[grellas]

On July 1, the minimum wage in San Francisco will hit $15 an hour, following incremental raises from $10.74 in 2014. The city also requires employers with at least 20 workers to pay health care costs beyond the mandates of the Affordable Care Act, in addition to paid sick leave and parental leave.

If a local government dictates that your base wage rate for a labor-intensive industry has to increase by 40% within less than a 5-year period and, on top of that, further dictates that you as an employer must provide those same employees with above-average health benefits together with paid leave of varying types above and beyond what market norms have been, well, at the end of that process, you are obviously having to pay a hell of a lot more for those employees than you did just a few years back, perhaps as much as 50% more.

Real wage increases tie to rising productivity. I well remember representing highly-talented UNIX engineers during the early 1990s who were earning around $60K per year (adjusting for inflation alone, that number would still not be in the six-figure range today). Today, engineers of that caliber easily command six-figure salaries plus great perks. The best of them easily command $250k+ salaries. For employers trying to find such engineers, they have to open their wallets big time and, yet, they do. Why? Because, if you are a Google or a Facebook or a Twitter or an Apple, or any other preeminent company needing the services of such engineers, you are not trying to eliminate those positions simply because they cost a lot more today than they did in the early 1990s. You are desperately trying to add such people to your payroll because of what they can do for you. The changing tech world has magnified the productivity and value of what such engineers can do and therefore the salaries and perks they can command are far higher. But this is market-based and justified because the profits you can earn as an employer are also much higher owing to their work. The engineers of the early 1990s were just as talented as those today but their value was relatively less to employers than is the value of their counterparts today. Their productivity has vastly increased. Hence, so has their compensation.

Compare that to what the city officials in San Francisco are doing with waiters and similar restaurant staff. Essentially, they have decreed (in the name of worker protection) that the cost to the employer of such employees shall increase by 50% or more over a short period when nothing whatever has occurred to increase their productivity. I went years working my way through school doing such work and it is very hard work indeed. The people doing it earn every penny. Yet those who did it 5 years ago at considerably less cost to the employer than those who do it today worked just as hard as their counterparts today. If those doing such work today are doing the same work, and their productivity has not materially increased, yet they are getting paid 50% more, something has to give.

This article basically dances around the obvious by tying the discussion to the considerable expense of living in SF and to collateral issues affecting the city's living environment. In doing so, it does not discuss the obvious: when supply and demand dictates what people will do, and you arbitrarily raise the cost of something, it will affect demand by lessening it.

That is why SF restaurants are moving to less labor-dependent models of doing business. Not all will do so but the laws of supply and demand have given them an incentive to do so and it should surprise no one that a good number of them are adapting.

Perhaps this is all worth it because those who are now working as waitstaff in SF restaurants are doing much better financially and this is worth the trade off. But no one should pretend that this does not come at a price, perhaps a very high one, for those whose jobs have vanished along with the new business models. (By "new" here, I mean not that no one has had self-serve models before, which they obviously have, but "new" in the sense that restaurants that would before have never considered such models are now adopting them).

[spunker540]

Do you support a minimum wage at all? You can either mandate that businesses shoulder some of the burden of providing decent living conditions, or expect the state to shoulder that burden more directly and let businesses coast on cheap labor that's dependent on welfare.

But if you do think some minimum wage is necessary and just this particular hike is too much, you'd have to justify what that minimum wage should be. And ostensibly you'd probably think that its based on some factors like cost of living and inflation, both of which are going up.

The bottom line is the US is not going to let its citizens starve, and it has 300 million citizens here and now who need to eat everyday and sleep every night. Some of them are qualified to work at well-paying jobs and some of them are not. For the ones who are not, do you want to make sure that the jobs that they can get pay enough so that they can get by, or do you want them to not be motivated to work at all and live off welfare?

[Gibbon1]

I think minimum wages do three things.

1. Flattens the wage curve. More money goes to the bottom end and less to the top. Given economists penchant to complain the distribution doesn't matter it's interesting that that freaks them out.

2. Low paying jobs are very likely in industries where employers have more bargaining power than workers. Minimum wages correct for that.

3. Increasing labor costs motivates employers to invest in increasing productivity which leads to better long term economic growth.

[mjevans]

I disagree with the first point.

Owner/operators tend to be compensated with profit. However the (low/mid) middle class aren't often even compensated with stock options. This leads to rising minimum wages raising the price floor of an area without a corresponding rise in the compensation that the middle classes receive.

As a result of that cost of living increase, the poor remain effectively just as poor while the middle class become more poor (relatively speaking).

A more socially progressive stance is to influence the market supply, thus tipping the scales towards minimal profits, particularly in "need to have" categories such as housing, healthcare, and other basic social infrastructure (transportation, power, communications (of all types), water/sewer).

For some of those there is a natural monopoly within a given area; it makes more sense to focus on highly regulated quality (particularly for the last mile, where parallel infrastructure can be massively wasteful).

For others a hybrid approach can help: a regulated marketplace where there is ample competition among similarly sized players and/or a public option of last/default resort to control prices/quality.

Finally there are healthy markets for //optional extras// (such as fast food) where competition is robust and effective.

[edanm]

> You can either mandate that businesses shoulder some of the burden of providing decent living conditions, or expect the state to shoulder that burden more directly and let businesses coast on cheap labor that's dependent on welfare.

Out of curiosity (this is a slight tangent), why do you think businesses should shoulder that burden (if you do, I'm just guessing). Just as a reminder, we're not talking about mega-corp businesses like Google here, we're talking about restaurants, which I think are commonly small businesses. Why should their owners be forced to pay for employees' welfare, vs. doing the more equitable thing and spreading that payment to everyone?

[lozenge]

Err, because they're getting the benefit of the work? Why should I as a taxpayer subsidise small business owners?

[edanm]

> Err, because they're getting the benefit of the work?

That's not the situation we were talking about, really. We talked about a minimum wage, which raises the wage above what the business would normally pay. And we talked about doing that as a way to give a social net to some workers. But this effectively amounts to a business owner paying extra money, on top of what they would normally pay to get the benefit of the labor, out of their pocket, to help workers. The question is, why does it make sense for this only to be paid by them?

> Why should I as a taxpayer subsidise small business owners?

You wouldn't be subsidizing small business owners, you'd just be subsidizing workers. Which makes sense, since the stated goal was to help workers. Why should business owners be the only ones to subsidize workers, and not everyone?

[gascan]

Real wage increases tie to rising productivity.

Or at least it's supposed to, but some think it has become decoupled:

https://www.epi.org/productivity-pay-gap/

[drak0n1c]

Similar to carbon taxes, steep mandates on minimum wage and benefits seem to be effective at speeding the adoption of technological substitutes.

[mlthoughts2018]

Suppose politicians or local citizens believe the following:

- that there are some jobs necessary to basic local functions even though marginal productivity doesn’t add much value to the employer

- nobody wants to work those jobs, and so the people who end up with them end up there in a musical chairs sort of way and, for whatever exogenous reasons, cannot retrain for different jobs

- workers at these jobs will have their wages marginalized toward zero, with unlivable lack of medical benefits, in free market operation, because employers will respond to the lack of adequate value added for marginal additional labor in these jobs.

Add a fourth, more speculative position to the discussion:

- in the media and in political grandstanding, people in the working class who depend on these jobs will have an outsized sympathy effect from how cases of suffering or perceived unfairness are amplified to create bad press for businesses or politicians.

In the end, it creates a real mess.

- You can’t allow market forces to pay these people less, cut benefits or outright remove the headcount. This creates an unemployable underclass who cannot move away or retrain. They either can work these jobs or be wards of the state or appeal to live on charity or just die from lack of resources.

- You also can’t require businesses to pay more or pay for adequate insurance, especially at inflated modern insurance prices. Businesses are already fighting for their lives at the margins and it would be counter-productive to require them to pay more as they’ll just reduce headcount instead.

In my view, it suggests that the local government should pay a living stipend with insurance to many of these workers, which could be supplemented by part-time or low-wage work in some of these jobs.

People might be incentivized to work them if the money is meaningful as a supplement to a living base stiped, while allowing businesses to maintain staff.

But basically, as a tax-payer in SF, one option that is not possibly open for belief is to keep wages & benefits low and/or economically force out low-wage workers. It’s just not a possible option, because the result would just be a bunch of people either living on charity or just directly dying from lack of resources. In no scenario will they be able to move elsewhere to get more resources for a low-wage job or retrain to get a higher wage job. Just no.

To me, this issue is one that demands some serious reckoning, and politicians who don’t want to catch the falling sword can only keep pushing it off a little longer before we start having urban zones where it’s just opulent wealth juxtaposed with humanitarian crises on virtually every block.

[s73v3r_]

"Real wage increases tie to rising productivity."

Just about every graph on the subject demonstrates this statement to be false. Productivity has skyrocketed since the 70s, yet wages for all but the top have stagnated.

"Compare that to what the city officials in San Francisco are doing with waiters and similar restaurant staff. Essentially, they have decreed (in the name of worker protection) that the cost to the employer of such employees shall increase by 50% or more over a short period when nothing whatever has occurred to increase their productivity. I went years working my way through school doing such work and it is very hard work indeed. The people doing it earn every penny. Yet those who did it 5 years ago at considerably less cost to the employer than those who do it today worked just as hard as their counterparts today. If those doing such work today are doing the same work, and their productivity has not materially increased, yet they are getting paid 50% more, something has to give."

This is also being done because productivity is not the sole measure by which those wages should be judged. Cost of living absolutely should be taken into account.

[zach]

Productivity has skyrocketed since the 1970s in the durable-goods sector, but not so much in the rest of the economy: http://noahpinionblog.blogspot.com/2011/04/tfp-and-great-sta...

[sonnyblarney]

Minimum wage laws are absolutely necessary otherwise they'd pay $1 an hour and you'd see the '25 cent store' instead of the dollar store and people living in huts.

But - as you rightly point out - a 33% jump in a short period is stupid.

It would be nice if min wage were tied to some kind of economic indicator.

But good comment.

[sien]

Germany had no minimum wage until 2015.

Can you please show us the people that were living in huts there from the post war recovery until 2015.

[sonnyblarney]

Hey thanks for bringing up Germany.

Germany is a 'socialized economy' meaning that they have welfare benefits, collective bargaining, social services, strong rights, and fairly high control of the economy by the government [1]. In fact - workers in Germany have representation at the Board level (!!!) [2] which would be unheard of in a place like America.

Germany, is in fact the 'founder' of modern socialized economies. Otto Von Bismark was the first person to offer state workers a healthcare plan.

So in my (way too long) explanation, I indicated that people would obtain the best possible economic deal - of course if they can 'get a job with the government and do nothing' by collecting welfare benefits, they will do that in lieu of working for wages below that.

By this I mean: there has to be some externalized, or non-market intervention. Minimum is one of them.

So no, technically Germany may not need a minimum wage, but they have market interventions that are so strong, that it was not necessary.

My point was more general (maybe I should have been more clear) absent non-market interventions, people will work for the minimum survivable wage.

Irregular workers in an area will work for that minimum survivable wage so long as it's beyond what they can get elsewhere (i.e. at home), i.e. undocumented workers will work for a salary provides them just a little bit higher standard of living than they can achieve in Mexico (which is roughly what's happening) - and that 'Mexico-like economic conditions' will develop in certain areas to support that. Have you been to South San Jose - to the primarily Mexican marketplaces there? They are reminiscent of Tijuana in terms of services, quality of goods etc..

And absent the ability to 'return to a homeland' - they will accept extremely low standards of living - like people living in closets in Hong Kong, even though HK is very rich.

Absent non-market forces, like minimum wage, welfare etc - workers are effectively serfs, and will live in cardboard boxes, as they do in almost all places without such interventions.

[1] https://en.wikipedia.org/wiki/Government_spending

[2] https://www.worker-participation.eu/National-Industrial-Rela...]

[3] https://en.wikipedia.org/wiki/Otto_von_Bismarck

[paulddraper]

> Minimum wage laws are absolutely necessary otherwise they'd pay $1 an hour and you'd see the '25 cent store' instead of the dollar store

This is the first time I've seen inflation attempt to be used as an argument in favor of minimum wage.

[austenallred]

You really think people would work for $1/hr in San Francisco?

[csa]

I assume the original poster was exaggerating for effect.

That said, there is probably some wage at below minimum wage at which people would be willing to work. That wage would, imho, be very exploitative, but it would have a very high chance of happening.

The difference in bargaining power between employers and low-paid employees is astounding — astounding to the point that a true floating point “market rate” would be tough to describe as a living wage.

[sonnyblarney]

People will ultimately work for their minimum survivable wage and economies will adjust to support ever decreasing wages among a subset of the population.

People live in favelas in Rio. They live in tiny, one room flats in Hong Kong without plumbing in deplorable conditions. They live in 'work camps' in Dubai without any rights at all.

And they work hard.

Of course 'people in SF' would do the same.

Don't think you're exempt - you would do the same if your skills were commoditized and you had no recourse.

Your salary has nothing to do with how skilled you are, how hard you work, or how much value you can provide. It's entirely a function of 'power' relative to your employer. So even if you are a full-on genius, and can speak 10 languages, code in 10 languages and have a PhD in AI - you will earn next to nothing if those things are common and your skills are a commodity.

In any given economy, a good chunk of people have commodity skills, i.e. manual labour or not much more. This bar is getting higher. Way back before minimum wage we (and without knowing you, there's a very high chance this applies to your ancestors as well) survived on next to nothing - and probably worked hard. Land owners, mine owners, factory owners would leverage and leverage and leverage to make sure the workers had 'only enough barely survive' - after all - every additional penny to workers would have been simply charity, in the raw economic sense.

So - all modern and civilized economies have 'minimum wage' and/or collective bargaining for some groups. Minimum wage and unions were essential to bringing civilizations out of the dark ages. Some caveats to that would be a very high social security system with gracious benefits - i.e. the government gives you a 'job' which is 'not doing anything' which would set a floor for wages obviously. Or an economy in which there were very few people with commodity skills and 'everyone' was somehow empowered a little bit against everyone else (like 'equality and diversity in skill set' kind of thing), which is not very common.

Because of the imbalance of power - we have no choice but to have minimum wage, or something like it - and it's also generally why we don't need such things in areas wherein people are not commoditized.

The really interesting paradox is that the 'minimum survivable wage' for any individual is not the profit maximizing wage for employers in the long run!

In the 'short run' employers save money / increase profits by cutting wages. But - those people can then 'spend less' and it hurts the economy, which hurts business!

Henry Ford realized this pragmatically. He realized that if he wanted to sell a 'model T' to 'everyone' and his own factory workers could literally not afford one, then few people would be able to buy his cars, ergo, his business model was not going to work! So he paid his employees more than the short-run minimum requirement.

This requires a fairly enlightened strategy on the part of employers - moreover - it requires kind of a common buy-in by most employers, which is like a strategy game:

> If all employers pay subsistence wages - then they all kind of lose because nobody can afford to buy the crap they make in their factories.

> If all employers pay some difficult-to-calculate wage higher than subsistence, like a minimum wage ... well, everyone is better off.

> But - if most employers pay this 'decent wage' but some employers 'cheat' and pay much less, well, those 'cheating' employers can benefit quite a lot, and get rich of a system by sneaking off surpluses from a system they are not paying into. Kind of like 'not paying taxes'. But of course - every employer is under constant pressure to keep wages down - and they have no formal pressure, like a taxation agency or regulatory body, to keep them from doing otherwise. So of course we're going to have low wages without regulation.

The minimum wage is actually economically rational from a practical, surplus sharing perspective (you could say 'socialist' or 'communitarian'), but even if you want to look at it more from a 'free market' perspective, minimum wage could be argued to be the wage at which the economy (including employers and shareholders) maximally benefit in the long run ... but it's just simply impossible to get 'all business' to intelligently collude and set this wage because they are all competing more or less on short-run business cycles, and have great incentive to cheat. Hence regulation.

As for SF, especially the increasing ratio of undocumented workers who have no access to social services, yes, they will work for next to nothing - the minimum that will allow them to survive.

SF would form favelas just like in Brazil, and there's absolutely no economic reason why it wouldn't - only regulatory policies etc. keep it from that i.e. wages, rights, services, etc. etc...

FYI - this partly why having a lot of undocumented folks in the economy is a really bad idea. For a host of other reasons well. If you're going to have people participating in the economy - give them full rights. But that kind of means 'open borders' - which you can't have ... (ie can't have open borders and social welfare at the same time). A much better solution would be to have 'reasonably effective border control', close unprofitable factories/businesses in the US and move them to Mexico so that entire communities of regular people can aspire to a higher standard of living, safety, civility etc.. That's a much better win for everyone.

[Semirhage]

People will ultimately work for their minimum survivable wage and economies will adjust to support ever decreasing wages among a subset of the population. People live in favelas in Rio. They live in tiny, one room flats in Hong Kong without plumbing in deplorable conditions. They live in 'work camps' in Dubai without any rights at all. And they work hard.

You just used examples of places for which a tiny one-room flat is an improvement over previous conditions. If you think a favela is bad, try being a peasant on a working farm.

The idea that people used to life in, for example, Texas or London will get used to a similar lifestyle which represents a massive downgrade is ridiculous. Historically people started overthrowing governments and sending people to guillotines for more modest losses. You’d have riots in SF if the options were “work for $1” or “starve.”

I think minimum wage laws are a good idea too, but your argument is bizarre.

[sonnyblarney]

"Historically people started overthrowing governments and sending people to guillotines for more modest losses. You’d have riots in SF if the options were “work for $1” or “starve.”"

YES. And what would those riots be for: MORE WAGES. Basically a minimum wage or collective bargaining. Hence my point of why minimum wage has to exist!

Using an externalized or non-market function like rioting to achieve wage increase, is the same as voting to require minimum wage etc:

--> You literally just made my argument for me <--

"Texas or London will get used to a similar lifestyle which represents a massive downgrade is ridiculous."

People have no choice but to accept the economic conditions they face.

This is 'reality' , it's not 'bizarre' at all.

My argument is nothing but basic, classical economics. It's not even an argument, more so an explanation. Nothing new.

If people have to work for 'next to nothing or die' - what do you think they will do?

Die? Or work like a slave? The later in most cases.

It's economic reality.

I think what would happen in London/SF/Texas is that irregular workers would probably move in and form the basis of this ever lowering economy, and empowered citizens would be much less likely to fall - but they definitely could. And that includes you, and me, if we didn't have access to family, social services, minimum wages etc..

[Semirhage]

People have no choice but to accept the economic conditions they face.

My whole point is that as I said, people don’t just accept, they riot and revolt. I agree with minimum wage laws, but not because of some hyper-extreme scenario in which San Franciscans are working and living like Brazilians in favelas. Frankly we shouldn’t need to resort to that kind of hyperbole to make the case for a living wage.

If you want to see what happens, even in traditionally poor places when people face a “fight or die impoverished” scenario, see Egypt, Tunisia, Libya. People were willing to face tanks and bombs with their bare hands because the alternative was to starve. I think you underestimate the potential belligerence of the average American if faced with a similar scenario.

The larger issue though is that riot, abject poverty, and revolt aren’t actually the foundation of a minimum wage. Fairness, and Econ 101 are, and there’s no need to get so far out there as to divert the debate away from present conditions to extreme hypotheticals.