easy to hide minimum wage increases, but this is only true as long as that economy can increase its financialization. When the credit expansion ends or simply slows, the party ends. As was predicted, 1999 has come and gone, the party is over, and we are out of time.
Larry Summers cannot save you. Paul Krugman cannot save you. Timothy Geithner damn sure could not save you, and Janet Yellen is as lost as Little Bo Peep’s sheep.
For those who believe that financialization and being tied to China are the “cat’s pajamas”, I suspect we are about to see how well that is going to turn out. When the 800 thousand pound dragon collapses, I am sure there will be no problems. Every day something that could never happen somehow happens. In the ancient world, these would be seen as omens, and they would not portend anything good.)
I think the more interesting critique of minimum wage hikes is why? Why not the many other strategies that could be used? The following explanations occur to me:
1. It’s easy to explain. Looks good on a poster (Fight for 15!)
2. Unions (particularly in service, retail, and hospitality) like it because of minimum wage multiple contracts.
3. For some reason supporters want to encourage the growth of the black market in labor.