His View: The effects of higher wages and increased regulation

My OpEd ran in today’s Moscow-Pullman Daily News. Enjoy! 


The recent Moscow-Pullman Daily News article (High wages and tougher regulations worry local merchants) highlights Pullman businesses’ anxiety about three changes coming out of Olympia: first, Washington state minimum wage rising 12.5 percent on Jan. 1; second, the odious regulations being imposed on restaurant and hospitality businesses; and third, the proposed overtime eligibility rules.

Let’s look at the rising minimum wage. Incentives matter, and incentives affect behavior. The Law of Demand says that at a higher price, less product is demanded. That principle applies to food, hotel rooms, widgets, and yes, even labor. Common sense will tell you that just because the price of labor becomes valued at a higher price, it does not mean that laborers suddenly become more valuable (i.e., productive). Rather, you price the low-skilled, least-productive workers out of the market, particularly teenagers who are looking for training and experience rather than seeking a living wage.

Economists tell us that while some higher-skilled laborers will reap the benefits of raising the minimum wage, the low-skilled workers will either have their hours cut or be laid off. Instead, as labor becomes more expensive, employers will replace workers with cheaper and better technological options.

Amazon has robots fulfilling orders. Walmart has created self-checkout options. Soon the taxi and truck-driving industries will be using self-driving cars.
 
What are the restaurant owners’ options when the minimum wage rises 12.5 percent overnight? The average profit margin is 3-5 percent in the restaurant industry. Restaurants which are struggling will be forced to close.
 

Others will instantly raise prices. Pullman customers will begin to eat out less in order to economize, and many will simply drive to Moscow where prices will overnight be significantly cheaper.

The owners’ second step is to decrease service by laying off employees and cutting hours. There will be fewer servers and fewer cooks. Again, Pullman customers will be directly impacted, and will perhaps choose Moscow restaurants where prices and services remain unaffected.

Finally, restaurants will look at ways to automate. A casual restaurant will now put computer tablets for self-ordering on tables, providing counter service instead of table service. Olive Garden restaurants have partially adopted this model by allowing customers to digitally order from the table. Perhaps Pullman customers will elect to come to Moscow for the excellent prices and that personal table service we are known for. I know I would.

The second big concern weighing on the restaurant and hospitality industry is “predictive scheduling” — making owners publish work schedules 14 days in advance, and financially penalizing owners for changes made to that schedule.

Yet many employees choose to work at a restaurant because of the flexibility it provides. Many are college students who do not even know what their classwork requirements will be two weeks out, so they need that flexibility.

Many make the significant portion of their income off their tips (not wages), and often like the flexibility of being able to leave work early and focus on homework, or if it is UI or WSU Dad’s Weekend, to work longer for the extra tips. In order to meet these new legislative requirements, restaurant owners will look to hire employees who do not need flexibility; i.e., robots.

 

Progressives think that they can tax, spend, and regulate us into prosperity by interfering with what Adam Smith called “The Invisible Hand” of the truly free market. But every action has unintended consequences.

Interfering with the free market will always create a ripple effect, leading to consequences unforeseeable by even the strictest regulators. By raising income for a few and removing jobs from the most vulnerable, they have created policies that are directly responsible for the rising mass homelessness that we see in Blue States.

Thank you, West Coast progressives, for the excellent financial boost that you are providing to Moscow’s economy, but shame on you for doing it at the expense of those who can least afford it.

Dale Courtney served 20 years in nuclear engineering aboard submarines and 15 years as a graduate school instructor. He now spends his spare time chasing his grandchildren around the Palouse.

Do NOT follow this link or you will be banned from the site!