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.