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?
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.