Jobless in Seattle? Not Yet, Anyway.

@TBPInvictus

Barry wrote yesterday about how political bias can corrupt economic analysis. It’s something he and I discuss all the time and are always on the lookout for. We’ve documented over the years how leaning too heavily on one’s politics is a recipe for disaster when it comes to asset management. In the wealth management business, it’s a loser almost every time. Think hyperinflation, runaway interest rates, dollar debasement, gold going to $3,000/oz., the MRE you have stocked in your basement. You get the picture.

A current hotspot for this file is the case of the rising minimum wage in Seattle. Critics of a rising minimum wage – really of any minimum wage at all – are decrying the move and asserting that it will have – indeed is already having – a devastating effect on Seattle’s restaurant business (as many restaurant workers are likely to be minimum wage workers).

Seattle Magazine ran with “Why Are So Many Restaurants Closing Lately?” last month. The article listed several restaurants that either have closed or will do so shortly. If you make it to the twelfth paragraph, however, you get to this:

“Though none of our local departing/transitioning restaurateurs who announced their plans last month have mentioned this as an issue*, another major factor affecting restaurant futures in our city is the impending minimum wage hike to $15 per hour.”

So, if I’ve got that straight, although not one – “none” – of the restaurateurs who announced closure/transition plans mentioned the rise in the minimum wage, Seattle Mag is comfortable proclaiming that it is nonetheless a “major factor affecting restaurant futures.”

Another writer, to whom I won’t link, made an unsubstantiated claim that in Seattle, “restaurants are closing at higher than normal rates,” the culprit being the rising minimum wage. He provided no link to any data to support his claim.

ThinkProgress picked up on this story just a few weeks ago, noting all the usual suspects who had climbed aboard – NY Post, Mark Perry, Forbes, Rush Limbaugh. And there are others. However,  the Seattle Times actually did something novel – they went out and spoke to the restaurateurs and actually asked them about their reasons for closing. They found the claim that the closures are being caused by an increase in the minimum wage “false”:

As it stands now, the claim that these restaurants closed over the minimum-wage issue is false.

And here we’ll do something a bit novel as well – look at some actual data, in the form of Seattle Restaurant Permits. How have they been tracking? Since we know that information put into the public domain is immediately acted upon by market participants, we’d expect to see permit issuance fall off a cliff about a year or so ago as restaurateurs – or prospective restaurateurs – digested (pun intended) the knowledge that their labor costs would rise.

What do we see?

seattle permits

What I see there – and I’m focused on the 12-month moving average – is, well, nothing. I see a longer-term trend of roughly 25-26 permits per month amid the usual month-to-month noise that is always evident in any data set. Contrary to conservative rhetoric that has been devoid of any fact- or data-based analysis, Seattle’s restaurant business (through March 2015) looks very much today (in terms of permits) as it did prior to any notion of a higher minimum wage. Now, that’s not to say that restaurateurs may not have to adapt in other ways – higher prices, less expensive ingredients, shorter hours, or some combination thereof. But permit issuance – a clear indicator of the industry’s health – has not faltered. Of course, the Seattle experiment will bear watching as the city’s minimum wage gradually scales higher. At the moment, however, it certainly appears to be much ado about nothing.

What's been said:

Discussions found on the web:
  1. rd commented on Apr 8

    The data are wrong.

    The same people who planted Obama’s birth certificate in Hawaii when he was born in Kenya started creating fake restaurant permits in City Hall knowing that people like you would go looking for data.

  2. Herman Frank commented on Apr 8

    When in Europe, will you please wait in line at the local McDonald counter behind all the other gourmet-aficionados to be assisted by a $20/hr burger-flipper-order-taker? High hourly wages have NEVER negatively impacted the success of a restaurant where the staff is experienced and motivated. They go home and have money to spend. Like, you know, “an old-fashioned working-class”.

  3. jib10 commented on Apr 8

    A local Seattle chain has announced they running an experiment at one of their restaurants. They are raising pay to $15 an hour now, eliminating tipping, and raising menu prices by 21%. Eliminating tipping makes the menu price rise (mostly) a wash. They are setting aside the extra money from the price hike for a ‘tip pool’ that will be distributed to the workers nightly based on a set formula (8% to servers, 13% to everyone else).

    There is some interesting evidence that money saved by paying workers cheaply ends up not in the owners pockets or the customers pocket but the landlords. At least in Seattle, rents keep rising and they make a large % of a restaurants cost structure. Higher wages can be made up with lower rent without effecting service or prices. I expect that to happen over time but landlords are a stubborn bunch and it can sometimes take years of empty spaces before they lower rents.

  4. DeDude commented on Apr 8

    It actually will be an interesting experiment that will cast light on the predicted doom of giving poor people a decent wage. Yes this will increase cost and to survive all the restaurants will be forced to slightly increase their prices or reduce other costs (quality). To the extend that cost do increase there may be a decrease in costumer volumes. From the right we hear the familiar “we are all goner die!!!” predictions of doubling prices and collapse of the industry. But we can actually collect data and test these predictions (just like data were collected on the hyperinflation predictions of 2009-11). Similar the predictions of the left that the loss of costumers due to price increases will be completely compensated by adding more costumers in the form of minimum wage people now being able to afford eating out – will be testable by simply collecting data from this experiment in Seattle. Lets collect the data and decide who is right.

  5. bigsteve commented on Apr 8

    Restaurants cannot out source to another country and if all are force to a minimal wage standard there is no competitive pressure of someone lowering worker wages. As one who eats out often, the price of my hamburger is not that significant. I have a lot of disposable income. Other wise I would eat at home. My favourite place to eat have friendly staff , good food and excellent service. Happy workers are a big draw to me. And the fact that the staff and customers look like my town which is a minority majority place is another plus. The whole argument against increasing worker wages is really about the balance of power between worker and employer. Low paid workers are at an intense disadvantage. As pointed out if workers have more money they spend more and the whole economy grows and is richer. But some employers would rather have power than money.

  6. Joe commented on Apr 8

    In SF we have a requirement that employee health care…. etc etc etc. I took a friend out to lunch to a down town restaurant a while back where it was posted on the windows, menu, stamped on the butter, etc that a portion of your bill was to pay those costs. In my review, I asked about health regulations, a cost of doing business like labor costs. I’m not clear if they are not posting that information on the cost impact, because they are not following the rules as they find them too onerous, or if they are just politcizing and sniveling about the cost of treating employees decently and not looking after the health of their customers….

  7. ilsm commented on Apr 8

    Waitstaff and cooks are variable costs, the price covers all costs; poor management, bad food, lackadaisical service, dirt, etc don’t pay the rent.

    Slave labor don’t change the issues.

  8. pdzxc commented on Apr 8

    What a killjoy – always bring up facts, as if they’re something holy.

    Personally I think it is a much better story without the facts. Yet absolutely no mention of this as even a possibility.

    The world needs theme based stories to keep the internet fed, and people who keep ruining things with facts are just proving they are stuck in the past.

    • Admin commented on Apr 9

      Hilarious!

  9. Jobless in Seattle? Not Yet, Anyway. Part 2 | The Big Picture commented on Apr 10

    […] On Wednesday, I threw in my $0.02 about the controversy surrounding the increase in Seattle’s minimum wage. Unlike any of those who have been decrying the new law and its impact, I used some data to demonstrate the absence (as yet) of any ill effects. Specifically, I looked at restaurant permit issuance and found nothing out of the ordinary. Today, I’ll double down on Wednesday’s $0.02 with a bit more data and a bit of backstory. […]

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