One of the great things about suffering from the Dunning-Kruger effect -- which Jazz Shaw clearly does -- is that you don't know when you look stupid. It allows you the option of continuing to make the same incorrect arguments without having the burden of acknowledging that you're beyond wrong. And that's exactly where we are with one Mr. Shaw in his continual quest to argue that moderate increases in the minimum wage lower employment.
First, let's review where we are.
1.) I have demonstrated that, based on the public record, Mr. Shaw is not qualified to discuss economics.
2.) Mr. Shaw -- like many on the right -- assume labor demand is elastic, when in fact it is inelastic.
3.) Mr. Shaw -- like many on the right -- has no idea about the cost curve, which is a central concept in microeconomics, nor can he explain why lower usage of labor would not lead to lower revenues (again, basic micro). This point bolsters point 1.
4.) Mr. Shaw used the wrong data to prove his argument that the minimum wage caused a drop in Seattle employment. This also boosts point 1.
5.) Notice now many things Mr. Shaw has said prove he doesn't know when he's talking about? This is a classic case of Dunning-Kruger.
Now, Mr. Shaw is back, arguing that, because the CEO of Carl's Jr. is thinking about using Kiosks in response to minimum wage increases, that those increases will lead to lower employment. And on the surface, that makes sense, right? After all, there will be fewer jobs now.
But here's the rub: will it work? We once again run into basic micro-economic concepts, which Mr. Shaw obviously doesn't know. As I pointed out a few articles ago, the short-term cost curve demonstrates that, when you cut back too much on labor costs, your revenue goes down. Again, micro 101 in action. What happens is simple: the drop in labor means less customer service, less efficiency and less product produced.
More importantly, Wal-Mart tried this idea, with remarkably negative consequences:
A recent Reuters’ analysis confirmed something that many consumers have long suspected: Walmart simply does not have enough employees. The discount king’s footprint grew by around 45% in the last decade, yet its employee base grew by around eight percent.
That explains why customers sometimes have to spend up to half an hour searching for an employee when they need help at Walmart. It also appears to be the root cause of some of Walmart’s most glaring deficiencies, such as empty shelves, out of stock merchandise, long checkout lines, overaged produce on the shelves, and declining same store sales.
Reuters’ numbers indicate that the average Walmart employee has to deal with about 34% more store space. From a practical standpoint, that means a lot of work is not getting done at Walmart.
It also benefits competitors like Kroger (NYSE: KR) and Costco Wholesale (NASDAQ: COST), which are well known for high levels of customer service. One problem that Walmart is facing these days is that competitors like Costco and Kroger have figured out how to provide the kind of deep discounting customers want while delivering a fairly high level of customer service.
A big reason for these chains’ success has been their willingness to pay employees more and to offer benefits. Another has been their willingness to maintain a higher level of staffing, which increases expenses but retains customer loyalty.
This creates a dilemma for Walmart, which notoriously pays its employees very little. One result of this was that Walmart was effectively running a retail training school rather than a store. Employees would go to work there, get some experience and understandably move on to someplace like Kroger that offered higher wages and good benefits.
You might also want to see this article comparing Costco and Wal-Mart.
Finally, the research shows that modest increases in the minimum wage actually stimulate the economy. There are number of reasons why, but Keynes Marginal Propensity to Consume offers the best answer (someone else who Mr. Shaw doesn't know anything about).
So, once again Mr. Shaw is wrong. But it doesn't matter to him because he's frankly too stupid to know that he's wrong -- which is part and parcel for Hot Air's economic analysis.
