OPINION:
Not everyone felt like celebrating the contributions of the American worker on Labor Day. Hourly employees have been suffering the pain inflicted by the movement agitating for higher wages imposed by law. Preliminary findings suggest that the basic rule of the marketplace still holds: Money doesn’t grow on trees, and businesses that can’t afford to pay employees more than they’re worth to the employer must let them go. The day set aside to honor labor wasn’t very rewarding for those whose “holiday” was unpaid.
“Fight for $15” has taken root in Seattle, where a city ordinance enacted last year started a series of pay raises that are slated to reach $15 an hour by 2021. Supporters have waved a survey done by the University of Washington they say debunks the idea that higher wages cost jobs. The survey found that Seattle workers benefited from a 7 percent increase in pay relative to surrounding jurisdictions. Other jurisdictions added employment by 4 percent, and Seattle added jobs by 3 percent. Cheers were raised — more pay and no layoffs. But when surveyors asked business owners how they would accommodate the new pay scales, 11 percent said they would leave town.
The Fight for $15 did, in fact, give some workers a larger paycheck. But it prevented some businesses from offering jobs that would have been created otherwise. It’s called the broken window fallacy: Money spent repairing a shattered window has no net benefit; likewise, laws that raise pay aren’t a success if they slow the rate of job creation.
Results in the eastern part of the country deepen doubts about the salutary effect of government-regulated pay. U.S. Bureau of Labor Statistics show that after the District of Columbia began phasing in minimum wage increases in July 2015, employment in restaurants, which employ mostly hourly workers, grew by less than 1 percent; jobs in the surrounding Virginia and Maryland suburbs, where mandates have not taken hold, increased by 4.2 percent. Restaurant employment during the first half of 2016 grew by 1.6 percent, but fell in the District by 2.7 percent. Comparing the nation’s capital to its suburbs, it’s clear that businesses forced to pay higher wages respond by eliminating jobs.
Anecdotes aren’t conclusive, of course, but Mark Perry of the American Enterprise Institute observes that the Consumer Price Index for food served at home was down 1.6 percent in July compared to 2015, while the index for food served at restaurants ticked 2.8 percent higher. The 4.4 percent price difference in food purchased at a restaurant and consumed at home — the largest in seven years — means many Americans are taking out to dine in, not out. Not so surprising, restaurant business fell by nearly 4 percent nationwide in July compared to July 2015.
It’s fundamental that a restaurant, like any other business, must make a profit to keep its doors open. Everyone wants everyone to earn a good living. Everybody benefits. But imposing pay by law, giving governments control of wages, limits the creation of entry-level jobs that enable the young and unskilled to get a first job. Everyone wants a bigger paycheck, but if it comes at the risk of a layoff, most workers would say less (pay) is more.
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