Posts

Warren Buffett Would Understand the Plight of this Seattle Pizza Shop Worker

At his annual shareholders’ meeting, Berkshire Hathaway CEO Warren Buffett said raising the minimum wage isn’t the answer to economic ills [emphasis mine]:

“I don’t have anything against raising the minimum wage but I don’t think you can do it in a significant enough way without creating a lot of distortions,” Buffett, 84, Berkshire Hathaway Inc.’s chief executive officer, said Saturday at the company’s annual shareholders meeting in Omaha, Nebraska. Those distortions “would cost a whole lot of jobs,” Buffett said.

One Seattle pizza shop worker understands exactly what that means:

Devin Jeran was happy to get a raise, when Seattle’s minimum wage went up to $11 an hour at the beginning of the month.

“I definitely recognize that having more money is important,” he says, “especially in a city as expensive as this one.”

Unfortunately, he’ll only enjoy that bigger paycheck for a few more months. In August, his boss is shutting down Z Pizza and putting him and his 11 co-workers out of work.

“Fortunately she keeps us in the loop, she didn’t just tell us last minute.”

Ritu Shah Burnham doesn’t want to go out of business, but says she can’t afford the city’s mandated wage hikes.

“I’ve let one person go since April 1, I’ve cut hours since April 1, I’ve taken them myself because I don’t pay myself,” she says. “I’ve also raised my prices a little bit, there’s no other way to do it.”

Small businesses in the city have up to six more years to phase in the new $15 an hour minimum wage. But Shah Burnham says even though she only has one store with 12 employees, she’s considered part of the Z Pizza franchise — a large business. So she has to give raises within the next two years.

We see similar distortions from a different perspective a few hundred miles south in San Francisco. Brian Hibbs, owner of two comic book stores, is also learning what happens when politics is used to raise wages [emphasis mine]:

Hibbs opened Comix Experience on April Fools’ Day, 1989, when he was just 21 years old. Over two-and-a-half decades, the store has become a must-visit location for premier comic-book artists and graphic novelists, and Hibbs has become a leading figure in the industry, serving as a judge for the prestigious Will Eisner Comic Industry Awards and as a member of the Comic Book Legal Defense Fund’s board of directors. He notes with pride that his store has turned a profit each year — no small task — since its very first year.

But that may not last. Hibbs says that the $15-an-hour minimum wage will require a staggering $80,000 in extra revenue annually. “I was appalled!” he says. “My jaw dropped. Eighty-thousand a year! I didn’t know that. I thought we were talking a small amount of money, something I could absorb.”

He runs a tight operation already, he says. Comix Experience is open ten hours a day, seven days a week, with usually just one employee at each store at a time. It’s not viable to cut hours, he says, because his slowest hours are in the middle of the day. And he can’t raise prices, because comic books and graphic novels have their retail prices printed on the cover.

[h/t Sonny Bunch]

The wage increases are no picnic for Bay Area restaurants either.

While minimum wage increases are well-intentioned, as the American Enterprise Institute’s Aparna Mathur explains, they’re ineffective in helping low-skilled workers:

New research finds that the effect of increases in the minimum wage between 2007 and 2009 was to significantly reduce employment of low-skilled workers. Further, minimum wage hikes increased the likelihood that low-skilled individuals would work without pay, and this was true even for workers with some college education. Finally, this new research tracked workers over time and found that increases in minimum wages had negative medium-run effects on the ability of low-skilled workers to rise up the income ladder. The paper finds that during the late 2000s, effective minimum wages rose by nearly 30 percent and estimates these increases reduced the employment-to-population ratio of working age adults by 0.7 percentage points.

This is far from a one-off finding even though some earlier research finds no impact on employment. The fact that we need to account for negative employment effects shows up in a careful analysis done by the Congressional Budget Office last year on President Obama’s proposed minimum wage hike to $9 or $10.10. The CBO estimated that in the aggregate, employment losses could be as high as 500,000 or 1 million as a result of the hike in the minimum wage to $10.10.

To borrow from the Wall Street Journal editorial board: Business and economic success–not political coercion–are the only ways to sustainably raise wages.

EDITORS NOTE: Meet Sean Hackbarth / @seanhackbarth / Follow@uschamber. The featured image is of Warren Buffett at the Berkshire Hathaway annual shareholders meeting in Omaha, Nebraska. Photo credit: Daniel Acker/Bloomberg.

Trade War: U.S. Chamber and AFL-CIO Square Off On TPA Renewal

Geographically the headquarters of U.S. Chamber and the AFL-CIO are only a block apart. But philosophically on trade policy they’re light years apart.

Although friends, the U.S. Chamber President and CEO Tom Donohue and AFL-CIO President Richard Trumka squared off on opposite sides at a Senate Finance Committee hearing on TPA renewal and forging ahead with trade agreements like the Trans-Pacific Partnership (TPP).

For Donohue, not renewing TPA and passing trade agreements like TPP “is the equivalent of going out and resigning from the rest of the world.” But for Trumka, TPA–he calls it, “fast track”–is an “outdated and undemocratic process.”

One particular person interested in this conversation on Capitol Hill happens to also work near both men. But President Obama would have to read the coverage later. He was in Fairfax, Virginia for an interview about TPA and trade to be aired later on MSNBC.

Trumka had three main arguments.

First, he complained that the TPP cake has already been baked and TPA won’t give Congress much of a say:

The idea that fast track lets Congress set the standards and goals for the TPP is a fiction – the agreement has been under negotiation for more than five years and is essentially complete. Congress cannot set meaningful negotiating objectives in a fast track bill if the administration has already negotiated most of the key provisions.

But that’s just not the case, Donohue said:

The Trans-Pacific Partnership agreement would open the Asia-Pacific dynamic markets to American goods and services. It is critical that we do so because nations across the Pacific are clinching their own trade agreements that exclude the United States, denying American exporters access to these very important markets.

TPA gives the United States a strong hand in writing the rules for trade for this important region. It makes us an active player, not a bystander stuck on the outside looking in.

TPP would affirm and deepen America’s ties to Asia at a time when there is a perception that we’re pulling back.

Second, Trumka charged that TPA is undemocratic:

[TPA] cedes important and long-lasting decisions about our economy to a few negotiators in a small room in the middle of the night. This is undemocratic. It’s wrong.

The truth is because Congress sets the terms for negotiation and must vote a trade agreement up or down it’s inherently democratic. Negotiators don’t impose anything on Congress.

Donohue address this point:

TPA is based on the common sense notion that Congress and the White House must work together on trade agreements. TPA is how Congress sets priorities and holds the administration accountable in trade negotiations.

A few people have claimed that this is a presidential power grab. I may be uniquely qualified to comment on this. After all, the Chamber has not been shy about criticizing some actions of the administration when we see overreach. But TPA isn’t about Congress ceding power to the president. On the contrary, TPA strengthens the voice of the Congress on trade.

Without TPA, the administration can pursue its priorities at the negotiating table and consult with Congress only when and if it chooses. TPA lets Congress set negotiation goals and sets forth detailed requirements for consultation between the trade negotiators and the Congress.

What TPA does is prevent Congress from acting like 538 additional trade negotiators, as Senator John Cornyn (R-Texas) described it. That would be no way to forge a 21st Century trade agreement.

Third, Trumka argued that TPA lacks accountability. “Congress should have the final say on whether negotiating objectives have been met.,” Trumka told the committee.

But that’s what TPA does. From Donohue’s testimony:

TPA allows Congress to show leadership on trade policy by doing three important things: (1) It allows Congress to set negotiating objectives for new trade pacts; (2) it requires the executive branch to consult extensively with Congress during negotiations; and (3) it gives Congress the final say on any trade agreement in the form of an up-or-down vote. The result is a true partnership stretching the length of Pennsylvania Avenue.

The TPA process has produced beneficial trade agreements, Donohue noted:

[Previous] trade agreements boosted U.S. output by more than $300 billion and in turn supports an estimated 5.4 million U.S. jobs….

The United States has a trade surplus with its 20 trade agreement partners as a group. This includes sizeable trade surpluses in manufactured goods, services, and agricultural products.

American companies have greater access to international markets and are creating jobs. At the same time, American consumers have access to a wider array of goods and services. Renewing TPA will lead to more beneficial trade agreement like TPP and the Transatlantic Trade and Investment Partnership (TTIP) with the European Union.

As Donohue summed up his testimony, “To create the jobs, growth, and prosperity our children need, we need to set the agenda. Otherwise, our workers and businesses will miss out on huge opportunities.”

TELL CONGRESS TO PASS TPA.

Meet Sean Hackbarth  @seanhackbarth Follow @uschamber