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Peak Blue
Blues Score Pyrrhic Victory in Los Angeles

In a victory for progressives this morning, the Los Angeles City Council voted 14 to 1 to raise the minimum wage in the City of Angels to $15 per hour by the year 2020. Los Angeles is now the largest city in the United States to have committed to that increase, following similar pledges passed by Chicago, Seattle, and San Francisco. The new law is primarily intended to affect medium- to large-sized businesses rather than small businesses—it only applies to businesses employing 25 workers or more. Some estimate that it will raise the wages of roughly 800,000 workers in LA, and help raise many poorer residents into the middle class.

However, members of the business community, including the Los Angeles Chamber of Commerce, believe that an increased minimum wage won’t be a net benefit for the city, suggesting that it might actually force layoffs. Ruben Gonzalez of the LA Chamber of Commerce is quoted in Reuters:

“There is simply not enough room, enough margin in these businesses to absorb a 50-plus percent increase in labor costs over a short period of time…”

While it’s possible that increases could have some short-term gains for workers (the studies on the minimum wage and employment are not determinative), the debate about their efficacy often misses a much deeper problem: the misguided blue model policies that are instrumental in creating such poor economic conditions for the middle and lower classes. Measures like the $15 minimum wage are at best feel-good band-aids that avoid the bigger problem of the blue model’s unsustainability. At worst, they seek to superimpose elements of the blue model onto a changing world, thereby making life more difficult for mid-size businesses that provide jobs, reducing employment, and increasing the pace of automation.

One good way to start helping cash-strapped workers is to make the costs of doing business, and the costs of living, cheaper. In California many artificial factors that businesses face—certain kinds of taxes and regulations, for example—suppress wages. And other policies raise the cost of living by sending housing and utility expenses through the roof. Fixing these problems could do more to increase business productivity and boost wages than a mandated minimum wage likely ever would.

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  • 45BJ

    “Ruben Gonzalez of the LA Chamber of Commerce is quoted in Reuters:…”

    Was there ever a time when business community thought that minimum wage should be raised?
    They’d prefer to get away with $0/hr if they could. See e.g. plantation business owners. They dream of those good old days or child labor and zero worker rights.
    Chamber of commerce is just another arm, besides FauX “News”, of the GOP.

  • JR

    This article correctly states that making minimum wage too high will increase the pace of automation, but somehow implies that’s a bad thing. What a lot of people, especially liberals, don’t seem to get is that minimum wage in all my places and at all times is $0.00. People can choose to simply not hire or fire marginal workers. Which is exactly what they are doing in SF and Seattle already.

    • GS

      Well, if I were to open, or to relocate, a business, most certainly I would not be considering any high-cost location at all, unless there would be some major offsetting benefits. From what I know, Los Angeles, SF, Seattle, and so on, do not offer such benefits. What they offer are the obvious drawbacks, starting with the LA air quality. Indeed, if I had a business, I would move it out of there at the first opportunity.

    • FriendlyGoat

      The sentiment of the second sentence is why minimum wages laws were ever enacted in the first place. A business either needs employees or it doesn’t. If it does, society has some rules. They are negotiable, not non-existent.

      • JR

        Making minimum wage higher than marginal productivity of a worker makes that worker unemployable. No amount of regulations can change that fact. Don’t get me wrong, I fully support increasing minimum wage to the point that forces businesses to adapt and automate sch low margin work like fast food employment. It will adversely affect people currently employed but we’ll all be better in my he end. The goal is to have businesses run with as few workers as possible.

        • FriendlyGoat

          Sure. The more young men and women we have unemployed in the streets with automation doing all work, the better, per your last three sentences. This is well-known from Baltimore to Cairo.

          And, no you can’t have them for $3.00 an hour because you prefer no statute.

          • JR

            I agree with you, it’s a bad idea in the short term. So why are advocating making them even more unemployable with highe minimum wage? Or are you suggesting demand curve for low skill labor is upward sloping?

          • FriendlyGoat

            It’s negotiable. Various locales are negotiating. What’s wrong with that?

            We do know that technology suggests a downward slope for the demand of low-skill work. But, society as a whole has to cope with that politically in this country and all others. We cannot just descend into a world of lords and serfs, ESPECIALLY in some of the richest places on earth.

          • JR

            As technology improves and becomes ever more pervasive in every aspect of our lives, we will increasingly be separated into those who can use this technology to increase their productivity and those who are replaced by that technology. That trend is unstoppable. I just question the necessity of trying to accelerate it in the current environment by making it even more profitable to invest in capital stock as opposed to labor. Robotics engineers and software developers already have a leg up on those earning minimum wage. Do we really want to provide yet another incentive to businesses to invest in former and not the latter? From a purey technocratic perspective the answer is obviously “yes”. But as you mentioned, from a political perspective, I’m not so sure. But like you, I’m glad this is being tried out in well defined locales. We need some hard data otherwise we are just debating how many angels can fit on a head of a pin.

          • FriendlyGoat

            YES to your last two sentences. We really do need to know what can “fly” and where, instead of Congress deciding every few years that, well, the cost of living says we should raise minimum wage by $1.00——soooo, let’s do fifty cents and see if we can get by for a few more years.

            Of course there is a point where too high is too high. And the market of various cities, counties or states negotiating with their entire business communities is how we find the right points.

  • Fat_Man

    I can’t understand why they went to $15/hr. Why not 20?

    • f1b0nacc1

      Give them time

  • Blackbeard

    What will happen here is that this will hurt marginal workers, raise unemployment and increase inequality. But since this law is to be phased in over five years, and because the changes this law will engender (increased automation, businesses relocating, etc.) take time, the effects will not be obvious or immediate. Progressives will then blame the negative effects on the Koch brothers, nasty Republicans, George W. Bush, etc., and call for higher taxes and more government. The media, liberals all and economically illiterate to boot, will back them up 100%.

    A clear win for the progressive cause wouldn’t you say?

    If the Republicans had any brains they could turn this around on the progressives. What they should do is say why stop at $15 an hour? If you really want to help the poor let’s make it $30. And why phase it in? The poor need that money right now so let’s make it take effect immediately.

    • FriendlyGoat

      Most Republicans will not allow any other Republicans to do what you just suggested. You just “can’t” get that $30 wage into the GOP platform, you know?

      • Blackbeard

        I agree. As I said, “If they had any brains…”

        • FriendlyGoat

          Any chance I can get you to abandon the Republicans or “conservatism” in general in a desire to not be affiliated with “lack of brains”. Just asking. (Please excuse me. I’ve been told that one should always ask for the sale, even if its a hard sell.)

          • Blackbeard

            Actually I don’t consider myself a Republican. I voted for Obama the first time and before he won the nomination I supported Hillary. When I say supported I mean I made contributions. Right now I find myself, somewhat reluctantly, supporting some Republicans because, in my opinion, the current administration is so bad I prefer the gridlock of divided government.

            Consider my original comment. I believe we have a moral duty to help the poor but I also believe minimum wage laws are a terrible way to do it. Such laws only help those that already have a job, they tend to reduce employment, and they particularly hurt those who are the most vulnerable, the marginal employees that barely qualify anyway. The Democratic rank-and-file may not believe any of that but I believe the party leadership knows it perfectly well but cynically goes ahead because they know it will be a good issue against the Republicans who, as we both agree, have no idea how to respond.

            On the other hand the Republicans don’t seem to have any better ideas except tax cuts, which may have made sense in the relatively high tax Reagan era but won’t make much difference now.

            Since I don’t have anyone to support I continue to vote for gridlock and hope someone better will appear.

          • FriendlyGoat

            Sorry to assume you as a “harder sell” than you really are. I’m proud of you for supporting Barack Obama and Hillary Clinton in the past—-and hope you will consider that getting Mrs. Clinton elected next time IS the path to gridlock. We don’t want the GOP having both the Congress and White House, right?

            As for your second paragraph, we Democrats are in favor of helping those who have jobs but are not earning enough to reasonably survive. They are, or should be, our primary focus—because they cannot be said to be not trying.

    • f1b0nacc1

      There is no point trying to outbid the Left….they are ignorant (see FG below) and will simply call your raise and see you $45/hour. Far better to simply let economics take their course….businesses will automate (5 years is more than enough time for it to be implemented on a partial basis, and it will spread rapidly as costs drop with greater experience), and relocate, and all of the whining by the ignorati will not change a thing. The Progs will blame us anyway, so perhaps it is time to stop trying to negotiate with them?

      • Blackbeard

        But meanwhile this is a terrible election issue for the Republicans. Granted the average voter is economically illiterate and granted the news media is 100% economically illiterate but still this is the electorate we have to deal with.

        Suppose the Republican tried this: Let’s raise the EITC to any reasonable level the Democrats propose, and index it to inflation thereafter. In return we not only abolish the federal minimum wage but outlaw all state and local minimum wage laws. Could the Democrats say no? And if they say yes it takes this issue away from them forever, and it makes the cost of this rather expensive entitlement explicit instead of hidden as with the minimum wage.

        • f1b0nacc1

          The Dems will simply pocket the proposal, and eliminate any concessions in return. This is NOT a winning argument, as the Dems can ALWAYS (they are both shameless and pander to the ignorant) outbid you. This isn’t about any real concern for them (the smart ones know that none of this would work, the dumb ones don’t care), it is about having an issue to run on….
          If the GOP wants to win, they are going to have to do the hard work of explaining the problem, and educating the population. Some will never learn (the LIVs are hopeless, and the gentry Left doesn’t care), but some will, and that will be enough to neutralize the issue. Those who already understand the problem aren’t going to be won over by the Dems, it is the group in the middle, that can be educated, that will matter. Once you start trying to counter-pander, you have lost the battle to educate them.
          Finally, what convinces you that this is a terrible election issue? The media loves it, and there is good evidence that you can find plenty of people who go along with it, but the support is soft, and as examples of the consequences pile up (Seattle and SF, for instance), the support softens still more. If the GOP is seen running on principles, and trying to explain this (taking some real effort in doing so, not just focus-group testing pap being cynically projected by the Chamber-of-Commerce types) then the issue can be dealt with. Remember, part of the problem is that this is seen as ‘business as usual’ vs ‘real people’s needs’….we know better, but unless we do our work in educating the population, then nothing improves….
          Final point, even if we lose, then when the inevitable consequences occur (the jobs just disappear) then we have the ability to say ‘I told you so’, and get the population to trust us to help rebuild. More to the point, this is going to be a problem in the future anyway (sooner or later, likely sooner, automation is going to get cheap enough to eliminate even lower priced labor), so we had better prepare the population and start looking for ideas as to how to work with it in the real world.
          Treat the population like adults….who knows, they might like it!

  • FriendlyGoat

    I wish I clearly understood what socially-desirable state of affairs is expected by TAI to replace “Peak Blue” on this subject and all the others where the demise of the “blue model” is celebrated in this forum. A lot of energy is expended here saying “we DON’T want blue” without much clarity on what we supposedly DO want.

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