When Labor Secretary Thomas Perez announced new overtime regulations this week, he criticized the current rules as “outdated,” because they hadn’t been changed in 12 years. Given that President Obama changed the rules himself, without Congress, one might wonder why he waited until now.
Perez and Joe Biden gave away the answer on Wednesday by unveiling the rule in the swing state of Ohio, on a campaign swing for former Gov. Ted Strickland, who is running for U.S. Senate this fall.
“The two stops in Columbus,” USA Today reported, “allowed Biden to highlight a core Democratic campaign theme — strengthening the middle class and narrowing income inequality —while also ginning up political buzz for Strickland’s campaign.”
Strengthening the middle class is a popular cause, and no doubt the new Obama rule—requiring employers to pay overtime to most workers earning under $47,500—will strike voters as a boon the middle class. It was the same thing in the 2014 midterm elections when Democrats’ only winning political position was their support for a higher minimum wage.
Being popular, however, doesn’t make an economic policy good. Raising the cost of hiring people will simply induce businesses to hire fewer people. Mandating overtime pay for workers with $48,000 salaries will lead to lower salaries, more workers shifted to less steady hourly pay schedules, and maybe even layoffs. But those long-term effects can be too diffuse and obscure for political debate, and so Democrats win cheap populist points.
At least Democratic supporters of these labor policies know their cost, and will admit the costs in certain settings.
Take businessman Ronald Shaich, founder and CEO of Panera. Shaich and his wife have given more than $120,000 to congressional and presidential candidates in recent years, all of it to Democrats, including Hillary Clinton. More than half of their donations, $66,000, has gone to Obama’s presidential runs.
Shaich in late 2013 and early 2014 repeatedly and publicly called for a hike in the federal minimum wage as states and localities took the lead on raising the wage floor, Shaich explained to shareholders the impact of the policy.
First, higher wage laws gave Panera the room to raise prices without losing business to competitors. In a late October conference call, Shaich cited Emeryville, Calif., a city the neighbors Oakland, and which hiked its minimum wage to $16 an hour in early 2015. The liberal magazine, the Nation, held up Emeryville as a model of “progressive innovation”
“We saw all the usual cast of characters that we usually compare ourselves to,” Shaich said on the call, “Starbucks and Chipotle, take price immediately to cover that. We did as well.” (“Take price” means raise their prices.)
Shaich explained this was a broader issue: “All of us in the industry, essentially view this as inflationary,” he said of minimum-wage hikes. “Just like if there was a broad-based increase in any commodity, and labor is a commodity in that sense, its going to affect all of us, and we are all going to have to take price”
In this April’s quarterly earnings call, Panera President Drew Madsen said Panera “took a price increase of 1.3% in January. This increase was taken two months earlier in 2016 than in the prior year, to align with the effective date of legislated increases in the minimum wage that went into effect January 1st.”
Beyond higher prices, higher minimum wages also mean less employment. Rising labor costs were “one of the reasons,” Shaich said last October, “we think about digital utilization.” Those kiosks you can order from at some Paneras, in other words, are partly the fruit of minimum-wage hikes.
Shaich said that labor costs were one reason, not the main reason, that Panera was pursuing automation. The CEO, however, laid out clearly the impact of higher wages and more automation: “Labor is going to go down, and as digital utilization goes up, and — like the sun comes up in the morning, it is going to continue to go up, digital utilization, much as you are seeing it happen in Panera today.”
Higher prices are bad for consumers. More automation is bad for would-be workers. But both work out well for Panera. As Shaich explained, “It’s going to benefit larger organizations like Panera, who already have the technology in place.”
When you drive up the costs of labor, you make it more economical to replace labor with technology — but only the big guys can afford that easily.
In short: This Obama-donating, minimum-wage-hike-supporting CEO admitted that hiking the minimum wage leads to higher prices for consumers, less employment, and a competitive advantage for big business over small business.
That’s quite a policy platform.
“Vote Democrat: We’ll increase unemployment, kill your neighborhood coffee shop and bakery, and make your lunch more expensive.” That isn’t a winning campaign motto. But thankfully for Dems, most voters don’t understand what Panera’s CEO understands.
Timothy P. Carney, the Washington Examiner’s senior political columnist, can be contacted at [email protected]. His column appears Tuesday and Thursday nights on washingtonexaminer.com.
