Saturday, February 07, 2015

The Unintended Consequences Of Minimum Wage Hikes In San Francisco

I saw this article from the local San Francisco ABC news and immediately chuckled for it proves a point that governmental hikes in the minimum wage has the consequence of driving small businesses out of business.
The result of a minimum wage hike, voted by the residents of San Francisco takes the current city minimum wage from $11.05c an hour to $15 an hour in 2018.
Of course when minimum wage proponents talk about the wonders of this, they often fail to point out that there will be some businesses that can not absorb such a hike, especially in a city such as San Francisco.
As I noted in a Facebook debate with my sister, who supports the wage hike, larger businesses will be able to, grudgingly, pay that minimum wage. And they will just simply pass the cost to the very people that are supposed to be the beneficiaries of the wage hike in the form of higher prices. One way or another, this proposal will hurt more people in the long run than help.
And here is where Borderlands bookstore comes in.
It is a small, independent bookstore. Again the kind of business that many of the minimum wage hikers claim to love. It has been essentially a money loser but did turn in a rip-roaring $3,000 profit for the whole of last year. According to store founder and owner Alan Beatts, that one-time profit will eventually turn into a $25,000 a year deficit. Something that is totally unsustainable for a one-man operation.
Of course it is not a one-man operation in total. Mr. Beatts has six employees. Who will be facing the unemployment line soon.
Some people, who do not believe that Mr. Beatts is being totally honest, think that it is more of a case of incompetency and or bad decisions on his part. That could be a possibility. But Mr. Beatts points out that even in the most difficult times, he and his workers were able to overcome almost everything by "working our asses off" as he said.
But he can't overcome, by force of law, even a gradual hike in the minimum wage. By May of this year, the city minimum wage will be $12.25c an hour.
Mr. Beatts explained that in his business, he can not raise the book prices because the prices of books are usually imprinted either on the inside of the book cover or on the book flap. It is possible to have a sale, but again Borderlands books is an independent bookstore and can't afford to have sale prices constantly. The overall change in the minimum wage would be a 39% hike in payroll. The total operating expenses would rise 18% according to Mr. Beatts. And to offset the two things, sales would have to increase 20%. Something that just is not going to happen.
Many cities, counties and states have hiked their minimum wages more than the federal mandate of $7.25c in recent years. Many very Democrat-dominated cities have rallied around the concept of the "living wage" and have done what San Francisco has done and deemed that $15 an hour is a "living wage".
Of course there is a problem with the idea of a "living wage".
It is by nature undefinable.
Let me give you an example where the market is actually dictating how pay works in a strong economy.
The state of North Dakota is in the middle of a huge economic boom due to oil and fracking. The many small towns that make up the state are growing very fast. There are not enough places like WalMart, McDonalds and many other retail establishments needed for the rise in population. Thus these very places are offering salaries starting at $17 or even higher. Thus even a worker in what is a minimum wage job someplace else is making a lot of money at such places throughout North Dakota. Of course there is the factor of whether or not people are going to want to move to a state in which winter is about nine months a year. Where temperatures often are -30 degrees below zero on a good day. There is also the fact that one needs a very reliable form of transportation for North Dakota is not exactly an urban landscape with strong, reliable mass transit. So of course the establishments I mention and others have to offer a high salary to get any kind of workers.
Urban areas are different and the thought is hey, jobs are much more plentiful and people can find more opportunity.
Another thought is what does the minimum wage mean? Is it something that most people are at? Or is it still traditionally young people, some retirees seeking extra income? Or is it an entry-level way to work one's way up a company? Or take the skill learned at such a job and go somewhere else for higher pay and or more opportunity?
Well, by and large it still is yes to all. But it is true that many of those who are still victims of the current economy find themselves having no choice but to take such jobs. Some are working multiple jobs just to make ends meet. There is no doubt that because of that, it is squeezing out many of those who would be perfect minimum wage candidates. and justifying the push for a "living wage". No doubt people are making very difficult job choices because of a variety of factors.
But one thing a hike of the minimum wage takes away is incentive. Incentive to move up the ladder in a company. Incentive to learn new responsibilities. Even the incentive to work hard. It is especially hard to give people who are either in high school and or starting college a high starting salary for what will their expectations be later in life?
Alan Beatts says that he is for the the concept of a "living wage" in principal, and it could even be good for San Francisco, for his particular business, it just won't work. And he has to close the doors.
How many other San Francisco businesses like Borderlands books will face the same fate? The unintended consequences of a "living wage".

No comments: