Tuesday, April 18, 2017

Jazz Shaw Still Can't Make the Minimum Wage Argument Stick

     Jazz Shaw desperately wants to make sure that his readers believe raising the minimum wage is a bad idea that will lead to job losses.  Hot off the presses, he cites a new Harvard Business Review article that he things validates his position.

San Francisco’s higher minimum wage is causing an increasing number of restaurants to go out of business even before it is fully phased in, a new study by the Harvard Business School found.

The closings were concentrated among struggling, lower-rated restaurants. The higher minimum also caused fewer new restaurants to open, it found.

“We provide suggestive evidence that higher minimum wage increases overall exit rates among restaurants, where a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of exit,” report Dara Lee and Michael Luca, authors of “Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit.” The study used as a case study San Francisco, which has an estimated 6,000 restaurants in the Bay Area and is ratcheting up its minimum wage. Restaurants are one of the largest employers of minimum wage workers.

Except, it's not the minimum wage causing this.  Instead, San Francisco's restaurant bubble is bursting.  According to 2010 Census data:

Not only did San Francisco come in as number one with the most restaurants per capita, no other city even came close. At 39.3 restaurants per 10,000 households, San Francisco has nearly 50 percent more relative restaurants than the second place city.

That's an amazing large number of restaurants per capita -- a pace of growth the city maintained throughout the tech boom:

San Francisco's restaurant scene is outpacing New York — at least in terms of growth. That's according to a new study by conducted by international payment processing company First Data, which compares New York and San Francisco's restaurant scenes and delivers some intriguing insights about dining trends in both cities.

Here's the crux of the matter:

To do that I'm going to tell the story of the rise and fall of Matt Semmelhack and Mark Liberman's AQ restaurant in San Francisco. But this story isn't confined to SF. In Atlanta, D.B.A. Barbecue chef Matt Coggin told Thrillist about out-of-control personnel costs: "Too many restaurants have opened in the last two years," he said. "There are not enough skilled hospitality workers to fill all of these restaurants. This has increased the cost for quality labor." In New Orleans, I spoke with chef James Cullen (previously of Treo and Press Street Station) who talked at length about the glut of copycats: "If one guy opens a cool barbecue place and that's successful, the next year we see five or six new cool barbecue places... We see it all the time here."

Here's econ 101 for Mr. Shaw: San Franciso's large number of restaurants created a labor shortage. That means there were too few workers.  It's called supply and demand.  Combine that with sky high real estate prices and it's no wonder we have this problem.  Mr. Shaw is making a classic rookie mistake: correlation does not equal causation.

So, once again, we have an analytical failure by Mr. Shaw.  Does he care?  Not at all.  Retractions and corrections are for the liberal press, not conservative bloggers.