Even the NYTimes used to understand economics

The Right Minimum Wage – $0.00 – NYTimes.com

The idea of using a minimum wage to overcome poverty is old, honorable – and fundamentally flawed. It’s time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.

As I posted in 2003 in “Why planned economies cannot succeed,”

I am wondering whether the federal min-wage law actually keeps the poor down because it sets a legal wage ceiling, not a floor, above which employers don’t really have to pay.

Some states are mandating a min-wage of $15 per hour. Since we know, as Leftists do not, that money doesn’t grow on trees, where will the money come from to pay for the increase. Service industries will be hardest hit, especially food service and restaurants.

Say, for example, White Castle burgers.

“We’re disappointed. What this means for White Castle is we really have to evaluate how we manage our business,” [White Castle vice president Jamie] Richardson tells me. “About 30 percent of every sales dollar covers the pay of our hourly workers, and that doesn’t include management.”

“It’s our biggest investment, our biggest cost. And it’s one that if we see increase dramatically through fiat, and we don’t do anything — it’s unsustainable,” Richardson says. “We are in uncharted waters.”

“Is there any room to raise prices to cover costs?” Richardson muses. “We think we’d need to increase menu prices by something like 50 percent. It’s not something we’ve done before. It’d be catastrophic.”

The problem is that liberal politicians have almost never run a business or done anything but play politics, which for them is a never-ending game of mandating how you should spend your own money. Therefore, they do not understand the difference between elasticity and inelasticity in business costs and revenue.

Restaurant menu prices are inelastic, meaning sharp movements in short times result in quick responses from customers. As Richardson explains, if White Castle raises its menu’s prices to cover increased payroll costs, customers vote with both their feet and the pocketbooks.

“We’re not the only place to eat, we compete with other restaurants. And people always have ‘L cubed’: Making Leftovers Last Longer.”

Richardson says — and common sense dictates — that if menu prices at fast-food chains shoot up by anywhere near 50 percent, many people will stop eating out as much, replacing trips to White Castle with trips to the grocery store.

Wages, however, have historically been inelastic, meaning that wages have stayed mostly stable over time for the same job requiring the same skill set. The minimum wage law actually enforces this, since the federal min-wage has not changed in many years. And that is what is being paid to entry-level, unskilled labor all over the country.

What elasticity there is in wages has always, until now, been tied to greater complexity of the job and higher qualifications of corresponding job holders. Meaning that workers have had to make their labor more valuable to their employers to make more money.

But mandating such a huge increase in the minimum wage takes a wrecking ball to that. Now entry-level, unskilled workers will get highly elastic pay increases utterly divorced from their productivity, but the employers’ revenue streams will remain high inelastic.

What then for such business to do? Well, they will almost certainly raise prices some, but they can’t raise them by much. So, in no particular order, some or all of these will also follow, using the restaurant business as a model:

1. Low-margin and/or high-labor menu items will be dropped, reducing consumers’ choices.
2. Workers will come to understand – many the hard way – that low production on the job will reduce their pay to $0.00. Even entry-level employment will become highly competitive, and that will mean that more and more teens and young adults will not get that first job after all.
3. Automation will be integrated as soon as possible.

Take for example, what McDonalds is already doing in Europe. And it will come here, folks: “McDonald’s hires 7,000 touch-screen cashiers.”

And this does not bode well for younger job seekers since, “American Millennials Are Some Of The World’s Least Skilled People, Study Finds.” And that’s from the HuffPo!

Fortune reports that Generation Y Americans (those born after 1980) lag behind their overseas peers in literacy, numeracy and problem-solving in technology-rich environments. Researchers at the Princeton-based Educational Testing Service (ETS), who conducted the study, administered a test called the Program for the International Assessment of Adult Competencies, to measure the job skills of adults in 23 countries.

“We really thought [U.S.] Millennials would do better than the general adult population, either compared to older coworkers in the U.S. or to the same age group in other countries,” Madeline Goodman, an ETS researcher who worked on the study, told Fortune. “But they didn’t. In fact, their scores were abysmal.”

Welcome to Socialism, Comrades!

Alas, the opening link was to a NYT editorial of 1987.

And remember: