Why Seattle’s Apparent Minimum Wage “Success” is a Bubble

After Seattle passed legislation to raise its minimum wage to $15, we’ve seen some restaurants and business owners announce that they’re expanding and even opening completely new restaurants around town. Supporters everywhere have deemed the legislation very successful. The only issue is that there isn’t any evidence that it’s really successful yet; the law doesn’t go into full effect until seven years after the law has been passed.

Currently, the law has pushed the minimum wage in Seattle up to $11 per hour. While there have been many cases of restaurants announcing their planned (not yet in stone) expansion, there has finally been one business that is publicly announcing their closure. To understand everything, we’ll need to go into the law itself a little bit as well as explore the unintended consequences people didn’t understand before supporting this law. We must get into this before understanding how this “success” is actually a bubble.

Not Reported ≠ Not Happening

Before anybody from the left wants to say that I’m being outrageously biased or whatever, I just want to point out something. Just because we don’t hear about restaurants closing or moving to less expensive areas, it doesn’t mean that it’s not happening. Many people are quick to say this very thing about sexual assault. No, I’m not comparing a minimum wage increase to this crime. I’m just saying that some businesses are closing without any coverage.

Z Pizza: The Closing Business

Z Pizza, a franchised pizza parlor in Seattle, are the ones who announced the closure of their restaurant in Seattle due to the $11 minimum wage. The franchise owner, Ritu Shah Burnham, made the announcement to her 11 employees that August is when they will be shutting down. This past April, Seattle mandated in its law that the current minimum wage is to be $11 per hour. Shah Burnham explained that she would’ve kept the business open had the city not had the small business discrimination part of the law still intact.

Seattle and Its Discriminatory Law

The whole reason for closing, according to Shah Burnham, is that Seattle’s law discriminates against franchises, pegging them as large businesses. If you’re not familiar with the law Seattle passed, it states that small businesses (less than 500 employees) need to raise their paid minimum wages to $15 per hour in seven years (six years from now). There were plenty of franchise owners that were very upset over this section of the law.

Since franchised businesses are owned by a separate business (i.e. a McDonalds owned by Johnson and Johnson Enterprises, LLC), those businesses are considered small businesses by the state. But the liberal utopia that claims to be anti-discrimination is showing its true colors with this law: While franchises are considered small businesses by the state, Seattle only looks at the corporate level of each business, which means that Z Pizza is considered a large business by the city.

So what’s the big deal? How come Shah Burnham is closing? Because the increase in her minimum paid wages she has to make aren’t within six years from now, it’s within two. Her business isn’t recognized as less than 500 employees by Seattle. She’s only got 12 employees, including herself (whom she hasn’t paid yet). But Seattle is forcing her to pay $15 per hour by 2017 instead of 2021. Z Pizza, the corporation itself in California, isn’t going to help her since she’s actually paying them royalties to operate their business.

Enter Liberal Media and Organizations

There have been plenty of left-wing bloggers and minimum wage law supporters that immediately jumped on this story. The story that has been looked at the most was reported by Q13 Fox, the local Fox channel in King County (which I used to watch very often when I lived in the area). Just so everybody understands, the local Fox channels are not the same as Fox News on cable. The local channels tend to be different in political views, style of reporting, and the kinds of people that are hosting the news shows.

But this doesn’t matter to the liberal side of the political spectrum. The political left took no time to actually read or think about things before writing rebuttals against this story. One article was written by the cocky and stupidly witty organization, Working Washington. This is one that has been circulating the Facebook accounts of liberals and I’ve personally seen it twice. Most people that share this either didn’t really read it or haven’t read the other one. If they read both, then they just don’t understand the severity of Seattle’s discriminatory law.

Working Washington’s Article: Propagandistic Falsities

Working Washington sarcastically opened with, “Apparently it’s news that one California-based international pizza chain  has decided they somehow can’t succeed in Seattle’s Capitol Hill — one of the fastest-growing neighborhoods in the fastest-growing large city in the United States.” They then called anybody who is conservative that decides to write about this (this includes me) “pro-poverty-wage.” As an economist, I’m not “pro-poverty-wage.” I believe the minimum wage should be higher, but not $15 per hour. Not even in Seattle, an area I lived in for 10 years.

It’s quite apparent that Working Washington either doesn’t understand the other article or Seattle’s law, or they wanted to create a beautiful piece of propaganda that liberal sheep would follow without questioning. If you ask me, I honestly believe it’s the latter. I say that it’s the latter because they don’t even acknowledge the fact that the city’s law is discriminating against small business franchises. Then again, why would they when they’re an organization that supports this law wholeheartedly?

They said that Capitol Hill is “one of the fastest-growing neighborhoods in the fastest-growing large city in the United States.” While Capitol Hill is certainly one of the fastest-growing neighborhoods in Seattle, Seattle is not the fastest-growing large city in the United States. Forbes, a financial magazine, created a list of America’s fastest-growing cities for 2015. Houston was number one. Seattle is only the fifth fastest-growing city in the United States. Sorry Working Washington. You won’t fool anybody that fact checks your article.

They then brought up the fact that so many places in Seattle, especially pizza restaurants, are hiring right now. They don’t understand that, while these places are hiring, there are plenty of other circumstances that don’t guarantee these jobs.

More Restaurants = More Jobs ≠ More Consumption

Anybody who has taken even the most basic economics course will tell you that if you increase the price of anything, the demand for it will not increase. Rather, demand will decrease. Seattle has been known for doing things and saying that it’ll work because they want it to. However, they can’t just say that because more options are available that people will frequent these places more often. This is best explained in an example.

Let’s say your food budget is $350 each month. You only have one grocery store in town and you don’t want to go out of town. Obviously, you’re going to shop at the one place in town. But if a second grocery store were put in, you might shop there and see how it is. You might even like it better than the other one. But your food budget isn’t going to change just because there’s a second option. In other words, you’re not going to spend $350 and both stores, a total of $700 each month.

The same goes for Seattle and the new 27 restaurants opening in Capitol Hill alone. On (or near) Capitol Hill, you have a university, a community college, and a few hospitals. There’s going to be a lot of foot traffic. But just because you opened 27 restaurants in a city doesn’t mean they will all be frequented or even successful. In fact, it’s going to get a little tougher on Capitol Hill because of how people react to scarcity.

According to economics, when a scarce good increases in demand, the price increases. This is because the owner of such goods is wanting to make as much money as they possibly can. Capitol Hill is a big neighborhood, but it can’t expand past what it already is. You either have to build up or charge more for what you have as it dwindles down. That being said, the cost of rent and land on Capitol Hill is going to increase over the next six years.

More Restaurants = More Jobs ≠ Job Security

Something that should be pointed out here is that though 14 different pizza places in Seattle are hiring at multiple or all locations, this doesn’t mean that somebody else isn’t going to be fired, let alone guarantee the recently hired won’t lose their jobs. There’s no guarantee that any of those locations won’t close over the next few years due to increased cost. I’m sure that no job losses, unless they’re large or an entire location, are going to be reported.

We also don’t know the reason as to why these locations are hiring. Working Washington’s article linked a bunch of Craigslist posts. The prominent pizza chain that I work for sometimes posts on Craigslist because they want to have options for when someone needs to be fired or if someone quits. Who’s to say that’s not happening on these Craigslist posts? How do we know that by hiring another person that somebody isn’t going to be fired? How do we know that they’re just not replacing someone who is moving out of the city?

Nobody knows the extent of these hirings, but Working Washington has made it clear that they will write whatever it takes to keep their uninformed sheep in the palm of their hand. Wake up Seattleites! They’re playing with you and you’re letting them walk all over you. Mark my words: There will be job cuts at some point and they won’t be reported unless they’re a large number or if entire locations shut down. Maybe it’s not today, maybe it won’t happen tomorrow, but it will come in the next six years.

How This Creates a Bubble

This “success” that we are seeing isn’t even real success. You want real success? You need to have accounting statements showing actual profits after the first few accounting periods have gone by, not plans to open restaurants. Plans to open a restaurant are not really set in stone; plans change as time progresses. The place where I work had “plans” to attract business like Panda Express and other national chains. We don’t have anything else in our new food court other than where I work. Panda Express is not going to come because we’re too small of a city.

When we hear people say that they’re planning to open restaurants, and in large numbers, we’re too quick to say, “Ha! I told you so!” The same goes for those who say that when one or two restaurants close down or raise prices. There were plenty of people who were excited for the new minimum wage. Heck, it’s making national headlines! But the excitement is slowly dying. One by one, as jobs are cut and “18.5 percent service fees” are added, people are slowly but surely realizing that this isn’t anything to be excited about yet.

A bubble is created by the media and the excitement around people making more money, more businesses coming to town, and the organizations that love this. However, what goes up must come down. How do we know that most of these businesses aren’t startups that are taking out loans? Even if 27 new restaurants are added, creating thousands of new jobs, if a bunch of them close down, that’s thousands of jobs that are going to be lost.

This Only “Helps” a Small Population

Part of the bubble is realizing that there aren’t as many people making minimum wage in Seattle as one might think. Seattle Mayor Ed Murray says that it’ll affect 100,000 people, increasing their wages to $15 per hour instead of $9.32 per hour. According to Seattle’s website, the 2014 estimated population of the city was 640,500. this means that 15.61 percent of Seattle’s population will receive wage increases.

Not so fast! There are some news sources in the area reporting that a “study” by the University of Washington says that it’ll help 24 percent of Seattle workers. Ah, the workforce is smaller than the population of the city. But if you go by population, like liberal organizations do, you’ll find that the Seattle metropolitan area is estimated at 3,453,748 people in 2014. If we go by population of the actual area, only 2.895 percent of the population will be helped.

The reason why you can’t trust these other “studies” is because they’re going based on Seattle’s workers alone. You have to understand that these organizations won’t tell you that when they say “Seattle,” they’re meaning the city limits of Seattle, not the area like organizations and individuals say. People act like the city of Seattle cares about the surrounding cities, but it doesn’t. I lived there for 10 years, I would know.

What We Can Expect to See

According to economics, increasing the price of a good or service will decrease the demand of it. Scarce resources force the decrease in demand when they can’t afford a good or service. Sometimes, it’s only necessity that drives down the demand. If you can’t pay all your workers a certain amount of money, you only give out some raises. If it’s forced upon you to do so, you make cuts. After all, it’s better than going out of business, right?

If you only need to hire five people to make your restaurant meet consumer demand, you’re not going to hire more than that. Economics tells us that firms, both big and small, will do what it takes to at least stay afloat and earn more money. This means shutting down if needed. They will not think twice before cutting employees, if needed.

Contrary to Working Washington’s article, I’m not saying that this is or is causing an apocalypse. I’m saying that there will be consequences. Every action or decision has one. The decision to eat right and exercise results in being fit and losing weight. The decision to spike up the minimum wage like this results in the loss of jobs whether you like it or not. In math, you cannot control all of the variables. Eventually, the variables will push back and tell you that you can’t do what you’re trying to do and get the desired outcome.

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