Raising Wages Does Not Make Businesses Close

(c) by Mark Dempsey     

The cashier at a nearby store solemnly told me that a restaurant in her shopping center closed because California raised the minimum wage for fast food workers in April 2024. I was going to protest that labor wasn't the only reason restaurants close, and sure enough, a recent LA Times article (The fast-food industry claims the California minimum wage law is costing jobs. Its numbers are fake) by Michael Hitzik exposes that bit of deception now making the rounds. 

Convincing workers to lobby against wage increases is as old as employment itself. After all, post-civil war landlords ginned up racism to divide-and-rule the tenant farmers, keeping them poor, desperate and tractable. But this latest exercise in cynical labor-baiting breaks new ground in the despicable tradition of crushing the poor.

Management relentlessly blames labor, too. In its press release announcing closure of dozens of California's Rubio's restaurants its management declared labor costs were the last straw in a terrible string of business-impairing incidents, including COVID. Examining Rubio's financial statements, however, draws a different conclusion. Private equity bought the chain, and encumbered the restaurants with a debt load that would not be sustainable if they paid workers a living wage. The debt load, not the labor costs, was the decider.

Many businesses like  Starbucks have even claimed poverty when negotiating with their workers about wages, then spent more than the wage demands in stock buybacks. Conventional economics backs these kinds of claims, solemnly predicting increased unemployment if wages are raised. Rather than rely on this theoretical outcome, however, some economists have examined what actually happens when minimum wages rise, comparing the higher and lower wage jurisdictions. The result: no increase in unemployment accompanied the wage rise.

Polish economist Michal Kalecki wrote about what motivates businesses to engage in such deception in his 1943 paper Political Aspects of Full Employment. He observes that businesses know that well-paid employees provide a better customer base--the foundation of a more profitable business--but employers prefer "Labor Discipline" to that better economic outcome. Labor Discipline is the power to dominate workers. It sends the message that "You had better take whatever job is on offer, or suffer the indignities of poverty, even homelessness and starvation...and if you rebel, we'll put you in a cage."

Testifying to the effectiveness of the propaganda, currently, the US has five percent of the world's population, but 25% of its prisoners.