We’ve all heard of the “law of unintended consequences”. It’s worth noting, though, that unintended consequences fall into two types: those that are unforeseen because the complexity of a large, dynamic, and possibly chaotic system obscures them even from the most searching analysis, and those that are patently obvious to some observers, but are unseen by others, due, singly or in combination, to intellectual laziness, shallow and unreflective ideological prejudices, or stupidity.
This article gives us a gratifying example of the latter category. (The accompanying photograph, I have to add, only sweetens the deal.)
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Despite being a senior-citizen conservative living in a “progressive” state, I’d like to be my 10-year-old self, living in Texas, and have my parents buy me a pony.
Living in a country which proudly boasts the highest minimum wage in the world I have seen the consequences first hand. The problem here is compounded by weekend penalty rates which require employers to pay half as much again on a Saturday and double on Sundays. The cost is passed on to the customer.
It costs six dollars for a coffee in Sydney, a simple sandwich can set you back ten dollars (so called, gourmet, fifteen) in a trendy cafe. These prices are accepted in the city but not out here in the sticks where, in the most extreme cases places stay closed over the weekend because it is impossible to make any money.
It is a complex issue because once you have introduced these laws and the prices have risen accordingly, it is irreversible. No one will take (or is allowed to take a pay cut) and it is considered that a high minimum wage promotes hard work. Furthermore, because prices are high it is thought that a generous minimum wage helps people to be self-sufficient.
My son was in the USA recently for a w/e course in LA. This course is available here but it costs twice as much, so he flew from Sydney to LA, attended the course, had a good look around LA and then visited San Francisco. The total cost was about the same. He was particularly pleased by the biggest breakfast he had ever seen, with limitless coffee, for which he paid $8 (US). In Australia you could multiply the bill by three and that would be in a modest establishment.
Why does National Review hate capitalism so much?
Fifteen years ago, there were tens of thousands of small businesses operating as travel agencies, independent bookstores, and one hour photo places. They were put out of business by Expedia, Amazon, and the smart phone.
309 West 84th Street is a nicer place to live when Gotham Deli is around the corner. It’s probably a Verizon store now. You can’t sell enough smoked gouda to compete with the yield per square foot of a Duane Reade, which has metastasized far beyond its original location near Duane and Reade Streets to have greater prominence in Manhattan than King Kong ever did. Ditto for the bakeries, dry cleaners, and dive bars which went belly up because the rent was too damn high.
The problem with Comix Experience is not that San Francisco laws require a barely subsistence wage. Their problem is that they sell a low margin product which few people want to buy, so the combination of rent, inventory, and now a slightly higher cost of labor makes their business infeasible.
If they survive: fine. If they go under, they may be replaced with an expansion of Bi-Rite Creamery down Divisidero Street from them, which has lines out the door of San Franciscans clamoring for their superb ice creams and Olympus sandwiches (Salami Cotto, Mortadella and Capicola with Provolone, Pepperoncini, Red Onion, Lettuce, Italian Dressing & Lemon Aioli on Semifreddi’s Ciabatta). The Banh Mi with Roasted Heritage Pork is pretty good, too. Or it may be replaced by a new store selling artisan tacos, an app store (Planet of the Apps?), or a gizmo store selling such useful devices as http://www.celluon.com/products_epic_overview.php
The problem with operating a marginal business is that an unforgiving market, with constantly changing tastes, won’t keep you afloat. So when you get a spike in rent, cost of goods sold, or labor cost, you’re in deep trouble. If more people wanted to buy comic books, or he could charge more for them, or he was willing to relocate to Oakland for its lower rents, then things would be hunky dory. He can’t run a successful business paying the going rate for rent and labor, because not enough people want to buy what he is selling.
Because National Review is a conservative magazine espousing conservative causes, their narrative seeks to make a referendum which passed with 77% of the vote the issue, as they will always favor capital over labor. But that’s not the problem: if Comix Experience folds, it will be replaced with another enterprise which the market favors more than comic books, and the laid off workers will learn how to make artisanal tacos and make $15 an hour for it. The real problem — if that’s what it is — derives from the “creative destruction of capitalism,” and its relentlessly Darwinian process of separating winners from losers.
OEM, I love your list of sandwich fillings. You’re obviously a connoisseur.
San Francisco is an expensive place, I know. It’s inhabitants (well, many of them) have a lot of disposable income left over for discretionary spending. I lived in the city of Sydney until a couple of years ago and it’s a similar story there.
We now live about an hour outside the city. It’s commutable. Many Sydney multi-millionaires have oceanside “weekenders” here. There is a seasonal spike in trade each holiday period and the businesses tend to be hospitality. This “lucky country” is now experiencing a downturn and the first thing that people do in this situation is off-load the holiday home.
In the smaller towns there is no call for a Verizon store so when a business fails it stays empty. There is a rather idyllic seaside village near here where every other shopfront has a “For Let” sign in the window.
And no, I don’t think that there would be a demand for a shop selling comics because a niche business needs the population density of a city for it’s customers/clients. So it’s not as simple as relocation.
There is a pool of potential workers here who would love to work for less, or whose lives would suit working over the weekend without having to be paid double. The law will not allow any wage negotiation whereby anybody is paid under the minimum, or less than the weekend penalty rate. The result is that places close, they are not replaced with anything and jobs are lost.
It’s a fine line between protecting the worker from exploitation and denying them any work at all. Unfortunately, the resulting high price of everything from this wages policy impacts the poorest people far more than the affluent.
Peter, I agree with nearly everything you say here. (Although it’s obviously just snark to ask why NR “hates capitalism”. And it was the Carmen Deli, not Gotham.)
But while you are quite right that for a business to survive requires that revenue minus costs results in a positive number, the point of this piece is that the government has seized control of an important piece of that equation — the cost of labor — and that can be, as it was in this case, the straw that breaks the camel’s back. Why should anyone expect to be able support a family by working the register at a comic-book shop? Why shouldn’t the owner of such a low-margin business, if he can find someone willing to work there just for beer money (and, of course, for the babe-magnet effect of having such an awesome gig), be allowed to do so without government interference?
There are all sorts of pernicious aspects of minimum-wage laws, but this one is so self-evident that even a San Francisco liberal can see it (although admittedly it took the ruination of his own business for the penny to drop).
These businesses mentioned as well as thousands of others that will never be mentioned are becoming the unwilling victims of “compassionate” voters/governments in the quest for economic “social justice”. The consequences of this quest are rarely written about. Changing markets are one thing but government or a detached voter as “disruptor” is another thing entirely.
Niche businesses are by nature low margin and it takes little to upset viability. In other businesses, most pay rates are based on the value of the work needed, not the person doing it. If jobs are easily filled by many applicants then that is the determinant factor in pay. The worth of the person doing the job is determined by that person alone. He knows his worth. He is responsible for himself, not his employer in a small business.
OEM, we placed a sin-tax on cigarettes because we wanted to decrease its use. Similarly, we placed a sin-tax on alcohol to decrease its consumption.
Why did we place a sin-tax on hiring the low-skilled? And by the way, like all sin taxes, the minimum wage is highly regressive.
“…a sin-tax on hiring the low-skilled”. (For a freely negotiated wage, that is.)
Exactly right, Dom.
I will remind readers again that the original, “Progressive“, purpose of the minimum wage was, as we noted in this earlier post, to starve out the underclass by forcing them to compete, for the same artificially inflated wage, against more desirable workers.
“more desirable workers”. To them we add millions more illegals with low skills, small children and lots of need to be subsidized. After a while, so many low skilled people are nothing more than spare parts for the Left. They are “prepaid Democrats”. What wage will these people earn?
WW,
It seems to me they will earn a negative wage via welfare.
Henry, exactly. To qualify for these “benefits”, a household can’t earn too much money and mothers with children need to show a lack of support in raising the child. Translate, a father/husband/boyfriend/dude…what ever will need to be absent. Or even never been named as father. This should sound like what we are reaping the perils of right now after 50 years of failed liberal social policy.
Yup. By “negative wage” I was implying a drain on the economy.