Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
National Identity Demands Restrictive Immigration - 21st Feb 18
Best Opportunities for Freelance Technical Writing Jobs - 21st Feb 18
4% US 10-year Treasury Note Yield Will Be a Floor Not a Ceiling - 20th Feb 18
Governments Are LYING about Their Gold Activities while Mining Companies Cower - 20th Feb 18
No Silver Lining Here - 20th Feb 18
Semi Conductor Stocks SEMI Bearish? - 20th Feb 18
The Prisoner Promised Land - 20th Feb 18
Best Car Dash Cam Review: Z-Edge S3 Dual Dash Cam - UNBOXING (1) - 20th Feb 18
How Inflation Reduces The Real Value Of Social Security Net Of Medicare Premiums - 19th Feb 18
Could Stellar Lumens be a Challenger to Bitcoin for International Payments? - 19th Feb 18
US-China Trade War Escalates As Further Measures Are Taken - 19th Feb 18
How To Trade Gold Stocks with Momentum - 19th Feb 18
Is a New Gold Bull Market on the Horizon? - 19th Feb 18
Stock Market Decision Point! - 19th Feb 18
An Inflation Indicator to Watch, Part 1 - 18th Feb 18
Get on Top Of Debt Before It Gets on Top of You - 18th Feb 18
Will the Stock Market Make a Double Bottom? - 18th Feb 18
5 Reasons Why Commodities Are the Investment Place to be in 2018 - 18th Feb 18
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

Raising the Minimum Wage Is a Jobs Killing Move

Economics / Employment Mar 22, 2017 - 10:46 AM GMT

By: David_Galland

Economics

By Stephen McBride: In January, 19 US states raised their respective minimum wages. Washington was among the most generous, hiking by $1.53 (bringing it to $11 per hour). Arizona got an increase of $1.95—their “bottom rung” now sits at $10 per hour.

In all, 4.3 million workers are slated to receive a hike as they earn less than the new minimum wage in their respective states. Well, that’s what’s meant to happen. Judging by the fallout from recent hikes, it seems things aren’t going according to plan.


Minimum Wage Massacre

In February, Wendy’s CEO Bob Wright said the firm expects wages to rise at least 4% in 2017. Wendy’s has three options to offset the rising costs.

First, they could cut margins, but with an 8% margin, that’s unlikely. The second option is to raise prices. Given how price-sensitive consumers are these days, that too is a non-starter. Finally, the firm could reduce the amount of labor they use… and that’s exactly what they did. Wendy’s eliminated 31 hours of labor per location, per week.

However, their locations are just as busy. To keep output steady, they are planning to install automated kiosks in 16% of their locations by the end of 2017. David Trimm, Wendy’s CIO said the timeframe for payback on the machines would be less than two years, thanks to labor savings.

Market leader McDonald’s has also been automating. Last November, the firm said every one of its 14,000 US stores will be replacing cashiers with automated kiosks. McDonald’s has actually prioritized these changes in locations like Seattle and New York that have higher minimum wages.

The restaurant industry is the canary in the coal mine when it comes to raising the minimum wage. In 2015, two-thirds of workers earning minimum wage were employed in service occupations (mostly food preparation). Today, restaurants spend (on average) one-third of their revenue on labor.

Currently, rising labor costs are causing margins in the sector to plummet. Those with the ability to automate like McDonalds are doing so… and those who don’t are closing their doors. In September 2016, one-quarter of restaurant closures in the California Bay Area cited rising labor costs as one of the reasons for closing.

With the restaurant industry flashing warning signs, what do higher minimum wages mean for the rest of the economy?

Labor Lockout

In 2015, the percentage of hourly paid workers earning the prevailing minimum wage was 3.3%. While this may not seem like a lot, young people are disproportionately impacted. Around 68% of these workers are between ages 16 and 34.

A key point is that in 2016, 20.6 million workers (30% of all hourly, non-self-employed workers 18 and older) were ‘’near-minimum-wage workers.’’ This means they earned more than the prevailing minimum wage but less than $10.10 per hour. Some states have already surpassed this level, with many more on an incremental path toward it.

While wage increases put more money in the pocket of some, others are bearing the costs by having their hours reduced and being made part-time.

A recent example of this is in Seattle. In 2015, the Rainy City raised its minimum wage from $9.47 to $11 per hour. The effects? A study from the University of Washington in 2016 found that it decreased low-wage employment by 1%.

The study also found that while median wages rose, this was largely due to a strong economy. It’s important to note these increases don’t happen in isolation. The cost of wage hikes can be masked by a strong economy.

The study went on to say that working hours were reduced as a result of the hike. Interesting, many individuals actually moved their residence to take jobs outside of the city “at an elevated rate compared to historical patterns.’’

The 2015 bill included a provision in which firms with over 500 employees must pay a $15 per hour minimum wage starting January 2017. For companies with under 500 employees, it’s $13 per hour. Given this, Seattle is the closest thing there is to a controlled experiment on this topic.

With calls for further minimum wage increases likely to continue, what can we expect going forward?

Automation Annihilation

When signing a bill that will raise California’s minimum wage to $15 per hour by 2022, Governor Jerry Brown was very observant.  Brown said, “Economically, minimum wages may not make sense. But morally, socially and politically they make every sense.”

Brown is correct about the political part, but otherwise swings a miss. This hike will increase the cost of labor. Therefore, some jobs will be priced out of existence and some workers will be out of jobs. This table shows how the hike will incentivize capex projects (aka job automation).


Source: Zerohedge

Unfortunately, those who will suffer most are the young and low-skilled… the very people such laws are meant to help. In fact, Governor Brown knows this well. In 2014, he said that raising the wage would “put a lot of poor people out of work.”

There are also many studies that prove a rising minimum wage reduces low-skilled employment. This isn’t a US phenomenon either. Across Europe, there are higher unemployment rates in countries that have minimum wages.

Higher labor costs render low-skilled workers unemployable as it removes their key competitive advantage—cost. As a result, they are being replaced by machines. This is part of the wider issue of automation.

A 2013 study from the University of Oxford concluded that 47% of jobs in the US will likely be automated over the next two decades.

A 2017 report by McKinsey that looked at the ability of machines to replace human labor drew the same conclusion. The report found that 59% of all manufacturing tasks could be automated using current technology. The most exposed sector is food service, where 73% of tasks could be automated.

The inflation-adjusted minimum wage peaked back in 1968. However, it seems to be doing more harm than ever today. This is partly because of technological advancement, which has accounted for 88% of the 5 million manufacturing jobs lost since 2000.

Unless we stop seeing “political-sense” attempts to raise minimum wages, we are likely to see a lot more Flippy’s very soon.

Free report reveals: How to Eliminate Stock Market Risk with 3 Proven Investment Strategies

If you’re tired of being lied to by all those so-called “investment gurus” promising a sure-fire way to get 1,000% returns... but still need a system to safely get stock market returns…you need a copy of Garret/Galland Research's latest free special report.

Click here to learn more about this proven investing system that will change how you invest forever.

David Galland
Managing Editor, The Passing Parade

http://www.garretgalland.com

Garret/Galland Research provides private investors and financial service professionals with original research on compelling investments uncovered by our team. Sign up for one or both of our free weekly e-letters. The Passing Parade offers fast-paced, entertaining, and always interesting observations on the global economy, markets, and more. Sign up now… it’s free!

© 2017 David Galland - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules