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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.

Daily Clips: January 5, 2017

Bringing back the widely-shared prosperity of the time when America was Trumpianally Great requires a great deal more than bringing back a factory or two or 200 or 2000—even if those factories aren’t as automated as nearly every factory is these days. It requires giving workers the right to demand their fair share of the revenues they produce. It requires a tax code that rewards work rather than speculation. American won’t be “great again” until ordinary Americans regain the power that Trump and the Republicans are determined to keep far from their grasp.

While I understand the call to action, I wish he would’ve complained more about this issue…I dunno…when he wasn’t a lame duck.

Sanctuary cities could provide “one of the strongest bulwarks against Trump’s inhumane immigration agenda.”

I have no more news stories to add. Frankly, it’s depressing out there.

Breathe in, breathe out.

Donald Trump Is Wrong. Hiring Workers Isn’t a Sacrifice.

"I even pay them more than the minimum wage. I'm basically Jesus."

“I even pay them the minimum wage. I’m basically Jesus.”

In all the Trump-related news that happened over this hellacious weekend, I just wanted to highlight one specific thing that Donald Trump said. When asked by George Stephanopoulos from ABC News to respond to gold star father Khizr Khan’s claim that he has sacrificed nothing, Trump replied: “I think I’ve made a lot of sacrifices. I work very, very hard. I’ve created thousands and thousands of jobs, tens of thousands of jobs, built great structures. I’ve had tremendous success. I think I’ve done a lot.”

Now. Of the many things Trump said this weekend, this is nowhere near the most shocking. His continued assault on the Khans—implying that Ghazala Khan didn’t speak at the Democratic National Convention because of Islamic law; suggesting that Khizr Khan didn’t have the “right” to challenge him on the Constitution—was so shameful that Republican leaders have had to run away from him. This weekend, in fact, was quite possibly the lowest point in a campaign that is relentlessly pitted with low points.

But I want to focus on what Trump said about “creating…jobs” as a sacrifice because it’s something that I see a lot. The 2012 Republican convention famously adopted “You Didn’t Build That” as a theme, and the speaker rotation featured business owner after business owner being applauded for hiring workers. Not featured in the speaking slate at the 2012 RNC? Actual workers.

Look: small business is a great thing. We want to create an environment that encourages as many people as possible in America to start businesses, because that’s how you create growth. Saluting employers is a wonderful and meaningful thing for a political party to do.

But. Sometimes you’ll find employers in the spotlight who complain about the expense of employing workers. They’ll argue against raising the minimum wage by calling their employees unworthy of a living wage. They’ll describe hiring workers as a sacrifice. And that’s the point when we should stand up and say something.

Hiring workers isn’t something that business owners do out of the kindness of their hearts. They hire workers because they have work that needs to be done, and because they don’t have the expertise, the time, and/or the desire to do that work themselves. Workers are hired to solve problems. Without the workers, problems don’t get solved and businesses fail.

This argument that paying people to work for you is a sacrifice strikes me as very similar to the argument that if employers are forced to pay employees more, they’ll turn to automation. It casts the employer as a force for good, as someone who employs people out of the kindness of their hearts when they could pursue other, more profitable avenues instead. This is not true. If Jimmy Johns could buy affordable sandwich-making robots instead of paying human workers, they would.

Employers need their workers, but to publicly admit that they need the workers would put them at a disadvantage when it comes time to negotiate salaries. Trump expects us to believe that he’s sacrificing by paying workers for their time when he’s actually fulfilling the bare minimum requirement for a businessperson. (And in fact many times he has failed to fulfill that requirement.) He’s not a hero for hiring people, and I stand with Khizr Khan: Donald Trump has sacrificed exactly nothing.

 

Daily Clips: June 23rd, 2016

New study shows increase in partisanship:

PP_16.05.17_antipathy_traits_overview_v3

US jobless claims near 43-year low: Reuters reports, “claims have now been below 300,000, a threshold associated with a strong job market, for 68 straight weeks, the longest streak since 1973.”

10 years after a housing peak, US is more of a renter nation: I wonder if this has anything to do with increasing levels of student debt and stagnant wages?

Tweet of the day:

Local Radio Host Very Confused About the Minimum Wage

Is radio still a thing? (Image courtesy of pandpstock001 at FreeDigitalPhotos.net.)

Is radio still a thing? (Image courtesy of pandpstock001 at FreeDigitalPhotos.net.)

Eric Mandel, the “Digital Content Producer” at myNorthwest.com, reports that Seattle-area conservative talk radio host Dori Monson has some opinions about Raise Up Washington, the coalition fighting to raise Washington State’s minimum wage to $13.50 over four years.

First of all, the column begins with a quiet little victory of its own. Monson, who has for years been an angry opponent of Seattle’s $15 minimum wage, seems to now be okay with $15. “Upping the minimum wage in Seattle is one thing,” Mandel says in a paraphrase of Monson’s argument, implying that he has come to accept the wage. He also seems to be taking it on faith that $15 is right for Seattle in this paragraph:

“The cost of living in a place like Colfax is dramatically different from the cost of living if you are on Queen Anne or Fremont in Seattle,” [Monson] said. “It doesn’t make any sense to have a statewide minimum wage. The economies of rural Eastern Washington and urban cities in Western Washington are night and day, and (it’s not smart) to say a minimum wage should be one-size fits all.”

So, yeah, it sure sounds like Monson might be a convert to $15. Welcome, Dori! It’s never too late to get right on an issue. But addressing Monson’s finer point in that paragraph: it’s perfectly okay to believe that the minimum wage should not be one-size-fits-all. That’s why, if Raise Up Washington’s initiative passes, the minimum wage will be $13.50 in rural areas by 2020, but in Seattle it will be more than two dollars higher than that in many cases, to account for the higher cost of living in Seattle. Problem solved!

Monson’s other point is a common misconception about the minimum wage that gets repeated a whole lot:

“Minimum-wage jobs generally are entry-level jobs,” he said. “They are jobs that you work while you’re finishing your college degree or while you are acquiring some trade skills if college is not for you. It is not meant to be a living wage. It is meant to be a stepping stone.”

That entry-level, stepping-stone argument maybe used to be true, but it’s not anymore. Minimum wage jobs have a tendency to remain minimum wage jobs, according to Ben Casselman at FiveThirtyEight:

During the strong labor market of the mid-1990s, only 1 in 5 minimum-wage workers was still earning minimum wage a year later. Today, that number is nearly 1 in 3, according to my analysis of government survey data. There has been a similar rise in the number of people staying in minimum-wage jobs for three years or longer.

As to Monson’s suggestion that the minimum wage isn’t meant to be a living wage—I’d like to see him tell that to the large number of low-wage workers in the state. Raise Up Washington’s FAQ (PDF) explains:

Over 730,000 workers in Washington State would benefit from raising the minimum wage to $13.50 an hour. Currently, over half of workers (53 percent) earning less than $13.50 an hour are over the age of 30, with a greater share of workers over age 55 (13 percent) earning less than $13.50 an hour compared to teens (9 percent). The majority are working full time (59 percent), and have family incomes below $60,000/year (66 percent). Women are more likely than men to earn under $13.50 an hour, as are people of color – over 40 percent of Latino and Black workers earn less than $13.50 an hour.

Really? Nearly three-quarters of a million workers in Washington, more than half of whom are over 30 years old, don’t deserve a raise? Their families don’t deserve a living wage?

I don’t know, Dori. I think you’re going to come around on Raise Up Washington the same way you’ve apparently come around on Seattle’s $15 minimum wage. You’ll figure it out eventually.

We’ve Got A New Podcast Episode Out! This Time We Look At Robots & Automation

Whenever we talk about raising the minimum wage, some supply-sider/trickle-downer/Jeb! supporter always shoots back that if we raise wages, employers will automate low-wage workers out of a livelihood. So on the latest episode of The Other Washington, we ask the questions: Are the robots coming for our jobs? And if so, is that necessarily a bad thing?

Our guests include renowned tech visionary (but not a futurist) Esther Dyson, Institute for the Future research director Bradley Kreit, and Hointer co-founder Nadia Shouraboura, who takes us on a tour of what the future of brick-and-mortar retail might look like in a highly automated age (hint: different jobs, not fewer).

Daily Clips: December 2nd, 2015

Most Americans think attacks on abortion clinics are “domestic terrorism.” That’s good to hear. A majority of Republicans (54 percent) even believe that such attacks should be labelled as terrorism. Which is a good place to start I guess.

The wealthiest 20 people now own more wealth than half the American population. That’s neither fair nor good for our economy.

Donald Trump is a bigot and a racist: Dana Milbank doesn’t mince his words here. He goes after the Donald and his supporters noting, “though all Trump supporters surely aren’t racists or bigots, even a cursory examination of social media reveals that many are.”

Five assumptions about this Republican election cycle: Here’s an interesting breakdown of the 2016 GOP race by Brian Beutler.

To the extent that conventional wisdom is possible in a campaign this erratic, a consensus is emerging among political analysts that looks something like this:

1. Despite his large, and enduring polling lead, Donald Trump still can’t win the nomination; something, at some point, will happen to derail his campaign.

2. Cruz will be the main beneficiary of Trump’s demise.

3. The establishment will coalesce behind Rubio as a more palatable alternative to Cruz.

4. The race will consolidate into a bloody slugfest between Cruz and Rubio, with Rubio enjoying overwhelming support from party actors and Cruz from conservative activists. Rubio will have a difficult time convincing ideological voters that he’s more authentically conservative than Cruz, who will gladly cite his rival’s official endorsements as evidence that he’s been compromised by the establishment.

5. As suggested by Rubio’s attacks on Cruz’s vote to end the NSA’s bulk, warrantless collection of electronic metadata, foreign policy will be the one arena in which Cruz will prove vulnerable on the right.

A Property Tax Primer (or Why Prop 1 Opponents Don’t Know What They’re Saying When They Say Property Taxes Are Too High)

One of the most frustrating things about covering property tax measures like Seattle’s Proposition 1 is that most people don’t understand the way property taxes work.

From a budget writer’s perspective, the property tax is the best tax ever, because if done correctly, it almost always brings in exactly the amount of money projected. That’s because, unlike the stupid, stupid sales tax, budget writers don’t actually set a rate and just cross their fingers hoping that the money comes in; they request a specific dollar value—for example, about $95 million a year over nine years for Proposition 1’s “Let’s Move Seattle” transportation levy—and then the county assessor adjusts the property tax rate annually based on current assessed value (subject to statutory limits) in order to generate the requested revenue. If property values rise from year to year, the rate goes down; if property values fall as they did when the real estate bubble went pop, the rate goes up. But if passed, Prop 1 is almost guaranteed to generate that $95 million a year.

Over the long run, nominal property values will almost certainly rise. So while the voters guide projects a tax rate of $0.62 per $1,000 of assessed value in year one, even a relatively modest 5 percent average annual rise in home values would leave the rate at about $0.39 per $1,000 of assessed value by year nine.

But unfortunately for city budget writers, as reliable as the property tax is, it is subject to two very important limitations. The first is known as the “statutory dollar rate limit”: the City of Seattle’s property tax authority is limited to $3.60 per $1,000 of assessed value. That is the maximum theoretical rate the city can levy without voter approval. But thanks to the second limit, known as I-747’s “101 percent limit” (or more accurately: “Tim Eyman’s Revenge”), the city’s actual regular levy authority falls far short of the statutory dollar rate limit.

Under the growth limit factor first enacted in the 1970s, and then punitively reduced to 101 percent under Eyman’s I-747 (and later reinstated by a cowardly legislature after the state supreme court tossed out the initiative), the dollar value of property taxes collected may not exceed 101 percent of the taxes collected in the highest of the three most recent years, plus an allowance for net increased property value in the district resulting from new construction.

Seattle property tax rates

Don’t know about you, but my property taxes aren’t so bad.

I know—that’s very complicated. But suffice it to say that thanks to the 101 percent limit, revenues generated from Seattle’s regular levy generally don’t even keep pace with inflation, let alone rising property values. As a result, the actual maximum regular levy rate available to the city council has been steadily falling as I-747’s 101 percent limit has ratcheted down revenue growth.

Fortunately, state law does allow for “lid lifts,”* enabling the city to raise revenues in excess of the 101 percent limit, but within the $3.60 statutory cap, subject to voter approval. That’s what Prop 1 is—a lid lift—as was the expiring “Bridging the Gap” it replaces. When you add up Seattle’s regular levy together with its various lid lifts, Seattle is currently levying a combined rate of just over $2.62 per $1,000 of assessed value. Add on Prop 1’s proposed $0.62 per $1,000 and our combined rate would still come in below the $3.29 per $1,000 we paid as recently as 2013! And our current combined rate of $9.27—city, county, schools, state, everything—is our lowest combined rate in six years.

Compared to the rest of the nation, that’s pretty damn low, ranking Seattle’s effective rate at 38th out the 51 largest cities in each state and the District of Columbia. (Also, we don’t have an income tax. So I suppose yay for our low taxes, if you’re into that sort of thing.)

And it’s not just our property tax rate that’s held relatively flat. According to data compiled by the Seattle Times, the property tax bill on a median Seattle home climbed from $3,214 in 2005 to $4,022 last year—an increase of $808, or 25.1 percent. But inflation increased almost 22 percent over the same period, resulting in a negligible increase of only about a hundred bucks in real dollars.

How is this possible? How could Seattle’s property tax hold steady in both rate and real dollars even in the face of skyrocketing home values and a seemingly endless parade of voter-approved levies?

Well, one reason this sounds so counterintuitive is that while everybody makes a big deal every time we put a new levy on the ballot, nobody sends you as much as postcard when these levies ultimately expire—and voter-approved lid lifts (typically 6 to 9 years) are expiring all the time! For example, sure, “Let’s Move Seattle” would add an additional $275 a year to the property tax bill of the median Seattle homeowner, but only after “Bridging the Gap’s” $130 a year levy expires. That’s not nothing. But it’s not really a $275 increase.

Second—and this is a concept that many folks find difficult to wrap their minds around—your property tax bill doesn’t necessarily rise or fall with your home value. Rather, your property tax bill mostly rises or falls when your home value rises or falls relative to median value. Again, this is the way property taxes work: we levy a dollar amount, not a set rate. Prop 1 is asking for $95 million a year. If Seattle home prices rise 10 percent, Prop 1 still only raises $95 million—we’ll all still collectively pay the same amount, just at a lower rate. However, if your home’s value rises faster than median, while my home’s value rises slower, your share of that $95 million will go up while mine goes down.

Again, I know, it’s all very complicated. But the point is, if you oppose Prop 1’s $930 million “Let’s Move Seattle” transportation levy because you think it’s filled with pork (or filled with the wrong pork), well, I suppose there may be coherent arguments to make against the measure. But if you oppose Prop 1 because we’re “piling one pricey property tax levy on top of another,” then you’re not being honest either to yourself or to your readers.

 


* There is also the option of rarely-used voter-approved “excess levies,” which get around the statutory cap entirely, but since they are limited to 1 year, they’re not really practical for dealing with anything but an emergency.