If you live in Seattle, you can clearly see the economy booming all around you. We have more restaurants than at any time in our history, our regional unemployment rate is lower than it’s been in nearly a decade, and restaurateurs are paying even higher than the minimum wage in order to attract skilled workers.

Damn you, $15 an hour minimum wage!

There is an obvious error of logic in that passage.

What an increase in the cost of doing business does is act as a deterrent to economic growth. Always, without exception. Doesn’t matter if the increase is due to health care costs, taxation, wage, whatever. Econ 101.

It’s great that Seattle is booming to the extent that it can, at the moment, shrug off this increase. I guess. Although other studies, such as this one commissioned by the city itself, found otherwise:

But the evidence we can see with our own eyes isn’t enough to convince the world that Seattle’s minimum-wage experiment is working.

Well, that depends on how you define “working”, eh? If you want to maximize economic growth, you don’t raise the cost of doing business on businesses. If you want to trade some growth (and jobs that you COULD have had) for higher wages, that’s your perogative. But trying to get a consensus on which of those paths is the “best” is a fool’s errand you seem willing to run.

From a City of Seattle report celebrating the three-year anniversary of the minimum wage ordinance.

That’s all very nice, but it’s meaningless without knowing three other pieces of data: the area GDP, average wage (adjusted for inflation) and hours worked. In the case of the broader US, ignoring those three datapoints have led people to assume we have dynamic work environment due to a low unemployment rate. This is of course false, because the GDP rate tells us that the jobs “created” since 2009 are unproductive, low wage jobs. Without data on Seattle productivity, one would assume that the same is occurring in Seattle.

In other words, thanks to Stigler’s faulty theory, students in economics 101 classes have been repeatedly taught that you can’t raise wages without cutting jobs. So whenever economists trained in the Stigler theory investigate minimum-wage increases, they’re automatically trying to prove a negative, which can inspire some truly tortured thinking in the service of confirmation bias.

That’s false.

When the cost of doing business rises, businesses maintain their profit margins by doing one of two things, or a bit of both: they either decrease expenses, and/or raise prices.

If the vendor has pricing power, he’ll do the latter. No brainer.

If he CAN’T raise prices without putting himself at a competitive disadvantage, he’ll do one of several things, of which cutting jobs is just one. He might automate. He might charge his employees more for health care. He might cut back on contributions to their 401K’s. He might outsource. He might give his employees no raises for a year. He might not replace an employee who leaves or retires, and just let the others work harder. He might cut back on vacation time. He might cut back on overtime.

There’s a common denominator in all of those; they are not good for the employee. And they do not show up on the radar screen of any study which simplistically only looks for “jobs lost.”

Could the problem be that Stigler and his theory doesn’t take into account the fact that when workers make more money, they spend it, thereby promoting the local economy? The Berkeley study is the latest instance of data indicating that could well be the case.

No. What is not taken into account is that in a local market niche (Seattle, restaurants) everyone has pricing power. So, they all raise prices. Everyone. And people either have to pay them or drive outside the city to eat. Inconvenient, burns gas. It’s a captive market.

What you need to watch for now is what happens on the time horizon, specifically, Rosie the Robot. Paper-pushers at Cal can crunch numbers and come out with studies a lot faster than restaurateurs can install robots. Stay tuned. Best not to spike the football until you’re in the end zone. You’re still out near the thirty yard line.

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