Seattle’s Giant Job Killer

By Erin Shannon

The city of Seattle made history last month with an ordinance that will force every employer in the city to pay every worker a $15 per hour minimum wage, which is the highest in the nation. But before progressives in Portland try to hold up Seattle as a model, they should watch what happens to workers there. The controversial wage mandate passed by Seattle’s City Council has not even been enacted yet, but it is already having a chilling effect on jobs.

Small business owners are expressing deep worry over the coming super-high minimum wage. Many of these job creators say they are holding off on opening new ventures or expanding their current business in Seattle, while others say they are delaying plans to hire new workers. A commercial property landlord says several of her tenant business owners may not renew their leases if the $15 wage becomes law.

As she puts it, “It’s just too expensive to operate in the city.”

Even business owners who have supported a higher minimum wage are having a change of heart. Jody Hall, owner of Cupcake Royale and respected progressive activist, initially supported a $15 minimum wage. But now she says the proposed policy is “keeping me up at night like nothing ever has.”

Hall told KUOW/NPR radio she now has “serious second thoughts” about a $15 minimum wage, especially since Seattle would be “going it alone” with a wage that is significantly higher than any other minimum wage in the nation.

Her second thoughts about a $15 minimum wage mandate have led to second thoughts about expanding her business. She had planned to open a new business in Seattle this year but has tabled the idea for now. Hall says if she considers any new locations in the near future, they will be outside the city limits.

That is one way a high minimum wage often kills job opportunities, by eliminating them even before they are created.

A city-commissioned study says a $15 minimum wage would help low-wage workers and reduce poverty. But the mandate can help only people who have jobs; this study omitted any estimations of the impact on employment. A subsequent study by a Seattle economist predicted significant job losses.

 

It would seem the Seattle economist has been proved right early. The $15 wage is not yet in effect, and it is already pushing businesses into neighboring cities and killing jobs in Seattle, as business owners stop growing their companies and hiring new workers.

Employers cannot pay workers more than the value of their output. If an employer must pay a worker $15 per hour, he must ensure the worker produces at least that amount in economic value, or the employer will be forced to reduce the cost of labor in the only legal way remaining, by cutting benefits or hiring fewer people.

That’s what is happening in SeaTac.

Northwest Asian Weekly reports employees subject to the narrowly passed $15 minimum wage law in that Seattle suburb say they have lost benefits such as 401(k) plans, paid holidays, paid vacation, free food, free parking and overtime hours. One hotel waitress said she is earning less now because tips have decreased since the high wage law. In many cases these benefits, plus the previous minimum wage, added up to more than workers receive under the $15 wage law.

As one SeaTac worker put it, “It sounds good, but it’s not good.”

SeaTac’s $15 minimum wage has been in effect less than six months, and workers in that city are discovering the high-wage mandate comes with a steep cost. In Seattle, a minimum wage has not even gone into effect, and employers are already adjusting by canceling plans to expand and hire new workers. We can expect many Seattle businesses to cut benefits as SeaTac employers had to. Others, especially small businesses, will be forced to lay off workers.

“$15 Now!” is the battle cry of activists in Seattle. A more accurate slogan would be, “It sounds good, but it’s not good for workers.”

The last thing workers need is fewer jobs.


 

Erin Shannon is Director of the Center for Small Business at Washington Policy Center in Olympia, Washington. She is a guest contributor at Cascade Policy Institute, Oregon’s free market public policy research organization. A version of this article originally appeared in the Puget Sound Business Journal.

Seattle’s $15 Minimum Wage: A Wolf in Sheep’s Clothing

By Erin Shannon

On June 2 the Seattle City Council made Seattle the first city in the nation to mandate a $15 minimum wage for all workers. But far from being a victory for workers, a super-high minimum wage is likely to cause more harm than good by destroying businesses and reducing workers’ options.

Effective April 1, 2015, all businesses must pay $10-$11 per hour, with the remainder of the $15 wage phased in over seven years for small businesses (those with less than 500 employees), and three years for large businesses (those with 500 or more employees).

While supporters of the $15 wage say it will have no negative impact on the city’s employment or economy, the reality is it is already killing jobs. Some business owners in Seattle say they are holding off on opening new business or expanding their current business, delaying plans to hire new workers and even moving into neighboring cities. In SeaTac, where some employers have been paying a mandated $15 minimum wage for six months, the benefits workers used to receive have been reduced or eliminated and prices have increased for consumers.

Restaurants, in particular, will be hit hard by Seattle’s new wage. The Puget Sound Business Journal reports that one restaurant owner calls the $15 wage a “mortal threat” and has halted plans to open another location. The CEO of a restaurant chain says his company is also holding off opening new locations in Seattle, and will likely be forced to reduce employees’ health benefits. The company currently offers health care coverage to employees who work at least 25 hours per week, but that may now be increased to 30 hours per week. That company will also likely eliminate tips for servers, and instead automatically charge customers a service charge or gratuity that would be split between servers and other restaurant staff, such as kitchen workers.

And it is not just Seattle workers who are losing potential jobs and reduced benefits. In a twist, the $15 wage is impacting job creation and worker benefits in other cities.

A pizza franchise with 11 locations, six of which are in Seattle, that employs 430 workers has tabled plans to open another location in Lynnwood over concerns the new location and its new jobs would bump the company into the “big business” category. Under the new law, “big businesses” have a shorter phase-in of the high wage; they must begin paying all workers $15 over the course of three years. By

staying under the 500-employee threshold, the company remains a “small business” and has up to seven years to phase in and adjust to the new wage for its six Seattle stores. That is 70-plus jobs workers in the city of Lynnwood just lost.

The company that says it may reduce health benefits in response to the $15 wage would have to do so for all of its workers, even those outside Seattle. Federal law requires companies to offer the same health benefits to all employees. So if the company is forced to increase the threshold to qualify for health benefits in order to offset the new high wage of employees in Seattle, it must increase the benefit threshold for all employees, including those earning a lower minimum wage in other cities.

The CEO of the chain restaurant warns that many small, mom-and-pop businesses will go out of business as a result of the increased labor costs: “Successful downtown restaurants will find a way to make it work, but smaller restaurants will die.”

This sentiment is echoed by the CEO of CKE Restaurants, which owns Carl’s Jr. and Hardee’s. Andy Puzder, author of the book Job Creation, says the push for a higher minimum wage is the one of the greatest threats facing restaurants: “I think you’ll see a lot of restaurants closing. I don’t think that restaurants can operate profitably if they’re paying a $15-an-hour minimum wage.”

Some of Portland’s leaders want to imitate Seattle, but they should think again. Those who support higher minimum wages may not have bad motives, but good motives in support of bad policy still result in driving job creators out of our communities and hurting the very people they want to help.


 

Erin Shannon is Director of the Center for Small Business at Washington Policy Center in Olympia, Washington. She is a guest contributor at Cascade Policy Institute, Oregon’s free market public policy research organization.

Is Part-Time Work Obama’s New American Dream?

Last week the Congressional Budget Office reported that the Affordable Care Act will cause Americans to work less. Significant numbers of people will choose to keep their incomes low in order to be eligible for federal health care subsidies or Medicaid. Consequently, the economy will lose the equivalent of two million full-time workers by 2017.

The Wall Street Journal explains:

CBO’s analysis is rooted in ObamaCare’s complex design that includes new subsidies, taxes and mandates. For low-wage, lower-skilled or discouraged workers in particular, ObamaCare offers incentives that can force them to trade jobs for entitlement benefits.

…The law’s insurance subsidies are gradually taken away as income rises….[This reduces] the rewards for work—whether it be overtime, accepting a promotion, or training in the hope of higher future earnings.

But the White House doesn’t think this is negative. Press Secretary Jay Carney said people “will be empowered to make choices about their own lives and livelihoods” and “have the opportunity to pursue their dreams.”

However, penalizing people for increasing their earned income hurts workers in the long run. Having government programs, mandates, and regulations steadily disconnect work from reward replaces the American dream of building a better life for yourself and your family with, as the Wall Street Journal puts it, “the new American dream of not working.” If we keep following this road, not only our economy, but our spirit, will pay.

Kathryn Hickok is Publications Director and Director of the Children’s Scholarship Fund-Portland program at Cascade Policy Institute.

Startup Businesses Are America’s Best Job Creators

By Benjamin Zycher

“Small business” is the recipient of much official love (as well as heavy regulatory intrusion), but it receives its loudest applause as the supposed source of most employment growth.

Alas, that conventional wisdom is incorrect: The modern scholarly literature finds that it is new (not small) businesses—startups—that contribute disproportionately to job creation.

Job creation obviously is important, but ultimately it is economic growth that is of central concern; it is a growing economy that yields the increased wealth from which we derive higher living standards, upward mobility, and improved health and life expectancy.

And so the job creation driven by startup businesses—while crucial—underscores a larger question: What is the effect of employment by startups on economic growth?

A new Pacific Research Institute paper provides an answer: Based upon a dataset of 49 states for 1977-2010, each job created by startup firms is estimated to increase state gross product by almost $1.2 million in a given year. In short, the creation and survival of startups is crucial for job creation, and that job creation is an important component of economic growth.

These findings combined with the existing scholarly literature on the effect of startup firms on job creation suggest that policymakers should focus on both the ability of startup firms to establish themselves and to succeed, and the ability of startup firms to expand their hiring.

Such policy initiatives as the Kauffman Foundation Startup Act can be predicted to increase the ease with which startup firms can be established; this would strengthen the ability of the startup sector to create employment opportunities.

But it is clear that further policy reform is necessary if U.S. startup firms are to achieve more of their potential in terms of actual hiring and the attendant benefits in terms of aggregate output. Such reforms might include the following:

  • An overhaul of such recent government policies as the Dodd-Frank financial services reform legislation, which has had the effect of increasing the competitive advantages of large banking institutions over smaller banks, the latter of which traditionally have specialized in providing capital for new and small businesses.
  • The Affordable Care Act (“ObamaCare”) clearly has introduced rigidities, constraints, and incentives in the labor market that will lead to higher costs for labor force expansion, a substitution of part-time in place of full-time work, and other perversities. The severe ACA implementation difficulties now emerging provide a good opportunity for Congress to reform the law so as to remove the disincentives for job expansion, even abstracting from the opportunity to avoid the prospective adverse effects of the ACA on the health care sector.
  • Increases in the (real) minimum wage, whether mandated by federal or state legislation, will increase disincentives to hire.
  • Current policies on immigration and work permits for foreigners have introduced serious rigidities into the labor market generally and for smaller businesses, startups, and specific sectors in particular. A reform that expands the pool of available high-skilled workers, allows available laborers into the formal work force, and removes artificial rigidities that hinder hiring would strengthen economic growth.

These and other policy reforms would take advantage of the empirical reality that it is startup firms that are responsible for almost all job creation, and would facilitate that hiring and the increased economic output that would result.

Benjamin Zycher is a senior fellow at the Pacific Research Institute in San Francisco, a visiting scholar at the American Enterprise Institute, and a guest contributor for Cascade Policy Institute, Oregon’s free market public policy research organization. This article originally appeared in Investor’s Business Daily.

Creativity and Initiative Drive Our Economy

The first Labor Day was celebrated 130 years ago in September 1882. Labor Day was created by labor unions as “a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.”

What began with organized labor is now a celebration of Americans in all sectors of the economy, whose individual initiative is what drives economic innovation and success. There is no economy without millions of people bringing to the marketplace their particular gifts of human creativity, intelligence, initiative, and effort.

Human work is more than just performing tasks or exchanging services. Persons are more than machines, and the things we create to make our lives easier and our work more efficient exist only because we invented them. We bring unique intelligence and problem-solving capabilities into our interactions with others. Human capital―the knowledge, skills, and experiences of human beings―is the true wealth of a society.

For a healthy economy, we must remember that wealth doesn’t create itself. Government doesn’t create it, either. People create wealth. New jobs, industries, and a strong economy are the fruit of our individual creativity. So on Labor Day, let’s celebrate the freedom we have in America to bring our best to the world.

Renewing Labor’s Moral Sense

New Jersey Governor Chris Christie gave a speech Tuesday expressing concern about Americans’ shifting attitudes toward work and government.

 

“We’re turning into a paternalistic entitlement society,” he said. “That will not just bankrupt us financially, it will bankrupt us morally….We’ll have a bunch of people sitting on a couch waiting for their next government check.”

 

The workforce participation rate for men 16-24 has dropped from 80% in the 1970’s to about 58% today. Young men, especially with less education, are increasingly opting out of the workforce, and not just due to a weak economy. An enabling factor is that with all the government entitlements available, work doesn’t seem to pay.

 

If young people, especially at the point of entry to work, lose the belief that earning a paycheck is better than drawing a benefit check, the human cost will be significant.

 

The value of human labor is deeper than its cash value. Work is an extension of the human personality. Through labor we exercise talent, creativity, and initiative. We don’t merely exchange one thing for another, we develop as persons. We participate in the act of creation.

 

None of that happens with a welfare check. For a healthy society, we must renew our moral sense of the value of labor. We must stop asking government to provide quick cash and remember that raw purchasing power isn’t the measure of man.

Oops! Renewable Energy Costs Oregon Billions

In 2007, Oregon legislators decided they would force Oregonians to purchase renewable energy whether or not they wanted it or could afford it. Legislators proclaimed this would help the Oregon economy and make our energy system more affordable and reliable. They were wrong.

 

Last year, one in 30 Oregonians had their electricity cut off due to inability to pay, and enrollment in the low-income energy assistance program has increased significantly. On January 1, 2011, electricity rates increased significantly for Oregon households: Pacific Power rates increased by 14.5% and PGE rates by 4.2%. PGE also added a “Renewable Resource Adjustment” to ratepayers’ bills in January 2010. Currently, this rate is set at 0.22 cents per kWh, or approximately $2.13 extra per month, for an average household. Rate increases such as these will be the norm over the next fifteen years as utilities work to comply with restrictive energy policies on the state and the federal levels.

 

But legislators proclaimed that the 2007 renewable energy mandate would help “accelerate the transition to a more reliable and more affordable energy system.” What went wrong?

 

Unfortunately, renewable energy costs more than traditional energy sources and is often less reliable. Although generating energy from wind turbines and solar panels is essentially free, the costs of construction, maintenance and integrating inconsistent energy into the grid are prohibitively expensive. Thus, adding more renewable energy will increase costs and cause substantial economic hardships for Oregonians and Oregon businesses.

 

A Cascade Policy Institute report, The Economic Impact of Oregon’s Renewable Portfolio Standard, exposes the cost of renewable mandates on the Oregon economy. Over the period of 2015-2025, the average Oregonian household will pay an additional $1,706 in higher electricity costs. The average commercial business will spend an extra $9,641 and the average industrial business an extra $80,115. Over the same period, the mandate will cost Oregonians an additional $6.811 billion over conventional power, within a range of $4.009 billion and $9.310 billion.

 

Higher costs will lead to loss of jobs as well. By 2025 the Oregon economy will lose an average of 17,530 jobs, within a range of 10,025 jobs under the low-cost scenario and 24,630 jobs under the high-cost scenario.

 

Legislators may be able to justify higher electricity costs if environmental benefits, in terms of reduced emissions, outweigh the costs. However, it is unclear that the use of renewable energy resources, especially wind and solar, actually reduces emissions. Due to their intermittency, wind and solar require significant backup power sources that are cycled up and down to accommodate the variability in the production of wind and solar power. As a result, a recent study found that wind power actually increases pollution and greenhouse gas emissions.

 

Also, businesses and industries with high electricity usage likely will move their production, and emissions, out of Oregon to locations with lower electricity prices. Therefore, increasing renewable energy in the state will not reduce global emissions, but rather send jobs and capital investment outside the state.

 

In the end, renewable energy can and should expand according to voluntary purchases that reflect true demand. Government should not be mandating that citizens purchase a product they may not value or cannot afford.

 

It is time to face the truth. Legislators thought that by forcing Oregonians to purchase renewable energy they could make electricity more affordable and reliable. They were wrong. As a first step, legislators should repeal the renewable energy mandate and other restrictive energy policies before electricity costs spiral out of control. In addition, future energy policies need to be subject to a rigorous analysis of economic costs and environmental benefits.

Biomass: Boon or Boondoggle?

Karla Kay Edwards

Cascade Commentary

Biomass: Boon or Boondoggle?
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by Karla Kay Edwards

As Oregon communities struggle through this recession, they are looking for an economic “silver bullet” to help them survive and to become a foundation for future economic prosperity. Renewable energy has been thought to be one of those “silver bullets,” due to Oregon’s Renewable Portfolio mandate and the vast amount of government funds devoted to these energy technologies. With Oregon’s expansive forestlands, woody biomass, at first glance, seems to present an opportunity both to put more people to work in rural communities and to provide a renewable energy source.

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Two Job-Killer bills threaten to destroy ten to twenty times more jobsthan Oregon’s so-called “stimulus package” has created

Steve Buckstein
For immediate release
Contact Steve Buckstein
(503) 242-0900 steven@cascadepolicy.org

The state recently announced that its $175 million “stimulus package” has created or saved 3,236 jobs.1,2

What the state hasn’t yet told citizens is that Oregon risks losing ten to twenty times or more as many jobs if two “anti-stimulus” tax bills take effect.

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