Submitted by Pater Tenebrarum via Acting-Man blog [7],
Seattle Bows to Demand of Socialist Councilwoman Kshama Sawant
Economic science has long shown that labor is not magically exempted from the laws of supply and demand. Therefore, minimum wage laws hurt rather than help workers, especially those with few skills or those just starting out, who are on the lowest rungs of the ladder. If one wants to raise youth unemployment and price unskilled workers out of the market, there is no surer way than introducing a minimum wage – especially one that is far higher than what the market can bear.
Note that a great deal of so-called 'pro labor' legislation that instituted wage minimums has only belatedly adjusted the legal minimum wage to levels the market economy was already able to provide, due to the increase in capital invested per worker. If the extent of the legally mandated minimum wage does not exceed what the market can bear, it mainly serves to polish the image of politicians, while the harm is at least limited. This is however not to say that there is no harm done at all by the introduction of such wage price controls, even if the levels seem reasonable.
After all, the economy is subject to frequent booms and busts under the current monetary regime, and if wages are inflexible to the downside, unemployment will tend to soar during the bust phases. The huge unemployment rates during the Great Depression were a direct result of president Hoover 'persuading' companies not to drop wage rates, in spite of a sharp fall in prices and a genuine money supply deflation.
Seattle is one of the few municipalities in the US boasting of an openly socialist council member, Ksahma Sawant. As the author of this article at Forbes [8] rightly notes, it is quite astonishing that this purveyor of bad economics (she not only supports minimum wage laws, but also rent controls and it seems she wants Amazon to be nationalized as well) is actually teaching an economics course at the Seattle Central Community College.
As a politician, one of her central demands was the introduction of a $15/hr. Minimum wage in Seattle. The city council has now bowed to this demand, a decision that is likely to prove extremely destructive, especially to small businesses (interestingly, businesses have been allowed to 'phase the wage in over a three to seven year period', a fact that immediately belies the assertion that this legislation won't hurt business. If it is so harmless, why can it not be adopted right away?). NBC reports [9]:
“The Seattle City Council on Monday unanimously approved a $15 hourly minimum wage — the highest in the nation.
The ordinance, which phases in the increase over time, passed a committee last week with a few changes. It would take effect next April and allow a sub-minimum wage for teens.
The ordinance was drafted by an advisory group of labor, business and nonprofit representatives convened by Seattle Mayor Ed Murray. It would phase in wage increases over three to seven years, depending on the size of the business and employee benefits.
The City Council voted 9-0 in front of a sometimes raucous audience that frequently interjected cheers, applause and shouts of "Shame on you!" as the council debated several changes to the measure. Seattle's higher minimum wage would surpass San Francisco's minimum of $10.74 an hour.
[…]
Some small business owners worry that a higher minimum wage could put them out of business.
Meanwhile, a group called 15 Now led by Socialist Seattle City Council member Kshama Sawant is collecting signatures for a ballot measure that would create an immediate wage hike for large businesses and a three-year phase-in for small business.
"Our victory is not complete, but we have fought until the last day, the last hour, against all the loopholes demanded by business," Sawant said before the council vote. "$15 in Seattle is just the beginning."
(emphasis added)
Ms. Sawant has actually studied economics, which makes this all the more astounding. Anyway, she and her followers are certain to be taught a real life lesson in economics now. Unfortunately, many small business owners and their employees will lose their livelihood as a result. Ms. Savant herself has of course nothing to fear in this regard, as her income is paid by taxpayers.
Kshama Sawant, raising her fist in the well-known socialist greeting
(Photo by Elaine Thompson, AP)
The Downward Spiral is Already Underway
Seattle seems eager to become the next Detroit. As 'United Liberty' reports [10], the negative effects of the minimum wage law can be ascertained already, as the $15 minimum wage has been introduced in advance in the Seatac suburb of Seattle. Predictably, the groups that suffer the most from the negative consequences of the new legislation are workers themselves and small business owners.
United writes [10]:
“The Emerald City may witness the economic dangers of hiking the minimum wage to $15/hour sooner rather than later. SeaTac, a suburb of Seattle, hiked the minimum wage for certain service industry employees to $15 at the beginning of the year, and there are already signs that the sudden increase is having a negative impact.
Earlier this month, Seattle voted to raise its minimum wage gradually to $15 by the year 2020. Unlike the SeaTac wage hike, Seattle’s hike will apply to all businesses.
But 15 minutes south near the Seattle-Tacoma International Airport, employees are already seeing the negative effects of such a hike. A February report from the Seattle Times revealed [11]:
“At the Clarion Hotel off International Boulevard, a sit-down restaurant has been shuttered, though it might soon be replaced by a less-labor-intensive cafe… Other businesses have adjusted in ways that run the gamut from putting more work in the hands of managers, to instituting a small “living-wage surcharge” for a daily parking space near the airport.”
[…]
“Are you happy with the $15 wage?” I asked the full-time cleaning lady.
“It sounds good, but it’s not good,” the woman said.
“Why?” I asked.
“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.
The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.
What else? I asked.
“I have to pay for parking,” she said. I then asked the part-time waitress, who was part of the catering staff.
“Yes, I’ve got $15 an hour, but all my tips are now much less,” she said. Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. Yes, she used to receive free food and parking. Now, she has to bring her own food and pay for parking.
[...]
The Washington Policy Center, a free market think tank, said the passed-but-not-yet-implemented wage hike is already affecting small businesses in Seattle [12]:
“After decades in Seattle, Northwest Caster and Equipment recently made the difficult decision to move the business to unincorporated Lynnwood, according to a report by KOMO news. The owner of the family business blames Seattle’s increasingly difficult business climate for the move: “It just seems like increasingly the city’s become a more difficult place to do business.”
The city’s proposed $15 minimum wage was tops on the list of complaints. “If I’m going to bring someone in on an entry level, I’d prefer to start them out where I’d like to start them out, rather than having that dictated to me.”
A commercial property landlord echoes those concerns about the $15 minimum wage, noting several tenants have signaled they may not renew their leases if it becomes law: “It’s just too expensive to operate in the city.”
And in a story today, KUOW reports that small businesses throughout the city are panicking over the super high minimum wage. Multiple small business owners told KUOW they are holding off on opening new business or expanding their current business in Seattle, while others said they are delaying plans to hire new workers.”
(emphasis added)
The problem with minimum wage laws is not only that they are economic nonsense bound to lower growth and destroy job opportunities for young and unskilled workers. A major problem is that they represent an infringement of liberty. As Dr. Machan writes on this [13] point:
“[...] being entitled to a minimum wage is actually unjustified, even if the law affirms it, because it violates the rights of individuals to trade freely—one of the implications of their right to liberty. If people freely enter into an employment relationship that specifies certain work provided for a certain wage, this isn’t something the law may void, since it is their right to do so; the minimum wage law violates this right.”
Most people look at minimum wage laws only from the perspective that they force employers to pay a certain wage to the least productive employees. They forget that they also force workers not to offer their labor services below the prevailing minimum wage rate. And yet, such workers undoubtedly exist, especially in light of the fact that they may otherwise simply not find any employment at all.
Conclusion
Seattle's city council has made a grave mistake by bowing to the demands of the socialist faction. Many small businesses will be forced to close or move somewhere else. Since small businesses create the vast bulk of new jobs, the Seattle city council may eventually not only find itself with a shrinking tax base, but also a growing unemployment rate. This can be expected to be accompanied by rising crime rates and growing strains on social services.
Politicians cannot repeal the laws of economics. They might as well try to repeal gravity or order the sun not to shine. And yet, basic economic lessons seemingly need to be retaught over and over again. Unfortunately, this usually happens at a great cost, as these interventions inevitably cause misery for countless people.
[14]
Socialism – ideas so good, they have to be mandatory.
(Cartoon by: Mike Lecter)