Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
China Is Building the World’s Largest Innovation Economy - 21st Sep 18
How Can New Companies Succeed in the Overcrowded Online Gambling Market? - 21st Sep 18
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB
Silver's Relationship with Gold Reaching Historical Extremes - 16th Sep 18
Emerging Markets to Follow and Those to Avoid - 16th Sep 18
Investing - Look at the Facts to Find the Truth - 16th Sep 18
Gold Stocks Forced Capitulation - 15th Sep 18
Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - 15th Sep 18
Trading The Global Future - Bad Consequences - 15th Sep 18
Central Banks Have Gone Rogue, Putting Us All at Risk - 15th Sep 18
Gold Price Seasonal Trend Analysis - 14th Sep 18
Growing Number of Small Businesses Opening – and Closing – In the UK - 14th Sep 18
Gold Price Trend Analysis - Video - 14th Sep 18
Esports Is Exploding—Here’s 3 Best Stocks to Profit From - 13th Sep 18
The Four Steel Men Behind Trump’s Trade War - 13th Sep 18
How Trump Tariffs Could Double America’s Trade Losses - 13th Sep 18
Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - 13th Sep 18
Trading Cryptocurrencies: To Win, You Must Know Where You're Wrong - 13th Sep 18
Gold, Silver, and USD Index - Three Important “Nothings” - 13th Sep 18
Precious Metals Sector On a Long-term SELL Signal - 13th Sep 18
Does Gambling Regulation Work - A Case Study - 13th Sep 18
The Ritual Burial of the US Constitution - 12th Sep 18
Stock Market Final Probe Higher ... Then the PANIC! - 12th Sep 18
Gold Nuggets And Silver Bullets - 12th Sep 18
Bitcoin Trading - SEC Strikes Again - 12th Sep 18

Market Oracle FREE Newsletter

Trading Any Market

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