Small Business

The Latest Poster Children for the Anti-$15 Crowd: Low-Quality Restaurants?

Some sage advice for restaurant owners in this screenshot from the Hell’s Kitchen video game.

I simply can’t respond to every single dumb trickle-down take on the $15 minimum wage. If I felt the need to write back to every jerk who took an Econ 101 class and thought it earned them a Nobel laureate in economics, I’d be writing takedowns every hour of every day, with no sleep and no breaks. My fingertips would bleed from all the typing, and I’d need to rent a helper monkey to put drops in my eyes so they wouldn’t dry out as I type.

But when I noticed that someone named Peter Heck published a piece titled “Minimum Wage Hikes are Killing the Poor” — well, how could I just ignore a title as ridiculous as that? Heck says that the “wealthy liberal city of San Francisco” is facing a “coming disaster” as it’s raising its minimum wage to $15 next year. He quotes a new working paper from Harvard Business school which, according to its abstract, finds that…

…lower quality restaurants, which are already closer to the margin of exit, are disproportionately impacted by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).

Heck then extrapolates from their abstract:

Bob’s Burgers may not be able to absorb the cost associated with paying $15 an hour for their entry level employees without coming to economic ruin. But swanky, upscale Eagle’s Nest Steakhouse, on the other hand, can simply jack up the cost of their filet by a few bucks and be okay.

In other words, the liberal minimum wage policy lets the rich get richer and the poor lose their job when the business they work for goes under.

Except that’s a really bad misreading of the study. The stars used in the study are taken from Yelp. The quality that they’re measuring is the customer experience, not the cost of the restaurants. Yelp has a second ranking, of dollar signs, to identify prices, but price didn’t really figure into the closures. In fact, the study overtly states that they found (emphasis mine) “evidence that the heterogeneous effects observed earlier are driven by quality rather than by the restaurant prices.”

So if Yelp customers rate Bob’s Burgers 4.5 stars because they like the food and the service, Bob’s Burgers will weather the minimum wage increase just fine. Some comparably rated Seattle businesses on Yelp would be Paseo, which serves no meal over $15.50; Tacos Chukis on Capitol Hill, which serves tacos for under $2 and tortas for $6.90; and Fat Ducks Deli and Bakery in the University District, which sells sandwiches for $8.95 each. (I can say from experience that all three of those restaurants, by the way, are excellent.)

And if the Eagle’s Nest Steakhouse has gotten more than a little gross over the years and customers now give it a 1.5 average star rating, under a minimum wage increase the odds increase for the Eagle’s Nest to go out of business. So even if Bob’s Burgers charges $10 for a burgers-and-fries meal deal and the Eagle’s Nest charges $75 for a steak and a side, it’s the Eagle’s Nest which, according to the study, is much more likely to go out of business.

Heck doesn’t seem to realize that he’s actually arguing against the power of the market. By opposing a decent minimum wage, he’s saying that a city should subsidize low-wage, low-quality employers by allowing them to legally exploit their workers. It’s more than a little weird to me that conservatives are now complaining about the consequences of the free market. For some reason, they hate the idea that businesses which can’t afford to pay their employees a living wage should have to close while other businesses thrive. I would hope that even conservatives like Heck would agree that low-quality employers shouldn’t be subsidized by taxpayers. When businesses pay less than a living wage, those employees often have to rely on government assistance like food stamps and rental subsidies in order to get by.

Look, opening a restaurant is risky business. Everyone knows that restaurants fail with shocking regularity. Every new location requires a confluence of many different qualities (including a good location, an inviting theme, a welcoming staff, an appealing storefront and, uh, one more thing that I can’t remember…oh, yeah — delicious food) to become a success. That’s an understood quantity for anyone opening a business.

The unfortunate truth is that there will always be losers. But by encouraging a smarter, more livable wage, we can ensure that there are more winners. Seattle, which raised the wage before San Francisco, has more eating places than at just about any other time in our history. Our unemployment nunbers are at near-record lows. If we did see the same closures of low-quality restaurants that the Harvard study found, those restaurants were quickly replaced by newer (and better!) ones. Which is exactly how capitalism is supposed to work: business owners are supposed to create new concepts, and consumers are supposed to choose between them. The concepts that don’t draw the most consumers either change into something more appealing, or they fail.

And the thing about raising the minimum wage that Heck really doesn’t get is this: when the minimum wage is increased, workers have more money, and that increases demand. It allows people to try more of their ideas out in the marketplace, and it allows consumers to decide between those ideas. Nobody ever promised that every idea would be a good one, or that every business would succeed. But Seattle’s thriving restaurant scene has proven that there’s more room for winners — among business owners, workers, and consumers — when everyone agrees to pay a living wage.

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And I wanted to take a second to address Heck’s moronic final claim. He writes: ” If $15 is better than $10 an hour, doesn’t it stand to reason that $20 or $30 an hour is better than $15?” Heck, the poor dear, acts like this is a new concept, but it’s actually as old as the minimum wage itself. Nick Hanauer addressed this concern-trolling best in this piece in the Democracy Journal:

“If $15 is so great, why not $50 or $100?” critics sometimes mockingly ask. Well, because that would be stupid. The positive benefits of a $100 per hour minimum wage would almost certainly be overwhelmed by the costs. So no one is proposing $100; instead we are proposing $15, which is roughly halfway between what the minimum wage would be had it tracked either productivity gains ($21) or inflation ($10).

I hope that passage answers Heck’s question. I also hope he doesn’t misread it as badly as he misread that study.

New Study Shows Paid Sick Leave Has No Effect on Business Costs

if-you-have-tobring-a-box-of-tissues-to-workyou-shouldprobablystay-home

As Washington state prepares to vote on Initiative 1433, which if passed would raise the state  minimum wage and enact paid sick and safe leave for all workers, we’ll likely hear the usual threats from business owners: providing sick leave for their employees will allegedly force them to cut benefits, hours, or even jobs. We heard these complaints five years ago from business owners before Seattle adopted its own sick leave law. We see this kind of thing whenever the people propose any kind of law that might benefit workers, of course: business owners loudly argue that their workers will suffer most of all, and they threaten total economic collapse.

But we now have a few years of data from cities that have enacted paid sick leave laws, so we can put those scary claims to the test. And guess what? As Slate’s Henry Grabar says, a New York City study shows that paid sick leave has pretty much no effect on business. Here’s the nut of it:

Their survey of 350 random New York businesses, stratified to appropriately represent different firm sizes, says: 85 percent of employers reported the law had no effect on business costs, 91 percent reported no reduction in hiring, 94 percent reported no effect on business productivity, and 96 percent reported no change in customer service.

That jibes with findings from other cities published by the U.S. Department of Labor in October. San Francisco has outperformed surrounding counties in job growth since the passage of its policy in 2007. Likewise, analyses of Seattle and Washington, D.C., found negligible impacts on hiring and business location. A ton of research has also shown that flexible leave policies have a positive effect on worker productivity, happiness, and health.

Huh. It’s almost as though business owners just don’t want to change because humans are uncomfortable with new things and would prefer to stick with the proven status quo, isn’t it?

But the thing is, Washington workers can’t afford to keep things the way they are. Sick and safe leave provides workers with a necessary sense of security that enables them to take care of themselves and their families without fear of missing a rent or car payment. And when food service and retail workers can stay home sick, that helps staunch the spread of disease, which is better for everyone in this state.

We made a whole podcast about the importance of paid sick leave; you should listen to it, and then you should vote yes on Initiative 1433 this November. You can be confident that when you vote for 1433 you’re not voting against business; you’re voting for a smart law that will improve life for everyone.

Capitol Hill to Get Another New Pizza Place, One Year After Conservatives Predicted a Pizza Apocalypse

What he said.

What he said.

As you may recall, I wrote about the eight pizza places that opened on Capitol Hill in the past year. All those new restaurants arrived within one year after conservatives trumpeted a single Capitol Hill pizza place’s closure as a sign that Seattle’s higher minimum wage was killing small business.

Today, we can add another new pizza place to the list. John Sundstrom, owner of the fabulous fine dining restaurant Lark and the more casual Slab—which I believe to be the single best sandwich shop on Capitol Hill—is opening a pizza place called Southpaw on 12th Avenue, a little over ten minutes’ walk from the pizza place that closed down last year. Southpaw,  as with all of Sundstrom’s restaurants, will use locally sourced ingredients. But it’s not going to be ridiculously expensive. Bethany Jean Clement broke the story for the Seattle Times:

“We’re not just backing up the pizza supply truck to unload standard mozzarella,” Sundstrom says. But while you can expect some of the “Lark aesthetic and quality range,” he notes that big-enough-to-share pizzas will “probably be around 20 bucks.” Instead of slices, Southpaw will serve quarter-pies, about two slices’ worth for $5 — “enough for a one-person lunch with a salad… a walking-and-eating kind of size.”

Southpaw will also serve fancy soft-serve ice cream, which is a familiar staple at another bustling business on Capitol Hill, the Rachel’s Ginger Beer on 12th, just down the street from the future Southpaw site.

Considering that Seattle workers are doing better now than they were before the minimum wage increased, and considering that restaurant owners are investing in workers despite all those supposedly “job-killing” regulations, maybe it’s time for conservative talking heads to take notes from Idris at the top of this post and cancel the apocalypse? Seems as though the sky might not be falling, after all.

We Do Not Want a Deadbeat Employer in the Oval Office

Withholding wages from the middle class is no game.

Withholding wages from the middle class is no game.

Just yesterday on this here blog, I was talking about toxic employers. I discussed McDonald’s and Wal-Mart, which are two of the all-time classic examples of the form. But there are plenty of bad employers out there—the kind of cheap SOBs who lower the bar for employers everywhere—and they’re not all doing business under a pair of golden arches or behind smiley faces. Why, a great USA Today report about a particularly bad employer just hit the internet today. His name is Donald Trump:

Donald Trump often portrays himself as a savior of the working class who will “protect your job.” But a USA TODAY NETWORK analysis found he has been involved in more than 3,500 lawsuits over the past three decades – and a large number of those involve ordinary Americans, like the Friels, who say Trump or his companies have refused to pay them.

At least 60 lawsuits, along with hundreds of liens, judgments, and other government filings reviewed by the USA TODAY NETWORK, document people who have accused Trump and his businesses of failing to pay them for their work. Among them: a dishwasher in Florida. A glass company in New Jersey. A carpet company. A plumber. Painters. Forty-eight waiters. Dozens of bartenders and other hourly workers at his resorts and clubs, coast to coast. Real estate brokers who sold his properties. And, ironically, several law firms that once represented him in these suits and others.

Lots of people—myself included—believe that if you want to know a person’s soul, you should watch the way they deal with their servers at a restaurant. If a person yells at, mistreats, or stiffs a waiter, they’re likely not a decent person. Along those lines, Trump is proving with this story that he’s a terrible employer. Which probably means he’s a terrible person, and which definitely proves he’s not a good leader.

I mean, really. Do you want a man who doesn’t fairly pay small businesses for work they’ve done for him to be in charge of the federal government? Do you believe that someone who stiffs the middle class out of what they’re owed should be Commander-in-Chief? Say what you will about Mitt Romney, but he at least held to his contracts. As a businessman, Trump is the worst kind of bottom-feeder: he uses unethical standards in business because it helps him get ahead. He relies on everyone else to behave honorably so that he can twist the rules and exploit decent people to his own advantage.

Aside from the embarrassing fact that Trump uses scummy tactics to get ahead in business, he demonstrates in this story a fundamental misunderstanding of how the economy works. We all know that the middle class is the true creator of jobs in the 21st century economy. Do we really want someone who exploits the middle class as a matter of course in the White House? Doesn’t this practice, of taking money from the 99 percent and sucking it up to the wealthiest, reveal Trump to be the ultimate trickle-downer?

Here’s Why the Latest Conservative Talking Point About the $15 Minimum Wage Is Meaningless (and Here’s What You Can Do About It)

Source: @TBPInvictus

If the increased minimum wage killed food service businesses, why do food service businesses keep opening in Seattle? (Source: @TBPInvictus)

So. Let’s talk about the American Enterprise Institute. The AEI is a think tank based out of Washington DC, and though they claim to be non-partisan—all think tanks do—a quick glance at their list of fellows and visiting scholars will give you flashbacks to the George W. Bush administration: John Bolton, Lynne Cheney, and Paul Wolfowitz, among other former Bush players, are on the payroll.

And so now the conservative media machine is humming because the AEI has issued a report citing a loss of 1,000 restaurant jobs in May, which they argue is a response to Seattle’s first minimum wage increase. It’s bullshit, and I’m going to tell you why it’s bullshit, but first let me lay some context down for you.

Bear in mind that the conservative media has been on the ropes when it comes to Seattle’s minimum wage for some time now. They tried to refer to the closure of one franchise pizza place as a “spate” of restaurant closings, but that argument lost steam when pizza places around Seattle continued to hire employees. And the argument died completely when it was announced that another pizza place was scheduled to open where the other pizza place closed. They need an argument, but the numbers are working against them. So this AEI report gives them a single data point—in this case, a single graph with a tiny downward tick—on which they can hang their affirmations, which, as we’ve seen, is all they need. But the very nicest and most polite thing I could possibly say about this AEI report is that it’s wholly disingenuous. In coarser language, it’s bullshit.

But don’t take my word for it: take the word of friend-of-Civic-Skunk-Works Invictus, who published an excellent, thoughtful, fact-laden post for Barry Ritholtz’s Big Picture blog explaining why the AIE report is total bullshit. (Invictus is not the only one arguing against this report, and those arguments aren’t solely coming from progressive sources; I’ll get into that soon enough, too.)

You really should read the whole post, because Invictus is funny and a great writer and brilliant with numbers. But the gist of Invictus’s point is that the AEI study centers around numbers culled from the greater Seattle Metropolitan Statistical Area (hereafter MSA). What’s the problem with that? I’ll let Invictus explain:

The Seattle-Tacoma-Bellevue MSA is rather large. In fact, it is the 15th largest MSA in the country and boasts a population of 3.6 million, covering some 5,900 square miles. The city of Seattle, by contrast, sports a population of about 650 thousand and covers some 143 square miles. The Seattle-Tacoma-Bellevue MSA counts the following among its “principal cities” – which is to say nothing of dozens of other smaller towns and villages – Auburn, Bellevue, Everett, Kent, Lakewood, Redmond, Renton, Seattle, and Tacoma. Importantly, keep in mind that the minimum wage increase took place only in the city of Seattle. It is the only area of concern in that regard.

So these numbers come from a population five times larger than the population of Seattle, and none of those other cities in the area (excluding SeaTac) have increased their minimum wage. Basically, this data is beyond vague; it’s essentially meaningless.
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Now Conservatives Want to Wait and See on the $15 Minimum Wage

yeswereopenOver at the Big Picture Blog, our friend Invictus highlights the problem with conservatives on Seattle’s minimum wage hike: now that the sky has not fallen, now that business license applications for restaurants in Seattle continue to climb, critics of the increase are kicking the can down the road.

One such critic told Invictus on Twitter that everyone should “reserve judgement on the health of the industry when it hits 15” and that “at 11 [dollars an hour] places haven’t closed ..let’s see what another 4 dollars will do ..that’s all I’m saying …” The same people who wrote celebratory posts praising a (debunked) story about Seattle-area restaurant closures are now claiming to defer judgment until 2021, when every employer in Seattle will be required to pay $15 an hour. It’s a disingenuous ploy, in part because these same critics were eager to praise and spread a (debunked) story citing instantaneous closures.

If the question you’re asking is something along the lines of “has this minimum-wage increase helped a large number of low-wage workers make more money with a minimum impact on small business owners?,” then the answer is yes. It’s impossible to point to a rash of business closures because those closures don’t exist. New businesses are on the rise. Seattle’s unemployment is way down. It’s impossible to argue that the minimum wage increase has hurt Seattle’s economy, so critics are now trying to table the issue. Looks like a success story to me.

Conservatives Who Need to Prove a False Point About the Minimum Wage Refer to One Closing Restaurant as a “Spate”

Shorter New York Post: Pizza, pizza everywhere! (But let's pretend there's a crisis anyway.)

Shorter New York Post: Pizza, pizza everywhere! (But let’s pretend there’s a crisis anyway.)

You’re probably sick of hearing about Z Pizza. Hell, I’m sick of writing about Z Pizza. But at the time of this writing, Z Pizza is the only business in Seattle to claim it’s closing thanks to Seattle’s increased minimum wage, and that makes Z Pizza the poster child for the anti-$15 movement.

This weekend, a few writers used Z Pizza as an example of a rash of restaurant closures in Seattle. Why didn’t they use any other examples? Because Z Pizza is, as I’ve mentioned above, the only restaurant claiming to close due to the minimum wage increase.

In a post on her blog, conservative talking head Katie Kieffer cites a Forbes report that Seattle restaurants “are closing at higher than normal rates,” and then she uses that report to claim that the minimum wage should be eliminated entirely. That Forbes report is by anti-$15 hack Tim Worstall, who cites a sloppy Seattle magazine story that has long since been debunked by the Seattle Times. In other words, it’s based on nothing at all.

In fact, Kieffer’s post is so mind-bendingly dumb that I could spend all afternoon poking at all its illogical leaps and inane assumptions. Thankfully, Linda Tirado has already fisked Kieffer’s post, to hilarious effect. Suffice it to say, a $0 minimum wage—a.k.a. slavery—is not a convincing response to the $15 minimum wage.

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The Case of the Million Missing Entrepreneurs

"Entrepreneurs? I don't see any entrepreneurs around here. Try the gated community down the street." Image courtesy of imagerymajestic at FreeDigitalPhotos.net

“Entrepreneurs? I don’t see any entrepreneurs around here. Try the gated community down the street.” Image courtesy of imagerymajestic at FreeDigitalPhotos.net

The Washington Post‘s Jim Tankersley breaks down a new paper by an economist at the World Bank with a dramatic premise. The paper tracks the rate of entrepreneurship from the 1970s to today. The author found that small business creation rates increased through the decades until they stagnated in the early 2000s, and, “after the Great Recession, the rate fell. If the trends of the previous 30 years had continued, the nation would have seen 1 million more entrepreneurs over the last decade than it actually did. For some reason it did not.”

That’s a startling figure. What happened? The paper “traces it largely to families earning between $41,000 and $151,000 in today’s dollars (a very broad definition of middle class, it should be noted), who constitute 60 percent of all business-owning households, but who flatlined on their rates of new business ownership after decades of growth.”

The paper says that the middle class suddenly stopped creating small businesses at a time when wage stagnation and income inequality took hold. How do we get back on track? The good news is that raising the minimum wage will definitely help by pumping more money into the local economy. But we need a broader array of progressive policies to ensure that money flows through the whole economy and not just the top one percent—overtime reform, protection of benefits, some way to deal with the pernicious contracting of the American worker.

In the end, an insecure middle class is a middle class that shies away from small business creation. We can’t have a vigorous economy without those new businesses spending money and hiring workers and encouraging local businesses to invest in the community. We need to coax those million entrepreneurs back out onto the playing field, or else the economy will continue to stagnate.