This Just In -- Demand Curves Slope Down

Apparently when prices for things are arbitrarily doubled, the demand for them goes down.  Via the New York Times:

On Monday, about 175 employees of the buffet restaurant in the slot-machine and electronic gambling casino in Ozone Park learned that the restaurant had been closed and that their jobs no longer existed. The casino had received plaudits when, in late October, a labor arbitrator issued a ruling that doubled the average pay of workers.

...

“Everything is done,” said Mariano Cano, 45, a server at the buffet for the past two years. “They just threw us out like dogs. They just gave us a couple of dollars to shut up, and that’s it.”

In October, Mr. Cano’s pay went from just over $5 an hour, plus tips for the drinks he delivered to the tables and dishes he cleared, to around $12, because of the living wage agreement.

This is one of those regulatory overreach paired with corporate cronyism stories, so I won't express any sympathy for the business involved -- it is earning huge rents from insider political deals it cut, and though the NYT does not explain it very well, my sense is that the arbitration requirement on wages was part of that political deal.

But it is amazing to me how much the Left has simply hypnotized itself into believing that minimum wage increases don't affect employment.  If we go back a number of months and look at the article where the NYT announced the arbitration decision, there is not one single mention that there might be some job security issues with forcing a doubling of wages.

Jeannine Nixon looked as if she had hit the jackpot. Ms. Nixon, a customer relations representative at Resorts World Casino in Queens, had just learned that she would be making $40,000 a year, up from $22,300.

“It’s life-changing,” Ms. Nixon, her voice cracking, said on Thursday. “I can finally feel relieved.”

It is amazing to me that it did not even occur to any at the NYT to think that a doubling of worker pay might be anything but a pure bonanza.  I suppose they were blinded by a sense that casino margins were so high (though I find that the public consistently overestimates margins of many businesses, confusing revenues with profits).  Even if the casino is wildly profitable, one had to consider that all activities in the casino were not equally profitable.   Restaurants often have thin margins and 20-30% labor costs.  There is simply no room for doubling them in a business that typically has single digit margins at best (in fact, most restaurants lose money).

There are a number of reasons why people can fool themselves into thinking that minimum wage increases have no effect on employment

  1. The biggest reason is that only about 3% of American workers earn the minimum wage.  So even a large drop in minimum wage job prospects, say by 10%, might only affect total US employment by a few tenths of a percent, a number that might not be seen in the general economic noise.
  2. Minimum wage increases are typically implemented in small steps and announced well in advance.  Looking at employment the day after vs. the day before the actual date of change likely misses most of the effect.  For example, California announced almost a year in advance that minimum wages were going up by 25% in July of 2014.  Our company closed one operation and made substantial reductions in our work force in response, but we made these changes in December 2013, months before the change actually took effect.

Which makes this article in the Arizona Republic by Ronald Hansen one of the worst, most facile bits of economic analysis I have ever seen.

But, at the most basic level, there is good reason to think the minimum wage doesn’t kill jobs.

The minimum wage has gone up 22 times since it was instituted in 1938. There is complete seasonally adjusted data from the U.S. Bureau of Labor Statistics available for 21 of those hikes.

In 15 of those 21 cases, the U.S. economy added jobs in the year after the minimum wage went up.

On 11 occasions, it added more jobs after the hike than it did in the year before the raise went into effect.

This alone suggests that raising the minimum wage isn’t an automatic drag on employment growth.

This is simply absurd for all the reasons I listed above.   I understand how I might find this kind of "analysis" in the comments section of the Daily Kos, but how does one get this past an editor?

  • marque2

    The comment about 15/21 minimum wage increases is silly for another reason. It says jobs went up the following year(wisely dems usually get these passed in boom times) but it says nothing about the mix of jobs. We may have a million new software engineers - but the poor who are affected still aren't finding the jobs because the wage is too high.

  • alanstorm

    It also assumes that these increases happened in a vacuum - that there were absolutely no other economic changes occurring. That's plausible, right?

  • Joe_Da

    another common statement by krugman and the likes - its that overall worker productivity is up substantially, yet minimum wage has increased only a fraction of the increase in overall worker productivity. Failing to mention - or hoping no one notices -that productivity of minimum wage workers have increased very little.

  • Roy_Lofquist

    "CARSON CITY, Nev. (AP) — Nevada's largest casinos, still climbing out of the recession, suffered a combined net loss of $1.35 billion in 2013, marking the fifth straight year without an overall profit, state regulators reported Friday."

    http://www.usatoday.com/story/news/nation/2014/01/10/nevada-casinos-losses/4422641/

    Slight misperception.

  • NL7

    Wow, they closed a buffet for excessive labor costs. Maybe watch for the rise of automated restaurants? Not just auto cashiers, but robots cooking your food and dispensing it (e.g. the fresh-made pizza vending machine in Italy). Just need people to come by periodically to stock it, clean it, service it, etc. And it can work 24-hour without breaks, which works well for casinos, and doesn't sue you or need health care or FISCA/OASDI withholding.

  • Dave Boz

    Most editors probably have about as much knowledge of economics as their reporters. Not zero, but in that vicinity.

  • MingoV

    "how does one get this past an editor"
    Do you know of any journalism school that teaches numeric analysis, simple probability theory, and basic statistics? How about basic economics and basic sciences? Almost all editors were journalists. You cannot have good writing if the editors are as ignorant as the journalists.

  • http://devilish-details.blogspot.com/ mesaeconoguy

    2 things:

    1. There are a number of reasons why people can fool themselves into thinking that minimum wage increases have no effect on employment – no journalist has ever learned why notuse they are ignorant

    2. You are witnessing the obliteration of economics in your face (as I also kinda thought would happen, but not quite this quick).

    Also, 3) NYT is Full Of Shit

    This will be used next week to justify several more anti-business measures.

    PS, this is bad Ray,

    http://www.youtube.com/watch?v=jyaLZHiJJnE

  • Kevin Erdmann

    If the reporter is referring to 21 cases, then he's treating each increase separately. For instance, there were 3 hikes from 2007 to 2009. He's saying that the year after the 2009 hike had better job growth than the year before it. Not exactly a ringing endorsement of the policy, if you think about it. I guarantee you that the 11 hikes where jobs grew faster than they had the year before were all follow-up hikes. The pattern is strikingly universal in these episodes.

    I have done TONS of work on this. One of the things I did was treat the serial hikes, like 2007-2009, as a single case. There were 7 separate hikes, by this method. And, the associated job losses are clear.

    Here is the most recent post I did, with employment trends for teens from before and after the hikes. If you look at one chart on this topic, look at the chart at the bottom of this post:
    http://idiosyncraticwhisk.blogspot.com/2014/01/teen-employment-and-minimum-wage-60.html

    Teens, on average, see a 15% decline from trend employment in the 30 months after an initial MW hike. The trends are the same for total employment, but, as you say, there is such a small portion of the labor force working at minimum wage, it doesn't show up as clearly. But, even with total employment, the average series of minimum wage hikes drops employment 3-4% from trend over a 30 month period.
    Here is the collection of posts with the minimum wage label:
    http://idiosyncraticwhisk.blogspot.com/search/label/Minimum%20Wage

  • John Moore

    Of course liberals don't understand the job impact. Liberals seem to have no understanding at all of incentives - it shows in many of their policy prescriptions and their rhetoric. They think a pajama boy ad will get people to buy Obamacare - incentive?

  • Craig Loehle

    It is clear that they have no idea how close many businesses are to insolvency. The idea that just because you have a store or restaurant you are raking in the dough is pure fantasy. This is even more so for small businesses. The resentment and anger at business just baffles me.
    What made America boom in the past was that most anyone could get started with very little. The NYC garment district was the classic case where immigrants could be making clothing and selling it on the street within weeks of arrival there. For 200 yrs, land was available to those willing to farm it as the country spread west. Now the gov seems intent on preventing individuals from starting up anything (unless you have 1Million to open a nice fancy store). Joe's BBQ shack now violates all sorts of health and handicapped access codes...

  • irandom419

    I remember going to a local burger joint before and after a minimum wage hike. My favorite burger went up a nickel. I saw some documentary about the minimum wage in my state. One of the companies said they would no longer expand operations here, but in neighboring states like Coyote. Reason TV finally pointed out with surveys that people think it is a costless measure. That might help explain why liberals hate their own programs when someone earning the minimum wage needs assistance. Shouldn't they celebrate it? Also with every hike, shouldn't anti-poverty spending go down like this debate of food stamp cuts.

  • marque2

    It is not just codes, it is the regulators. In California, it takes about a year to open a fast food place in an existing building, in Texas it takes 8 weeks. Having to pay interest on all that million dollars of capital for a whole year, while earning no income from the investment has got to harm the startup process considerably.

  • bobby_b

    "This is one of those regulatory overreach paired with corporate cronyism stories . . . "

    Not so much as all that.

    This wasn't enforcement of regulations at all. This was an arbitration hearing pursuant to the contract made between the casino builders and the city - you agree to loan/give/assign to us scadie-eight dillion bucks in cash and tax breaks, and we agree to hire locally and pay workers pursuant to local "living wage" statutes. (Not "minimum wage" statutes. "Living wage" statutes.)

    And (says their agreement) if we can't agree on what "living wage" means, we'll bring in an arbitrator to decide for both of us.
    They couldn't agree on what it meant, so they both said "arbitrate!", and then they both picked the same guy as their arbitrator. (Usually, this sort of tells you that nobody is looking for a fight, but that they need a Ruling, for certainty purposes.) The casino started right in paying the doubled wages upon getting the arbitrator's ruling, and is still paying the doubled wages for the remaining thousand or so other workers.

    But, at $10.00 per hour for their workers instead of the $5/hr plus tips they had paid prior, what had been a marginal operation became completely non-marginal - i.e., the department's losses now exceeded the loss they had been willing to suffer previously as an inducement to bring in gamblers. It no longer makes sense for the casino to run a buffet. So now they don't.

  • obloodyhell

    }}} how does one get this past an editor?

    Simple: The editor reads the Daily Kos on a regular basis and doesn't have the urge to vomit twice for every article he reads.