CEO in favor of government penalising his competitors

Howard Schultz, CEO of Starbucks, is in favour of raising the Federal minimum wage. Quoted in the Huffington Post:

"On balance, I am a supporter of the minimum wage going up," he said. "We've got to be very careful what we wish for because some employers -- and there could be a lot of them -- will be scared away from hiring new people or creating incremental hours for part-time people as a result of that wage going up."
The Federal minimum wage is $7.25/hr and Obama is proposing to raise it to $9/hr. Since Starbucks baristas generally earn close to $9/hr, this change is unlikely to hurt Starbucks much. But smaller coffee chains that rely on minimum wage employees to undercut Starbucks and prevent their customers going next door for a banana latte and gluten-free cookie are going to be squeezed and forced to raise their prices, thus migrating more customers to Starbucks. I have to admire Schultz's business sense, but let's not fool ourself that his support for the minimum wage is anything but self-serving.

One point that's being lost among all the minimum wage discussion is that this pertains to the minimum wage set by the US Federal Government, not the states. Minimum wages can also be set in states and even cities. New York state is planning to raise the minimum wage from $7.25 to $8.75 for instance. The Federal minimum wage doesn't apply to small firms whose commerce doesn't cross state lines, but it looks like Burger King etc. are all exposed to this. So in a poor state where wages are low (often Republican-leaning states), the federal minimum wage hike is likely to leapfrog any state or city minimum wage setting. It's likely to have less of an effect in Democrat states like California and New York where wages and minimum wage levels are already high.

Interestingly, it's really going to hit employers of tipped workers (waitresses etc.) Since they are often employed on $2-$4/hr and rely on tips to hit $7.25, and the employer is responsible for paying the gap if tips fall short, and given that prices and hence tips are unlikely to rise, the employer may have to find another $1.75/hr - 50% or more of his current wage payments.

The Huff Post article has a slideshow of "People who hate the minimum wage", and first up is ex-Republican presidential candidate contender Herman Cain:

Though Republican presidential candidate Herman Cain never outright advocated abolishing the minimum wage, he did argue that minimum wage laws prevent workers at the margins from getting their first jobs. Cain was an executive in the restaurant industry, which is one of the largest employers of low-wage workers.
Sounds to me as if Herman Cain was ideally positioned to see the effect of minimum wage laws on low-wage workers. Why aren't we listening to what he has to say?


  1. Given that most mom and pop shops don't sell across state lines, how is the federal minimum wage hike then going to affect them and kill Starbucks' competitors' business?

    If we're to take as given the idea that a minimum wage is sensible at all, then it makes sense to tie it to inflation. The minimum hasn't risen in long enough that it should be $9 if it's to be at a similar level to when it was established:

    In that context, it's easy to see that a modestly higher minimum wage doesn't have serious negative impact on the economy, or else it would have had that impact historically when the minimum wage was effectively higher than it is today.

    Fear, Uncertainty, and Doubt, are what Herman Cain is engaging in. Our industry has a long and disgusting history of it. Let's not employ it here? We have data.

  2. Mom and pop shops should be safe from the FMW as far as I can tell, but it's not them that Starbucks is worrying about - it'll be the next tier down of coffee/snack chains. Heck, McD's coffee isn't actually all that bad (it's the only McD product I'm willing to consume) and I'd bet McD's gets hit a lot harder than Starbucks by this.
    I understand the arguments in favour of minimum wages, even if I'm not convinced by all of them, but is there any reason that the Federal government shouldn't leave it to the states and the cities to set their own minimum wage and be held accountable for its economic success of failure? Why should we believe that the Feds know better than everyone else, particularly as they're isolated from the negative effects of the wage?

    1. One presumes the feds think it's good national policy. But regardless, without federal regulation, as you point out, there would be a gap for interstate commerce. It seems less like a "they know better" than like a different thing being regulated than what is left to the states to regulate. Do I misunderstand?

      Big chains having to pay employees a little more: http://d22zlbw5ff7yk5.cloudfront.net/images/cm-33295-050b6a2fac6da9.gif

  3. Hmm, that's an interesting point - what's the scope of state/city MW? Is everyone covered? Looks like it varies quite a bit by state. According to wikipedia: "In addition, some counties and/or cities within states may observe a higher minimum wage than the rest of the state in which they are located; sometimes this higher wage will apply only to businesses that are under contract to the local government itself, while in other cases the higher minimum will be enforced across the board."


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