The City Council of Santa Fe, New Mexico has raised the minimum wage to $9.50 per hour and the fallout was what you would expect:
“Managers of some Santa Fe restaurants were mulling price increases and other measures in the wake of Wednesday’s City Council vote to carry out a Jan. 1 increase in the city’s minimum wage.
Fewer overtime hours and reduced health benefits for some workers could result from the new $9.50-an-hour requirement for businesses with more than two dozen workers, restaurateur Al Lucero said Thursday.
‘I think the City Council has literally created economic havoc in the city of Santa Fe,” said Lucero, owner of Maria’s New Mexican Kitchen. “They succumbed to the pressure of the unions and the do-gooders who never had to make a payroll in their lives.’
Price increases wouldn’t surprise backers of the minimum-wage law and economic experts who have testified on their behalf. However, they have insisted that small increases won’t harm affected businesses and wouldn’t outweigh the need to provide a “living wage” to low-income workers.”
I certainly don’t need to recap the effects of a minimum wage here, but what is interesting is the thinking surrounding the “living wage” in places with a very high cost of living like Santa Fe. Santa Fe is essentially a resort town, and as such its zoning and aestheitc requirements for any new buildings drive the cost of housing up considerably. If Santa Fe is anything like other resort towns here in the West, it is incredibly difficult to build anything in the town since the existing residents don’t want any high density housing for the workers mucking up their perfectly planned and controlled community. Thus, the city council’s approved zoning and building requirements drive up the cost of living and it becomes impossible for the workers to afford to live in or near town. Then, the city council, having produced this state of affairs with its own policies, decides to assuage its feelings of guilt by raising the minimum wage.
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OMG! This is one of my personal pet-peeves!
When people demand that we increase the minimum wage to say $10, I ask why we shouldn’t juts eliminate poverty complete, make it $30/hour, and make everyone live comfortably?
Chris
http://amateureconblog.blogspot.com/
I think $9.50 is a bit extreme. However, $5.35 isn’t a living wage anywhere in the United States. Congress caves in to business lobbyists every time minimum wage issues are brought up. With gas prices standing at over $2.00 in most areas, a compromise should be sought.
However, this restaurant owner has to understand that the days of the $5 lunch are long gone! Yes, raise your prices! Why be cheap? If you’re a good restaurant, you should get good prices for your menu items. Reinvent the menu to be more profitable, or quit whining. He’s not going to go out of business!
My little two-cents from a restaurant consultant!
Eric — Prices by businesses are likely at their optimum point already. If businesses felt that raising (or offering less “total experience quality” at lower prices) would be offset by more revenue, they would have done that.
If prices are optimal NOW, then any call to “just increase prices” will result in less revenue. Thus the only option is to fire those “poor workers” that the city presumes to protect who produce less.
The restaurant owners will attempt to pass costs to suppliers, and those suppliers to other suppliers. In the chain of production, the weakest of producers and retail outlets will fail from lack of adequate profit. So not only is the situation made worse for the immediate poor in the city, the demand for labor falls overall because businesses are legislated out of existence. Hence real wages fall, wealth decreases, and many frustrated consumers find other less costly substitutes.
As a corollary, the government’s solution to imperfect shoes is (in effect) to ban shoes altogether by legislating a situation impossible for many businesses to provide under current prices.
Another pernicious result is that mom-and-pop businesses tend to get hit hardest, as large conglomerates have the power to sustain less profitable businesses for cross-selling purposes, and also can drive down the “cost per unit”. Taxes support the growth of monopolies.
Many other effects occur (reducing production has the effect of increasing price inflation) which are also negative.
Off-topic, but I don’t expect there will be a Blog post about this one…
http://uk.biz.yahoo.com/051216/244/fzfvn.html
Never let ethics and integrity come between a libertarian and a buck. The market is always right, and there’s always a market for govt propaganda.
Spud, your comment is so inane it’s hard to decide where to begin.
To refer to the Cato Institute as libertarian is almost insulting. Unprincipled behavior from a member of an essentially unprincipled Institute is hardly shocking, and is indeed off-topic here. And the idiotic suggestion that the acts of one man — even if he were truly libertarian — reflect the nature of the libertarian philosophy is beneath the rational capacity of an educated child.
Eric,
So the minimum wage goes up, and businesses raise their prices to be able to pay the new wage. The workers now have higher wages, but are facing new higher prices. Haven’t you negated the effect you wanted to achieve with higher wages?
Ms. Casanova, that is a logical train of thought, which requires discipline and a rational outlook.
You still expect that kind of argument to work on publick skool grajuates?
I find the minimum wage increases ironic because of who is least helped by them. Those least helped are those working below the new minimum wage already.
The people who pass minimum wage law obviously have no understanding of the relationship between an employeer and employee. That is one of buyer and seller. So when government establishes a minimum price above a market price the following happens:
First, at a higer price there is always less of a good purchased. So if labor is now higher in price then buyers, employeers, buy less or substitute machinery for labor.
And perhaps worse is the second thing that happens: As the price rises other suppliers enter the market to compete with the current suppliers.
So the result is fewer opportunities to sell in a more competitive environment between the sellers. This helps the higher priced suppliers and hurts the lower price suppliers.
I think it’s great that Santa Fe has done this. As an experiment, it should give us good data about what’s wrong with the minimum wage (I hope, anyway).
It is sad to see a self-described “restaurant consultant” so ignorant of the economics of the service industry he works in. I hope his advice to clients isn’t “reinvent the menu…or quit whining” or maybe he is to blame for all of these overpriced faux french bistro’s sprouting up. I can just hear it now “just call it quiche, add a $10 dollar price tag, and profit!”
Eric, your recomendation to simply raise prices ignores the fact that the restaurant market isn’t one market but numerous markets. It contains the fast and cheap market and the slow and pricey market, and everything in between.
The restaurant X sells high volume cheap food, why should it be forced to raise its prices? They could possibly profit from raised prices, but it then robs the consumer of the option of inexpensive food service.
Eric, have you ever considered why they didn’t raise prices prior to the wage hike? Wouldn’t it have been in their interest to do so?
I just got a mailer from my Representative in the Connecticut General Assembly. Of the laundry list of laws the government passed (all of them adding some kind of restriction onto the people of Connecticut), the assembly passed a law raising the minimum wage to $9.50 cents as well. The rationale? The high “cost of living” in Connecticut, and the Northeast.
I wonder what the unemployement rate in Connecticut is going to be a year from now and whether the CT legislature or the President is going to take the fall for that?
Minimum wage is a hurdle to jump over. If I only produce $4.00 of value per hour for my employer and the minimum wage is set above $4.00, I’m a losing proposition to my employer. The minimum wage is just another roadblock placed in the way of freely acting people and it invariably leads to discrimination. If you can’t jump over the hurdle than you’ll lose your job. The higher the hurdle…The higher you must jump.
As Walter Williams points out, “For the most part, teenagers dominate the low-skilled worker category. They lack the maturity, skills and experience of adults. Black teenagers not only share those characteristics, but they are additionally burdened by grossly fraudulent education, making them even lower skilled. Bureau of Labor Statistics unemployment data confirms the economic prediction about minimum wage effects. Currently, the teen unemployment rate is 16 percent for whites and 32 percent for blacks. In 1948, the unemployment rate for black teens (16-17) was lower (9.4 percent) than white teens (10.2 percent). Plus, black teens were more active in the labor force.”
There is no free lunch, least of all for the disadvantaged.
I do not feel it is an employer’s responsibility to ensure his employees can pay their rent and feed their children. His responsibility is simply to offer a job at a price he feels is reasonable. If a worker accepts the job, the employer has fulfilled his duty. If the employee cannot live on this wage, he should find something else to do. Or move in with his parents. Or share a rental house with another family.
I do strongly disagree with the argument that $5.35 an hour is not a living wage. I’m aware of many who are earning that wage and surviving. It’s not the most pleasant life, but they are not starving.
Actually, across most of the South, a home with two minimum wage earners can lead a very decent life. Certainly not in a ridiculously expensive city such as Santa Fe. But the cost of living index for towns such as Clarksville, TX, or DeQuincey, LA, or Florence, AL, is about one fourth that of many east and west coast cities. Yet the “do gooders” from those coasts insist that they know what is right for people they’ve never met in towns they’ve never seen.
Actually, the problem only arises in this form when the minimum wage is implemented by fiat. When it is implemented in the form suggested by Professor Kim Swales of the University of Strathclyde, via a tax offset on taxes paid by potential employers, it works and actually undoes an externality in the labour market if it is set at the right levels. I have a fair amount of material on this at my publications page, http://member.netlink.com.au/~peterl/publicns.html – you could start with http://member.netlink.com.au/~peterl/publicns.html#AFRLET2 and then read some of the articles there.
The missing factor not mentioned here is immigration. Immigration of unskilled Mexicans depresses wages while raising the cost of living as higher population density raises land prices. The combined effect of depressed wages and increased housing costs creates poverty. Read Steve Sailers interesting column on VDARE about how immigration destroys the the foundation of middle-class society :
http://www.vdare.com/sailer/051218_labor.htm
To all of those people that think these “experiments” in New Mexico or Connecticutt are good because they’ll prove that these actions don’t work, then you’re as foolish as those people in New Mexico and Connecticutt. Evidence and facts don’t even enter into the calculations. Only feelings matter. If a socialist agenda doesn’t work, then you must simply increase the effort, increase the funding, pass more laws. If somebody thinks you’re wrong, then they just don’t care and are evil. Facts are irrelavant. Caring is what matters.
Unfortunately, Keith is correct. Unemployement will rise above the level it would have reached without the new, higher minimum wage, and the evidence will go unremarked by the media, the government, and the masses. Indeed, the less well off the lower wage workers will become will only serve as incentive to raise the minimum wage and other governmental regulations higher.
I live in Connecticut and my parents live in eastern Tennessee. I am always astonished at how much cheaper every good and service is in Tennessee, especially food, housing, and taxes. The people of Connecticut and the neighboring states of New York and Massachusetts think their higher population densities and quality of life make more and more expensive government a requirement, however they are mistaking a symptom for the actual disease, besides making the mistake that their quality of life is actually higher.
For most people, you’re probably right, Keith. However, some people do like facts, and it adds to the arsenal of arguments. Otherwise, how do you reach people for whom caring is what matters? “Out-care” them? There has to be some way to reach reasonable people, or are you suggesting that the majority of people just aren’t reasonable?
The theory of tourist places is that rich people from other areas will pump enough cash into the local economy to keep the town going. The poor people will shop at Wal-Mart outside of town.
The cost of living is rising regardless of whether wages are raised. The reason is the greed of big corporations and government. It is shameful that minimum wage hasn’t been raised in eight years. People in this country are living in poverty and the government looks the other way every time. Christian country? Yeah right! Money is God in this country.
Marilyn, I take it you didn’t even read the article or comments above yours. It’s hardly “Christian” to forcibly stop people from working because their skills aren’t worth more than the minimum rate yet. Or maybe I missed one of Jesus’ parables where he exhorted Caesar to fix the economy and raise everyone’s wages.
I am a high school student making minimum wage, trying to afford minimal expenses and i can hardly make ends meet. I can only imagine how a single mother raising three children on minimum wage cuold survive if i hardly can.the minimum wage in CT is currently at 7.65, yet housing expenses are outrageous, and are continuing to increase.How do they expect someone raising a family to be able to survive while making this low income without living in poverty?
Jerilyn,
You might try finding one of these hypothetical single mothers and ask her how she does it. What one would certainly find is that there is no such mother with the expenses you outlined.
In asmuchas this sounds like an rtr style of argument, however, it could be said that the true definition of poverty is when you don’t have enough of the basic necessities to survive. After all, the straightforward definition for a necessity is that which you die from lacking it. Hence many people feel they have to use the term ‘abject poverty’ to emphasise what true poverty is. Therefore someone cannot be in true poverty if they are making ends meet and surviving. And, of course, there’s the ol’ argument that ‘poor’ Americans would be consider well-off in parts of Africa.
the impact of high standard of living on the environments and impacts of timber production on the environment
I think the wage should be at least $12 per hr..I don’t and I think that tight wads like the ones responding to this post should shut up and stop talking this to death and start acting. The american people are hurting they cant afford to live some are single moms to 2 and 3 job just to make ends meet. The unemployment rate is at an all time time..I am myself am a single mom of 3 children and I have found myself unemployed I have been searching for a job and I will not except minimum wage b/c it is not nearly enough to support my family. I am loosing my home and I have no where to go. No Family to help me. So if I can’t find work soon and I loose my home what then am I to do. I am so frustrated with all this political talk no one does anything about it. I would hate for anyone to go through I am going through. Maybe if more tight wad people should try earning a minimum wage and look for a place to live and paying all your bills and rent and food and clothing and the cost of gas and see if you will be saying the same thing. as far as the insurence benifits taken away who cares most american at least the working class don’t have health ins. anyway b/c they can’t afford it. even if the company offers it. Just asking to put yourself in my shoes. I would love a position somewhere but where? And the person who made the comment that no such single mom exist must surly be living in the dark ages..b/c they are all over b/c of dead beat fathers leaving their families and not paying child support.
Jennifer, just raising the minimum wage by itself only makes the people getting it better off. But it makes some people worse off, by cutting the work on offer. At least, that’s how the particular numbers work out these days.
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