Opponents of $15 minimum wage get new ammunition with Seattle study

Opponents of a $15 minimum wage have suggested that efforts to achieve it would backfire, with employers cutting hours and people.

Some new research says that argument has validity.

Researchers at the University of Washington studied Seattle’s phased-in increases — first from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016 — and found the second wage increased reduced work hours in low-wage jobs by 9 percent while wages increased only 3 percent.

They concluded that the reduction in hours cost the average employee $179 per month, while the wage increase added only $54.

“You’ve got to watch out because at some point you run the risk of harming the people you set out to help,” Jacob Vigdor, a University of Washington economist who was one of the study’s authors, tells FiveThirtyEight.

But this might not be data you can take to the bank.

The study did not include large employers who have locations both inside and outside of Seattle. And critics of the study say it did not take into consideration Seattle’s booming economy in which employers “bid up” wages, effective replacing low paying jobs with higher paying ones, the New York Times says.

“You see the biggest difference in the effect when the minimum wage increased from $11 to $13,” Mark C. Long, one of the study’s authors, tells the Times. “The timing suggests it’s the minimum wage” as opposed to a booming economy.

Last week, the Institute for Labor and Research on Employment released a study of restaurant workers which showed wages increased much less among full-service restaurants, indicating that employers made use of the tip credit component of the law. But it says employment in food service was not affected and that wages increased.

“My view of the research is that it seems to work,” Ben Zipperer, of the liberal Economic Policy Institute (EPI) in Washington, tells the Washington Post. “The minimum wage in general seems to do exactly what it’s intended to do, and that’s to raise wages for low-wage workers, with little negative consequence in terms of job loss.”

“Of the 20 restaurateurs I am close friends with in Seattle,” one Seattle restaurateur says, “none have told me they are hiring fewer staff due to the increased minimum wage.”

Minneapolis is among the nation’s cities pushing to increase the minimumw wage to $15 an hour. It would be implemented over five years. Large employers would be required to hike minimum wages by $1 per year until 2022.

  • Gary F
    • Except that McD’s and other fast food chains were going about replacing people with self-serve kiosks, first, in Europe and, since 2015, in the US well in advance of any “$15 minimum wage” movement. Now, that’s not to say that the savings in labor costs is not a consideration; just that self-serve kiosks, with claims of time-savings and order customization, also impact employees earning $7 an hour, too. See below, from 2015:

      “[A]ccording to McComb, McDonald’s is not planning to pare down its work force as it adds the new kiosks to restaurants.

      “The kiosks could, however, allow operators to move some workers away
      from cash registers and into the kitchen to help speed up customer
      service.

      “That could provide a major boost to franchisees who say they are understaffed and unable to handle busy meal traffic.”

      http://www.businessinsider.com/what-self-serve-kiosks-at-mcdonalds-mean-for-cashiers-2015-8

      • jon

        Remember when McDonalds automated their drink machines?
        Or when they moved their drive thru operators to a centralized location in Kansa because they could work 4 successive lunch rushes across 4 time zone in a single 8 hour shift.

        They’ve been looking to trim costs and optimize employee time since WAY before I was eating happy meals… and they’ll keep at it until the whole place is as automated as it can be and not be socially objectionable to the clientele.

        They’ll also be upping the sawdust content of their burgers as long as they can get away with that… cheaper faster cheaper… that’s the driving factor in fast food, and has been for decades.

      • Sam M

        The moving labor to other areas makes no sense. Why wouldn’t they just do it now if there truly is the opportunity to increase efficiency and
        profitability? I think it’s just corporate spin to make people feel better.

        • “The moving labor to other areas makes no sense. Why wouldn’t they just do it now if there truly is the opportunity to increase efficiency and profitability?”

          Because, a McD still needs someone now up front to take your order and ring up your receipt? Moving more labor into the kitchen would happen /after/ counter service became self-serve.

          Also: It costs money to automate; maybe more money than many franchise owners wish right now to part with. If they don’t necessarily need to increase the wages of their workers (because they aren’t located in Seattle, etc.), automation might not be considered a good investment
          .

          • Sam M

            If it it doesn’t make sense now to add someone to the back it won’t make sense later when they replace the order taker. It has already been determined that adding someone in back doesn’t have a good ROI to justify. They will just pocket that money saved on labor to pay for the technology.

            As far as franchisees go they might not have a choice as to when they add the technology. Many franchise agreements are pretty specific on when and what technology is in your store. The kiosks aren’t even that much more than your standard POS system so instead of upgrading your technology to the same POS you would just swap it with a kiosk.

    • There are no McDonald’s or Burger Kings in either downtown Minneapolis or St. Paul. I wonder why? The minimumw age is pretty low.

      • Gary F

        Downtown Mpls requires restaurant exhaust air scrubbers. Expensive to buy, expensive to maintain, and they take up a lot of room.

        Spendier restaurants can pass the cost on to their customers, low end restaurants cant. Restaurants that don’t do a lot of smelly exhaust don’t need them. Very arbitrary who “needs” them by code as part of plan review. National chains never get the benefit of the doubt.

      • Jack Ungerleider

        It also depends on your definition of downtown St Paul. Is Grand/Ramsey at 35E downtown? Is under 2 miles west of the Xcel Energy Center downtown? There’s a Burger King at the first location and a McDonald’s at the second.

        • No. That’s not downtown

          • Jack Ungerleider

            So what constitutes downtown at Newscut World HQ?

          • Just FYI that across the street from the Rice St./University Ave. LRT station, i.e. just feet outside the MCTO-designated “downtown” district, is a McDonalds; maybe one the larger ones I’ve seen. (Was the location once-upon-a-time a bank?)

          • John O.

            Correct. That was an old Midwest Federal Savings & Loan building Mickey D’s took over.

      • Jim in RF

        Damned millennial downtown workers with their uppity tastes.

      • KTFoley

        Deleted.

      • Jerry

        Rent and footprint?

      • John

        Did the one in the Wells Fargo building close? My kids are getting too old for regular trips to the Children’s Museum, but a few years ago, that was an easy stop for some quick happy meal action after running themselves to exhaustion in the museum.

    • Karl Crabkiller

      I remember eating at automats in Minneapolis as a kid. I thought they were wonderful as you could see the food selections locked behind a glass door. The downside was having to carry a lot of change which was required to open the magic door ( I think they only took nickles).

      • Gary F

        Japan has more modern versions of this still today.

    • Rob

      Did they have a robot burger-flipper?

      • Gary F

        Didn’t check. We went in for Diet Cokes. Seattle, very much a Pepsi town. Pepsi has a lock on just about every joint in town. There wasn’t any convenience store near so McDonald’s was the closest spot. My wife says Mcd’s pours a good Diet Coke.

    • John

      McD’s has been pushing automation and improved efficiency for decades. Increases in minimum wage will do little to change this, except maybe to accelerate their move to automation, as it potentially reduces the time to get a return on their investment in technology.

      I would be willing to bet that McD went to self-serve soda kiosks at exactly the moment when their (very thorough) cost comparison told them that the average number of free refills would cost less than paying an employee to fill cups. The self-serve kiosks are the same – installed at the very moment where they became cost effective. As are any sort of centralized ordering system (or voice recognition software that immediately dumps to a human if it can’t recognize what’s said into the drive-through speaker – why do you think there’s a screen there now that confirms your order? It’s cheaper than fixing it after the order is delivered, that’s why).

      Every. Single. Change. made by McD corporate is designed and proven to increase speed and decrease cost while keeping the food exactly the same at every restaurant in a defined area (which they would love to be global, but tastes are not quite synced up globally yet).

      • Gordon near Two Harbors

        My guess is that McDonalds is existing on borrowed time. Kids don’t want to work there (check out the number of older folks flipping burgers…), nor do young folks want to eat there.

        • Jim in RF

          I used to sort of do consulting in that sphere and had a guy from Wendy’s tell me that the very frequent customer base for QSR sandwich sector (McD, BK, etc.) drops a percentage point or two every year.

        • Gary F

          They prefer older folks because they have better communication skills and work harder. What they lack in energy, they make up in communication skills and work ethic.

  • Sam M

    Job loss and hour decreases in my view are less of a concern than the increase in overall cost of living for an area like this or the adoption rate of technology to replace humans.

    • Gary F

      Big companies can adapt and use automation, small companies get hurt.

  • Gordon near Two Harbors

    An arbitrary, 15 bucks an hour makes no sense, unless it is passed across a large geographic area. I’m not sure how a small, mom and pop business could afford to stay in business if they could not pay the higher wage or if workers were drawn away by the higher wages in a nearby community.

    • Rob

      Amazon will soon control access to and distribution of almost all consumer goods, with mom and pop operations continuing to go the way of the dodo. And then, whatever wage Amazon is content to pay will be the prevailing wage over a very wide geographic area indeed. Restaurants may turn out to be one of the few consumer experiences that isn’t readily Amazonable.

      • BJ
      • Tom Weber’s show on the subject was very good this morning. His expert had good advice: “Stay out of the middle; Amazon will clean your clock.” Basically, if you have a business, cater to the high end. Or lowest end.

  • Dan

    “Of the 20 restaurateurs I am close friends with in Seattle,” one Seattle restaurateur says, “none have told me they are hiring fewer staff due to the increased minimum wage.”
    They do, as previously stated in the blog post, have a tip credit in Seattle. The proposal in Minneapolis, destined for passage in its current form, does not have a tip credit.

  • trev_russell

    While I support increasing the minimum wage, $15 feels pretty arbitrary. Adjusting for cost-of-living, a $15/hr in Minneapolis “is equivalent to $24.82 in San Francisco and $20.09 in Seattle.”

    Source: City of Minneapolis Min Wage Staff Report – Page 21 – Section A
    http://minneapolismn.gov/www/groups/public/@clerk/documents/webcontent/wcmsp-199132.pdf

    Just because Seattle has $15 doesn’t mean that’s the right number here. My hope is that the city will pick a number that is most economically optimal & fair, rather than anchor to a “round number”.

    • Dan

      As far as I can tell, someone picked that nice, round number because it sounded good, and at this point it’s an entrenched rallying point. If you suggest anything 14.99 or lower, you’re against equity, and hence deserve a good, shouty scolding. Few on the MPLS city council seemed up for that.

      I’d prefer a minimum wage that’s variable within the state… maybe by county. That could be set at the state level, and indexed to *something* that’s adjusted annually and automatically (don’t have to wait for lawmakers to act). Some calculation that’s agreed upon, MIT livable wage as an example, but not necessarily that one in particular.

      Minneapolis is going to pass $15, the details of when it will be $15 are all that’s left.