Seattle’s new minimum wage law takes effect April 1 but is already leading to restaurant closings and job losses

From Mark Perry. Excerpt:

"From the Washington Policy Center’s article “Seattle’s $15 wage law a factor in restaurant closings“:

As the implementation date for Seattle’s strict $15 per hour minimum wage law approaches, the city is experiencing a rising trend in restaurant closures. The tough new law goes into effect April 1st. The closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.

The shut-downs have idled dozens of low-wage workers, the very people advocates say the wage law is supposed to help. Instead of delivering the promised “living wage” of $15 an hour, economic realities created by the new law have dropped the hourly wage for these workers to zero.

Advocates of a high minimum wage said businesses would simply pay the mandated wage out of profits, raising earnings for workers. Restaurants operate on thin margins, though, with average profits of 4% or less, and the business is highly competitive.

When prices rise consumers seek alternatives, a behavior economists call the “substitution effect,” which results in lower demand for the higher-priced product. In the case of restaurants, consumers have access to the ultimate substitution – they can stay home.

Fewer people will be able to afford to dine out, and as a result there will be fewer great restaurants to enjoy. People probably won’t notice when some restaurant workers lose their jobs, but as prices rise and some neighborhood businesses close, the quality of life in urban Seattle will become a little bit poorer.

From the Seattle Magazine article “Why Are So Many Seattle Restaurants Closing Lately?“:

For Seattle restaurateurs recently, there is also another key consideration. Though none of our local departing/transitioning restaurateurs who announced their plans last month have elaborated on the issue, another major factor affecting restaurant futures in our city is the impending minimum wage hike to $15 per hour. Starting April 1, all businesses must begin to phase in the wage increase: Small employers have seven years to pay all employees at least $15 hourly; large employers (with 500 or more employees) have three.
Since the legislation was announced last summer, The Seattle Times and Eater have reported extensively on restaurant owners’ many concerns about how to compensate for the extra funds that will now be required for labor: They may need to raise menu prices, source poorer ingredients, reduce operating hours, reduce their labor and/or more.

Washington Restaurant Association’s Anthony Anton puts it this way: “It’s not a political problem; it’s a math problem.” He estimates that a common budget breakdown among sustaining Seattle restaurants so far has been the following: 36 percent of funds are devoted to labor, 30 percent to food costs and 30 percent go to everything else (all other operational costs).  The remaining 4 percent has been the profit margin, and as a result, in a $700,000 restaurant, he estimates that the average restauranteur in Seattle has been making $28,000 a year.

With the minimum wage spike, however, he says that if restaurant owners made no changes, the labor cost in quick service restaurants would rise to 42 percent and in full service restaurants to 47 percent.

“Everyone is looking at the model right now, asking how do we do math?” he says. “Every operator I’m talking to is in panic mode, trying to figure out what the new world will look like. Seattle is the first city in this thing and everyone’s watching, asking how is this going to change?”"

Most public pension plans are significantly underfunded

From Andrew G. Biggs of AEI.

"The National Association of State Retirement Administrators – a group that works on behalf of state and local government pension plans – released a study concluding that most states are doing a good job at funding their pensions. As reported in Pensions & Investments, NASRA research director Keith Brainard states: “There is a perception that many plans and states have failed, when in fact it’s only a handful of states. Most states have made a reasonably good effort.” NASRA defines a good-faith effort to fund the plan as paying 95% or more of the Annual Required Contribution. According to NASRA, half of all plans received at least 95%.

Excuse me for thinking that NASRA is setting the bar a bit too low. We’re four years on from the end of the recession. Most public pension plans are significantly underfunded. Now is the time when all of them should be making full contributions – or more – to catch up after years of sub-par contributions and sub-par investment returns. The fact that the most NASRA can say is that a bare majority of plans are paying most of their annual contributions shows how sketchy the funding environment is.

In fact, data from the Public Plans Database shows that only 41% of public plans made their full “required” contribution in 2013, the lowest figure since the Database began in 2001. The reason is obvious: annual required pension contributions have skyrocketed in recent years, from about 7% of payroll in 2001, to 13% in 2009, to 18% of payroll in 2013. Public pensions use accounting techniques that push costs off into the future, but the future is now here. And now most plans seemingly can’t afford to pay. It might be, as NASRA says, a reasonably good effort, but it’s not a reasonably good result.


To reiterate, Brainard states that “there is a perception that many plans and states have failed” to make their payments. In reality, it’s most plans that have failed to be fully funded, and it’s seeming to be a problem that’s getting worse. Public funds have benefited from strong investment returns in recent years, so maybe the market will bail them out. They’re seemingly counting on that. But I wouldn’t."

Job attributes can be changed by employers in response to a change in the legislated minimum wage

From Cafe Hayek.

"… is my colleague Dan Klein’s comment on this recent EconLog post by David Henderson (original emphasis):

The term fringe benefits isn’t as general as non-wage job attributes. For example:
- work demands
- flexibility in schedule
- kindness, amiability in the workplace
- consideration and respect in the workplace
- upward mobility
- unpleasantness/pleasantness of the work
- health insurance
- on-the-job training
- lockers for workers
- food for workers
- air conditioning and good lighting
- workplace safety
- etc. etc. etc.
Non-wage job attributes.
That is the term for all that is beyond the wage.

The value to workers of some of these things can, with some effort, be reasonably measured quantitatively; the value of others of these things – for example, amiability in the workplace – cannot be so measured.  Yet each one of these job attributes (including the many in the “etc. etc. etc.”) can be changed by employers in response to a change in the legislated minimum wage.  And many of these job attributes will be changed insofar as employers don’t simply hire fewer hours of low-skilled workers.

Defenders of the empirical studies that show little or no disemployment effects of minimum-wage legislation, in addition to generally taking an economically unjustified short-term view of the matter, typically ignore these other potential negative consequences of minimum wages.  If the numbers don’t show it, then it must not exist – or so it is unreasonably reasoned.

Such defenders of minimum-wage legislation who assert that empirical studies refute the economic case against such legislation are poor economists.  They see only what their numbers show; they remain blind to what economic reasoning strongly suggests is real but uncapturable in the numbers.  These defenders of minimum-wage legislation don’t understand the full range and depth of the economic analysis.  That analysis shows that raising employers’ costs of employing low-skilled workers will cause employers to economize further on the amounts and kinds of low-skilled labor they employ.  One way that such economizing will occur is that employers will employ fewer hours of such labor – but that’s not the only way that economizing can occur.  Adjustments – all unfavorable to minimum-wage workers – along the many of the margins highlighted above by Dan will likely also be made.

The victims of such a policy of artificially raising workers’ hourly money wages are the workers who can least afford to be victimized by such a policy.  And the fact that some of the proponents of the minimum wage mean well, and that other proponents trot out empirical studies that naively (if with impressive window displays) report that minimum-wage legislation has no or only de minimus downsides in order to assure the world that science is on the side of minimum-wage legislation, does not relieve the unjust damage uncorked on poor people by such legislation."

Marketplace Fairness Act Is More about Tax Revenue and Rent-Seeking than Fairness

By Jessica Melugin of CEI.

"Yesterday, Sens. Mike Enzi (R-Wy.), Dick Durbin (D-Ill.), Lamar Alexander (R-Tenn.), and Heidi Heitkamp (D-N.D.) reintroduced the speciously named Marketplace Fairness Act (MFA) in the 114th Congress. The legislation would authorize state tax collectors to reach across borders and tax out-of-state businesses, therein subjecting online retailers to taxation without representation.

Certainly, there are inequities in the way remote sales are taxed, but the MFA’s approach is a cure worse than the disease. It would unfairly burden remote retailers by forcing them to calculate for approximately 10,000 distinct tax jurisdictions—each with their own rates, definitions and tax exemptions—while leaving brick and mortar shops to simply apply and remit tax based on the point of sale. Not much of a level playing field there.

So if not “fairness,” as supporters of the bill claim, what is motivating pro-MFA sentiments?

For the states and localities it’s purely a tax grab. Instead of trimming fat from their bloated budgets, governors and mayors are opting to spend time in D.C. schmoozing congress for the right to tax other state’s businesses. Why deal with disappointing or taxing your own constituents, to whom you are politically accountable, when you can spend the week office hopping on the Hill, collecting pins for your lapel, and topping it all off with an expensed dinner at Cap Grille?

The other proponents of the MFA are big retailers. If it’s hard for you to believe that Walmart, Target, Best Buy, and Amazon are fighting for “fairness” for main street brick-and-mortar mom-and-pop shops, you’ve got good instincts. They’ve spent millions lobbying to impose these tax collection costs on competitor online retailers. The big guys are banking on MFA’s compliance costs being lethal for their smaller online competitors. Again, why succeed by creating value for consumers in the marketplace when you can bury would-be competitors with tax collection and remittance burdens?

It’s obvious that congressional Republicans, voted into majorities to shrink government, not expand its reach, should reject the MFA for what it is—a tax grab and rent-seeking.

And if legislators are serious about injecting fairness into taxing remote sales they should opt for an origin-based approach. All remote sales would be taxed at the principle point of business—whether online, by catalogue, or whatever we think of next. This would preserve tax competition among jurisdictions, keep authorities politically accountable to those they tax, and never trigger the need for cross state audits or consumer information collection. None of which can be said for the MFA."

Recent studies into the economic impacts of climate change find the positives to be increasing and the negatives to be decreasing

See Global Warming: Good for Bad and Bad for Good? by Paul C. "Chip" Knappenberger and Patrick J. Michaels of Cato. Excerpts:

"But what may come as a surprise is that according to U.K. economist Richard Tol, recent studies into the economic impacts of climate change find the positives to be increasing and the negatives to be decreasing.
Tol writes:

Since 2009, however, more estimates of the economic impact of climate change have been published…The new trend shows positive impacts for warming up to about two degrees global warming, just like the old trend did. The new trend, however, shows markedly less negative impacts for more profound warming than did the old trend. In other words, in the last five years, we have become less pessimistic about the impacts of climate change.

Couple this result with the bevy of new scientific findings indicating the future climate change is likely to be on the low side of climate model projections and we have some good news about climate change’s impact on something that we all like—money!"

Transit subsidies exceeded $42 billion, or more than $4 per transit trip, in 2013.

See Record Spending on Transit by Randal O'Toole of Cato.

"The American Public Transportation Association (APTA) has issued its annual press release trumpeting the growth in transit ridership. Naturally, it selectively uses the data in order to get the best media attention. 

For example, it claims that 2014 ridership set a record, which is true only if you don’t count any year between 1912 and 1957, during all of which transit carried far more people than it does today with almost no subsidies. Transit carried just under 10.8 billion trips in 2014, an increase of 101 million trips over 2013 but less than the 11.0 billion trips carried in 1956 (which doesn’t even include commuter rail and several other forms of transit that APTA counts today).

Second, APTA fails to note that all of the growth in ridership can be accounted for by increased usage of the New York City subway system. While national ridership grew by 101 million trips, APTA’s own ridership report shows that New York subway ridership grew by 107 million trips, or nearly 6 million more than the national gain. Without New York subways, whose ridership grew because of New York City’s rapid job growth, APTA would have had to report a national decline in ridership. Transit ridership grew in some cities, but it declined in many others, including Albuquerque, Austin, Charlotte, Chicago, Cincinnati, Honolulu, Los Angeles, Miami, Nashville, Norfolk, Pittsburgh, Sacramento, San Antonio, San Francisco (Muni), San Jose, and St. Louis, to name a few.

Most importantly, APTA fails to note that, in order increase transit ridership, subsidies to transit have grown to truly record levels. We don’t have all the data from 2014 yet, but transit subsidies exceeded $42 billion, or more than $4 per transit trip, in 2013. This is a staggering amount considering the industry was profitable overall before Congress began subsidizing transit in 1965 and subsidies remained relatively small until recent years.



APTA’s historic data shows capital subsidies only as far back as 1988. In the 25 years between 1988 and 2013, total inflation-adjusted subsidies grew by more than 90 percent, with the subsidy per transit trip growing from $2.12 to $4.08. In return for these subsidies, transit service (measured in vehicle miles) grew by 40 percent, while ridership grew by just 20 percent. Worse, America’s urban population grew by 40 percent, so per capita transit ridership shrank by 14 percent from 47 to 41 trips per urban resident per year.

I compare 2013 numbers with 1988 because that’s as far back as the data go. Transit advocates, however, like to compare with 1995, a year in which the transit industry bottomed out due to low gasoline prices. Things look better when compared with that year, but not by much. Since 1995, inflation-adjusted subsidies have grown nearly twice as fast as ridership: a 64 percent increase in subsidies compared with a 34 percent increase in ridership. Per capita ridership grew by just 7 percent.

Thanks to APTA’s hard work, American taxpayers are spending more and more on transit, but not getting much back. APTA would like Congress to believe that funneling more tax dollars to transit agencies will increase transit ridership and be good for cities. In fact, the data show that transit ridership is much more heavily influenced by fuel prices than by subsidies. 

The problem with transit subsidies is that the subsidies go where they do the most political good, not where transit riders need them. Transit systems in Boston, Washington, and other cities are falling apart due to lack of maintenance. Rather than repair the systems, politicians are spending billions of dollars on new rail transit lines–the Silver Line in DC; the Green Line extension to Medford in Boston–that the transit agencies can’t afford to maintain. The result is a disaster for transit riders and taxpayers alike."

Obamacare's Good News Only Tells Half the Story

From Megan McArdle.

"Basically, the new CBO analysis addresses the first portion but not the second. The insurance coverage provisions, it thinks, will actually cost almost $150 billion less than expected, thanks to a number of changes: slower overall growth in health-care costs; the decision by insurers to offer cheaper "narrow network" exchange plans with a reduced selection of doctors and facilities; and revisions to assumptions about everything from how many people were on Medicaid before the law took effect to how many people will lose their employer-sponsored insurance thanks to the law.

On the revenue side, however, it is mostly silent. And we've seen some slippage on the revenue side: For example, the Barack Obama administration has so far been reluctant to implement the required cuts to the Medicare Advantage program, which were a major revenue source under the original law.

Does that mean Obamacare isn't generating more deficit reduction than predicted? No. The lower insurance costs are great news for the federal budget. But you can't get that out of this analysis -- or any other analysis, I fear, because the CBO has stopped scoring the law as a whole. We should be glad to learn that the CBO thinks we'll be spending less on subsidies. But we shouldn't put more weight on that statistic than it can actually bear."