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03/05/2016

Comments

Ryan McDonnell

As with most things, moderation is best. It certainly seems to be the case with minimum wage increases and the effects they have on the restaurant industry. It makes sense that smaller increases in minimum wage does not hurt the restaurant industry, considering that the demand for restaurant food did not suffer with a small rise in prices. It would be interesting to find the threshold price increase for decreasing demand in restaurants. That threshold would depend on income distribution in the restaurant's area as well as the cost of living, or CPI. Perhaps, for this reason, there should be more minimum wages set for each city than for each state, as is happening on the west coast.

Julia Wilson

In relation to the circular flow diagram, Kelley’s article makes a lot of sense. Thinking of a restaurant as a firm, a modest increase in minimum wage would increase a household’s income. This increase in income could either be saved or spent. If the money spent within the market of good and services, this would stimulate the economy. Perhaps the demand for goods would increase or perhaps more jobs would become available due to an increase in demand. If the money is saved, this would increase the amount of money the financial markets have to loan to firms for investments. This also would likely positively stimulate the economy. However, the article suggests diminishing returns to an increase in minimum wage. At some particular wage, a restaurant would no longer be profitable. This could result in laying off workers or an increase in prices. If the prices increase, this could result in a decrease in demand for customers. At some point, consumers would be unwilling to pay significantly more to eat a meal out, rather than at home. However, with a small increase in price (due to an increase in minimum wage), consumers would most likely still be willing to pay a bit more for the convenience and experience of eating out. Although I do wonder that if prices increased, would customers be less willing to tip as much as they previously did?

Yo Han(John) Ahn

In "Restaurant industry unharmed by modest minimum wage hikes," Susan Kelley analyzes and uncovers the effects of modest wage increases on the restaurant industry. Restaurateurs have deemed higher wages to result only in detrimental effects to their business, forcing them into certain actions such as cutting staff and jacking up prices to offset reduced revenue. However, Kelley dissects the allocation of state tip and the unchanged demand to argue that raising the minimum wage modestly actually increases the total earnings of the restaurant workforce. Arriving to the conclusion that the restaurant industry should support reasonable increases in the minimum wage. The evidence Kelley provides appear to have merit, considering it does seem rationale that better compensated employees will tend to be more productive. I wasn't entirely convinced with the argument until it clarified that industries would be justified in opposing significant hikes in the minimum wage, but that data doesn't support opposition to all wage increases. I wonder how economists can analyze the wage rate to determine an appropriate rate that both fulfills the need of the restaurant and the employee. Surely this figure would differ depending on the location and tip allocations of the restaurant, but I wonder how we can determine this "ideal" wage rate.

Ian Gipson

The federal minimum wage, and specifically some form of an increase, will be serious topic for the upcoming presidential election. In this article, Susan Kelley argues about the effect of not a dramatic change but a gradual one. Like anybody else paying their employees an hourly wage, owners of restaurants are generally unhappy when asked about an increase in minimum wage. However Kelley argues that there is a much smaller effective what is anticipated from the owners if the increase is a small one. Using macro concepts, this could make sense. Primarily, inflation is happening, and this means that the real wage will decrease if minimum wage doesn't increase at a comparable rate. Secondly, this means that the expenses of the restaurant will also increase at a slight rate yearly assuming their supplies are effected by inflation. If it's such a minimal increase for wages as well, then there will just be as slight adjustment that mimics the inflation rate meaning the negative effect on the restaurant would be minimized and comparable with standard inflation. Like Kelley says, a large increase would harm the restaurants because it is a large change that occurs at once. Instead of having each year to adjust budgeting and plans for a slight increase in expenses, they all of a sudden have double wages to pay. Kelley argues that this slight increase of expenses from a gradual increase in minimum wage is worth the benefits of a happier and more productive work force. In the end, it seems like the discussion will continue until a minimum wage solution is uncovered and this article shows that a gradual increase will be far more reasonable than an altogether increase.

Jack Boyce

In the article “Restaurant Industry Unharmed by Modest Minimum Wage Hikes”, the effects of an increase in minimum wage are related to society and the practical implications. A major concern for the restaurant industry is the ability to pay workers at a rate that is affordable and does not influence consumer happiness. Throughout the past, a rise in minimum was seen by the industry to be nuclear disaster as it would lead to fewer workers being hired, and consumer unhappiness as service would be slower. Restaurants have risen their prices to offset the wage increases, but how effective will this be in the long run. The possibility of another rise is possible, and this would cause an increase in prices. There will be a certain point where the consumer will no longer be willing to pay the prices that restaurant owners must charge to cover their losses and make a profit. Increases in the minimum wage may be positive for the time being, but moderation in regards to the overall increase over time, as it may lead to negative consequences.

Mary Hampton McNeal

In the article “Restaurant Industry Unharmed by Modest Minimum Wage Hikes,” Susan Kelley discusses a study by Michael Lynn and Christopher Boone. The study found that a modest increase in minimum wage does not seem to significantly affect restaurant employment or overall success, despite the restaurant industry’s claims that an increase in minimum wage would produce disastrous results. The article closed with Boone’s suggestion that perhaps the negative effect of an increase in minimum wage, namely slightly lower profit margins for restaurants, is mitigated by some positive intangibles such as higher employee satisfaction. The article didn’t mention the positive effects that higher wages for restaurant workers could have on the overall economy. However, based on what we have learned about MPC and the way initial purchases make their way through the economy, it seems that the increase in restaurant workers’ discretionary spending could only have positive effects on the overall economy. If a modest increase in minimum wage did not have a significant negative impact in the highly volatile restaurant industry then it could perhaps it would have minimal negative effects in other industries as well.

Abigail Summerville

In her article, Susan Kelley argues that modest increases in minimum wages of restaurant employees does not negatively effect the restaurant, and might even have a positive effect on the restaurant. Kelley writes that restaurants will have to pay workers more, but they will also raise prices, so in the end they will have the same, if not better, profits. However, there is a tipping point where the minimum wage will become too high and thus the restaurant food prices will be too high, and consumers will have a lower MPC and consume less from restaurants to save money. Then, the rise in minimum wage will have a negative effect on restaurants. Kelley also adds that the effects of a rise in minimum wage vary from place to place because each city and state has their own minimum wage laws. Each city has consumers with different MPC's. For example, people living in Los Angeles have higher incomes, and thus a higher MPC, so a rise in minimum wage and higher restaurant prices wouldn't change their MPC, and they'd consume the same amount from restaurants; whereas people living in Detroit have lower incomes and a lower MPC so rises in minimum wage and restaurant prices would lower their MPC and they'd consume less.

Jane Chiavelli

In this article, Susan Kelley discusses the effects of raising the minimum wage in the restaurant industry. While restaurant owners claim that higher minimum wages have a negative impact on their business due to cutting staff and raising prices, Kelley argues that higher minimum wages, in moderation, can increase productivity and and employee satisfaction, resulting in a happier workforce.

In class, we discussed the concepts of the marginal propensity to consume and the multiplier effect. The marginal propensity to consume, or MPC, measures the increase in consumer spending when disposable income increases by a dollar. The multiplier effect shows that a small change in spending will created a large change in the economy as a whole. In reference to the article, an increase in minimum wage will increase the disposable income of restaurant employees which will correspondingly increase their MPC. As the multiplier effect shows, an increase in MPC will have an even larger increase in real GDP. Therefore, an increase in the minimum wage can have a large effect on the economy as whole due to an increase in consumer spending.

Davis Alliger

The article discusses the effects of minimum wage on restaurants in regards to their employment level, prices, and profits. The study overall displayed that small increases in minimum wage inherently led to price increases and occasionally small cuts to employment. Overall the customers rarely spent less in the restaurant due to the increase in prices. In addition employee work ethic would increase due to an increase in happiness once their pay increases. This naturally supports the argument to increase the minimum wage, but the question becomes to what level, and where should this minimum wage be determined. Many places throughout the United States have vastly different costs of living, which lends itself to a state lead minimum wage level. In addition, the study states that much of what the study examines is minor increases in the minimum wage. The authors state that increases up to 15$ at the federal level could yield vastly different results then those examined in the study. This supports the argument for a steady increase of the minimum wage to a level that supports local costs of living in addition to consistent increases due to inflation.

Katherine Dau

Susan Kelley does an excellent job of outlining the effects of raising the minimum wage on restaurants. The restaurant sector does not advocate for the rise of the tipping minimum wage because they say it raises the prices on their menus too much. However, Kelley says this is not necessarily the case. A massive minimum wage hike would probably cause this, and restaurants would lay off workers. This would increase overall unemployment and poverty as there would be a scarcity of jobs. Kelley is not advocating for a massive increase, but rather a moderate one. She makes the clear point that employees with higher wages will be happier and therefore more productive. Furthermore, it appears that with increased purchasing power, the tipped workers will spend more. As we know from the multiplier effect, this will have a greater effect on the economy than just the additional money spent. Thus, a small increase in minimum wage may actually stimulate the economy. This would probably outweigh the negative effects that restaurants might experience through a potential slight loss in profits.

Alex Shields

I think Susan Kelly's article makes the same point as most other sensible articles on the topic of raising the minimum wage. Both sides of this political debate make valid arguments but, in the end, most non-politicians would agree that a modest rise in the minimum wage would not be overly damaging. The key word out of this entire article is the word modest. Unfortunately, most of the plans out there call for raising the minimum wage up to either $12 or $15 an hour which would clearly have damaging results such as widespread lay offs, and rises in prices. This would shock the economy and would certainly not help our recovery from this recession. However, an argument must be made for raising the minimum wage slightly so as to improve standard of living for those living off of the minimum wage. While I don't necessarily agree with the idea of a living minimum wage, because that would obvioulsy be very expensive and have the results listed above, the minimum wage must be high enough to allow workers to propell themselves out of minimum wage jobs. These jobs, it is important to note are not jobs that people are meant to be using to raise a family. They are meant to be jobs used as a springboard for better jobs. In my opinion, modest state/local (not federal) changes to the minimum wage would be beneficial to those who work in minimum wage jobs.

Jim Grant

In, “Restaurant industry unharmed by modest minimum wage hikes.” Susan Kelly discusses the pros and cons to raising the minimum wage. The restaurant industry fears the implications of implementing increased minimum wages as it will potentially cause prices to rise. The theoretical wage raises would have varying results depending on a number of factors. Minimum wage increases could cause restaurants to cut staff and increase prices to maintain revenue. Kelley argues in her article that if prices are increased moderately that the decrease in consumption would not be significant enough to cause restaurants to make budget cuts. Los Angeles, San Francisco and Seattle have implemented a $15 minimum wage that could prove to present some negative effects on the economy. Other cities/states range from $7-9. The goal would be to get the minimum wage to a number close to $15 everywhere but the quick change from 7-15 could be potentially dangerous.
The relationship between wages and spending is so volatile and interesting. In class we discuss how reactive the two are and this is a good example of how big changes can lead to big problems. By making large hikes for wages in the hopes of putting more spending money in the pockets of consumers, economies risk causing increased unemployment and in turn causing the opposite. I believe that a wage rate of $15 or greater is entirely possible and great for the economy, but to reach that goal local governments would have to make prudent and gradual changes to the wage rate.

Devin Kearns

The argument about minimum wage hikes is fought across more industries than just the restaurant industry. They all argue that raising the minimum wage will decrease their ability to be as successful financially, with higher expenses and a need to raise prices. However, even if raising the minimum wage modest amount doesn't affect the success of a restaurant, a big hike in federal minimum wage could also not be as detrimental to restaurants. This would mean that consumers have more money to spend, which further implies they would be able to afford the raised prices. This brings up the question of why raise them in the first place? if the market will adjust to the amount of money consumers have, then wouldn't the market be in the exact same predicament only with more money at hand. I think the smartest solution would be to adjust the minimum wage with inflation and price of living for specific areas. The restaurant industry will survive any type of hike in wages.

Danielle Spickard

Susan Kelly’s article reveals how whenever federal, state, or local laws have increased minimum wages, US restaurants oppose them, claiming that an increased minimum wage requires layoffs, jacked up prices, and overall unhappy customers. However, a new study by Michael Lynn and Christopher Boone is now claiming that small or gradual rises in the minimum wage do not have the negative effects that restaurants claim. In fact, there is evidence supporting that a modest rise in the minimum wage increases total earnings of the restaurant workforce, and result in benefits for the restaurants as well, such as happier, more productive employees who are less likely to quit their jobs. The slight increase to the minimum wage will change the disposable income of employees, which will in turn change the MPC. Due to the spending multiplier, this change in MPC can greatly affect the spending and consumption of the economy. However, Kelly warns that a larger increases in the minimum wage, as seen in Los Angeles, San Francisco, and Seattle, could have more negative effects. This is a difficult situation, as these three cities have a much higher cost of living than other parts of the country, and many people could benefit from the increase in minimum wages and actually be able to survive. However, if this jump is too large and happens too quickly, and restaurants are forced to drastically increase their prices and cannot adjust accordingly, they might reach a point in which they risk an eventual decrease in demand and profitability. As we have learned that there is no magic answer to solve all of the world’s problems, and that different cities or countries respond to similar changes in very different ways, I am curious to see if the large increase in minimum wages will have varying results among the cities.

Caleigh Wells

The $15 minimum wage, oddly enough, has been a stimulating topic of political conversation among my friends recently. Coming from Los Angeles and growing up with the price of living there, I'm more likely to support it that some of my peers here, but then again I respect the argument that the high school students working part-time at Sweet Things don't need that minimum wage in the same way that the working class families in Southern California might need it. By that same token, the argument in the article that increasing the minimum wage has not harmed restaurants in the same severity that it is often conveyed, I could see where small businesses in small towns like our ice cream shop might suffer significantly if its wages to its employees nearly doubled. Among the places mentioned regarding the $15 minimum wage were San Francisco, Los Angeles, and potentially New York in the near future: cities that are host to the highest cost of living in the country. These are the locations where a high minimum wage are needed the most, and where I would most support that policy change.

I found it interesting that, as the article mentioned, the minimum wage for tipped work has not changed in twenty-five years, which explains why $2.13 seems unreasonably low. I still seek to understand why tipped work has this special exception to the rule. Even though restaurants are required to meet the minimum $7.25 an hour if the tips do not add up to that number, I am forced to wonder if tips harm the worker. For those paid the minimum wage, tips make up more than two thirds of their salary, which means it is comprised of mostly people and their subjective opinion of the service they receive. What's more, to avoid having to pay that legal compensation, I know some waiters and waitresses who had their tips pooled and divided equally, such that those who received higher tips for presumably greater service were not rewarded more than those who did not. The vast majority of jobs in customer service do not have this lower wage for tipped workers, so it seems odd that food service is the exception to that rule. If customers paid more for their meals and the restaurants were held to the same standard that other institutions are in paying their workers, customers and restaurants would both face negligible changes in terms of how much they pay for a meal and for a worker respectively, and the workers might be better off for it.

Elliotemadian

As the article title would suggest, Kelley's "Restaurant industry unharmed by modest minimum wage hikes" summarizes the research conducted by Christopher Boone and Michael Lynn, which indicates that the financial climate for restaurants is not so volatile that small increases to the minimum wage for their workers would result in drastic consequences. The restaurant industry has not been forced to raise the federal minimum wage for tipped workers in 25 years, as Caleigh astutely points out, granted the last time a federal minimum wage raise for untipped workers occurred was in 2009.
The most interesting part of this article, in my opinion, is the discussion of how this study was conducted. It is so simple but so ingenious to use the existing differences in minimum wage across the US to study potential effects that raising the minimum wage might have. This is an amazing example of economics research practices.
I would be interested to see an extended study conducted, since Boone and Lynn claim that higher paid restaurant workers would be more likely to do a good job and less likely to quit--granted this is the logical conclusion. However, it seems that these workers with higher wages are in areas within which the general minimum wage is higher, it forces the reader to wonder if the cost of living is higher in these places and perhaps the effect of the higher minimum wage is offset by the fact that the workers are still on the lower end of the earning spectrum. Obviously this type of study would be more subjective, but it would be interesting to attempt and link the two factors. Perhaps this would convince restaurant chains that increasing the minimum wage could actually increase their business!

Guilherme Baldresca

Susan Kelley, in this article, discusses a study that showed that modest increase in the tipped minimum wage do not severely affect the profitability of restaurants or their ability to conduct business. I would hypothesize that there are two main reasons for this phenomenon. Firstly, the demand for restaurants could show itself to be quite inelastic, not responding to increases in prices dramatically. Secondly, it is possible that in many states a large portion of restaurant workers, especially in places with high costs of living, already made above the minimum wage and were not affected by the changes in public policy. It is also important to remember that the results of the study are an average of many increases in many states over the course of more than two decades; I would theorize that in more rural, poverty-stricken areas, demand for food services may be more elastic and so restaurants would be more affected by the changes. This is why, perhaps, a more local approach may be a better alternative.

Tony Du

In her article, Susan Kelley discusses research that shows the impact of raising minimum wage in the restaurant industry. According to a study done by Boone and Lynn, modest increases of the minimum wage improves productivity, worker happiness, and obviously workforce income. They do, however, recommend a modest increase in the minimum wage, not a rapid jump like some others are proponents of.I find it rather shocking that the minimum wage for tipped workers has remained stagnant for so long. With cost of living and inflation, it makes no sense that tipped workers cannot benefit from increases in minimum wage. Perhaps more nonsensical is that restaurants continue to refuse to pay workers legitimate wages. Removing tips as a whole makes sense for restaurant workers as well as consumers.

Caroline Birdrow

In my microeconomics class, we discussed minimum wages as price floors within a supply and demand model of the labor market, meaning that employers cannot pay employees anything lower than a particular price level. What we saw was that this would result in a level of supply that exceeds demand. At a higher price, employers are willing to hire fewer individuals, but more individuals are willing to work. Thus, there is a surplus of labor. Consequently, the conclusion of this article and the cited research would seem to be counterintuitive or even incorrect, as the authors have explained. Perhaps this demonstrates what Professor Casey described during the first few days of class. He mentioned that we would be learning about models and using those models to understand and analyze a variety of situations. At the end of the day, however, they just are models and the outcome of any given scenario depends on the unique factors involved. What might occur in one situation may not occur in another, and our predictions based off of models may not be completely accurate every time.

James Brady

A minimum wage is a government mandated floor on the price of labor. Susan Kelly in the Cornell Chronicle shares with us the opinions of Christopher Boone, assistant professor of human resources, and co-author Michael Lynn. The two argue that a slight increase in the minimum wage in the United States can actually increase the revenues of restaurants that are typically opposed to wage increases. Traditionally restaurant owners are not in favor of a rise in the minimum wage because if they are paying their employees more, than they have higher expenses. If their expenses are raised because of a higher minimum wage than their net income decreases. In order to get their net income to increase back to its original value the restaurant must increase sales revenues by an increase in prices. Restaurant owners argue that if they increase their prices than customers demand for their food will decrease and they will go out of business. There is also the opportunity cost of an increase in the minimum wage which is the loss of labor workers that were willing to work for that lower wage.

Boone argues this traditional logic by saying that higher paid workers will be happier and will therefore produce a higher marginal product of labor and have a better chance of remaining in the workforce. Lynn further backs Boone by stating that large increases in the minimum wage such as what happened in Los Angeles, San Francisco, and Seattle are not ideal but small increases are. Lynn is a self made man who waited tables and bartended probably earning minimum wage in order to make a living and pay for college. Higher minimum wages offer more opportunity for the less skilled workers even though this increase may seem irrelevant for the highly skilled and educated workers. As we have discussed time and time again in macroeconomics the answers to problems like these just depend sometimes. Boone and Lynn recorded the average federal minimum wage and the minimum wages in both New York and California and the numbers were vastly different. Different areas have different standards of living and different consumer’s preferences making a definitive answer to this argument impossible. I am very interested to learn about the differences that increases in the minimum wage have on urban areas versus rural areas.

John Broderick

When looking at a possible minimum wage increase, policy makers have to take into careful consideration on how that increase would effect the labor markets. As learned in microeconomics, with a increase in minimum wage and a demand for workers staying the same the equilibrium point may be shifted up the demand line leaving some shortage of workers. This is where the balance needs to be made in order to raise minimum wage without losing many jobs. In her article Susan Kelly had written on the work of two men, Michael Lynn and Christopher Boone. Towards the end of the article she had noted that their study had concluded that small minimum wage increases for those who work in restaurant have shown to have negligible negative effects on the work force. They however warned the readers that this was only for small wage increases over the span of twenty years. I can definitely understand how small wage increases wouldn't affect the work force greatly. Because I think that as time goes on and inflation causes the price level to increase the wage will also follow suit. I do like how the ones who conducted this experiment said that their findings didn't necessarily apply to the rapid minimum wage increases like that of Los Angeles. Since this study showed benefits for both the workers in restaurants and for the restaurant themselves, I think that a rise in minimum wage should be made in at least the restaurant business.

Something I found to be very alarming about this article was to hear some of the minimum wages for waiters and waitresses and how they can differ based on whether or not they are tipped. The tipped workers wage is obscenely below that of the non tipped worker, which is concerning. This is concerning because although they might make as much money as non tipped workers a lot of that money is undocumented. In professor Goldsmith's talk on thursday he spoke along the lines of how people like a waiter who is making the majority of their money off of tips will often find it very hard to get a loan due to a poor credit score. They only have so much documented income therefore their credit rate are low due to being considered a risky loan. This severely affects these workers. With this in mind I think that there should definitely be a push to raise the minimum wage of tipped workers to be closer to that of a nontipped worked, based on what Professor Goldsmith had to say in his talk Thursday.

Oliver Nettere

This analysis of the total externalities of consuming coal was very relevant to our primary theme this semester of the divergence of social and private costs. Coal, which is relativity cheap to consume for the individual is in reality much more costly socially from all of its stages -- extraction, processing, and combustion. This divergence is something that needs to be addressed. In particular, I was interested the comparison this paper made on natural gas and coal with coal being twice as dirty as natural gas with for the same amount of BTU energy produced. I am currently in Professor Connor's Petroleum Geology class and this is something we've discussed (imagine that -- considering the divergence of social and private costs in this class...). With the recent domestic energy revolution occurring and the resulting massive increase in natural gas production natural gas has become very cheap and is now a much better alternative for electricity production than coal in the US. However, Professor Connors argued that while natural gas is much cheaper than its energy equivalent of crude oil, natural gas should be valued greater since it burns significantly cleaner than coal or crude.

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