Where DO they get their economics education?

The headline read: SEATTLE RESTAURANTS CLOSING THEIR DOORS AHEAD OF MINIMUM WAGE INCREASE.”*

Yeah…well…all I can say to this is…DUH!

I don’t know where these liberals got their education on economics. But, anyone who’s spent the first two weeks in a REAL economics course class (not this Marxist pap they seem to be teaching nowadays) knows that as price of a given product increases, demand for it goes down. That has been true since time immortal for anything - bread, beer, smart phones or…wait for it…yes, even labor!

So, guess what; the libs that buy into this “feels good but never works in the real world” “spread the wealth” Marxist horse hockey that Obama and his kind like to spew convinced Seattle to pass an ordinance which took effect April 1, 2015 required city businesses to increase the minimum wage they pay workers to $15/hour.

Let’s put this under the microscope for a second. According to “the Washington Restaurant Association, before the wage increase, a typical cost breakdown for Seattle restaurants was: 36 percent of funds devoted to labor, 30 percent to food costs, 30 percent to other operating costs, and the remaining 4 percent was profit margin. However, under the minimum wage increase, if a restaurant owner made no changes, labor costs would rise to 42 percent in quick service restaurants and 47 percent in full service restaurants. [Emphasis added].

“Arguing that the wage increase is harming the workers it was intended to help, the free-market think tank the Washington Policy Center said, ‘The [restaurant] shut-downs have idled dozens of low-wage workers, the very people advocates say the wage law is supposed to help. Instead of delivering the promised “living wage” of $15 an hour, economic realities created by the new law have dropped the hourly wage for these workers to zero.’” * Get that? Zero!

Business people have to be smart. Or they don’t stay in business for long. Those that do, look at their costs, their processes, their costs and try to price their products accordingly. According to how much investment they have in that product and how much price the market will bear. Ask yourself:

• Would you spend more to make less than you spent to earn it – in other words, lose money? No, of course you wouldn’t.

• Would you spend a given amount to make only that amount back  - in other words, break even? Probably not.

• Would you spend a given amount to make that and a given % more back? Probably so.

But it seems trendy today for all the libs to be saying that most businesses make too much more than they spent back – in other words, excess profits (a favorite Marxist mantra, by the way). So, maybe you’re saying “Yes. I’d spend a given amount to make a small % return on my money.”

Fair enough. But let’s examine the % extra a little. Should a person make enough to put some aside “for a rainy day?” Most people say yes. Should a business be allowed to make enough to save for downturns in the business climate/market? Most people say yes, but some say no more than that should be allowed.

OK. Keeping that last thought, let’s take a fictitious Seattle restaurant as example of the impact of this minimum wage increase. Let’s say that our fictitious Puget Sound Seafood Joint makes an average of 9% profit annually over expenses. Not bad, but not awesome either. As a matter of fact, “high-end restaurants earn, on average, a profit margin of just 8%.”**

So, with annual gross revenue of $397,000, our fictitious fish joint only banks a little more than $31,000 gross profit (just to keep the numbers round). Before we jump to a conclusion that such should be enough, remember that’s the rainy day market fund. What if there’s another recession like hit in ’08 and ’09? How long would that $31,000 last?

Those only come once in a blue moon you say. More minor ones come every four to five years, so you think our place should survive fine through both with such annual revenues? OK… But what about rising costs? Realize that a restaurant’s food costs are as much as 45 to 50% of its total operating costs.*** And what about the not so obvious rising costs – insurance, taxes, rent and…labor?

All of those cost increases have to come out of that profit margin making it a smaller %…or the restaurant has to raise their prices to keep the % the same. Before we jump to a conclusion that to reduce the profit margin is the more “fair” answer, let’s think about what a business might do with the profit dollars it banks up over time, “retained earnings” accountants call them.

What if a restaurant’s management would like to add wait staff or kitchen help to provide better service to its customers? What if its management would like to give out Christmas bonuses to kitchen and wait staff this year or otherwise increase their base wage? Or, what if adding another store is being thought about? Each and every one of those decisions is impacted negatively by increasing any of the costs in the restaurant’s operation.

That includes spiking labor costs 42 - 47% like the Seattle city council did last year.

So, how did all this really affect Seattle restaurant employees since the new minimum wage ordinance came into effect? Firstly, Anthony Anton of the Washington Restaurant Association says that “in a $700,000 restaurant, he estimates that the average restaurateur in Seattle has been making $28,000 a year.” [Emphasis added].****

That’s only a 4% profit margin on average.

From January to September, 2015 Seattle lost 700 restaurant jobs. One might think that’s not so bad considering what a major metropolitan area Seattle is. But consider this: Washington state restaurant jobs outside Seattle increased by almost 6,000. *****

And the “domino effect” of such restaurant closures goes beyond restaurants. For example, “The Seattle Times reported that a Clarion Hotel recently made the decision to close its full service restaurant (laying off 15 people) and let go of a night desk clerk and a maintenance worker. It also plans to raise its rates by 10 percent to offset increased labor costs.” ******

Another headline read: “Seattle’s $15 Min. Wage Is Making Something Happen That City Leaders Never Expected.”****** YA THINK? They’re actually shocked by that! Yeah…well…all I can say to this is…DUH!

Honestly, where do these “feels good” liberal clowns get their economics education?

 

 

* "Seattle Restaurants Closing Their Doors Ahead Of Minimum Wage Increase | NFIB." National Federation of Independent Business. 20 Mar. 2015. Web. 22 Jan. 2016.

** Rotelli, Wendy. "How Much Profit Should a Restaurant Make?" Restaurants.com. 9 Apr. 2013. Web. 22 Jan. 2016.

*** "Don't Fall Victim to Restaurant Profitability Myths." National Restaurant Association. Web. 22 Jan. 2016.

**** "More Seattle Restaurants Close Doors as $15 Minimum Wage Approaches." Shift Washington. 12 Mar. 2015. Web. 22 Jan. 2016.

*****Perry, Mark. "Minimum Wage Effect? From Jan. to Sept. Seattle MSA Restaurant Jobs Fell -700 vs. 5,800 Food Jobs in Rest of State - AEI." AEI. 21 Oct. 2015. Web. 22 Jan. 2016.

****** DeSoto, Randy. "Seattle's $15 Min. Wage Is Making Something Happen That City Leaders Never Expected." Western Journalism. 16 Mar. 2015. Web. 22 Jan. 2016.