Why some restaurants pay much more than the minimum wage

Some cities and states are raising the minimum wage to $10 an hour or more.  McDonalds workers in big cities are threatening to go on strike for $15/hour.  Judging only from the headlines, one would think the restaurant industry, especially fast food chains, is dominated by low wage jobs.

This recent NYT piece shows otherwise.  Chains such as Shake Shack and In-N-Out Burger pay over $10 an hour simply because their owners think that is the right business decision.  Higher wages allow managers to hire from a more talented applicant pool.  They also reduce turnover and encourage longer term investments in training.  In some cases the personal values of ownership also play a role in wage setting.

The tougher question is why does In-N-Out pay relatively well and other chains stick to near the minimum wage.  After all the core business at McDonald's and In-N-Out is the same and the prices are comparable.  One possible difference is that more skill or training may be needed at In-N-Out where everything is made fresh.

What have we learned from NC's cuts in unemployment benefits?

Not very much, argues Michigan economist Justin Wolfers in Sunday's NYT.  NC cut extended unemployment benefits a year ago and there is little evidence that this has helped promote employment.  The state unemployment rate is down but this is because more have given up looking for work versus more people accepting jobs.  If you compare trends in NC to adjacent states that did not make any cuts in benefits, it is very hard to discern any difference in either unemployment or employment.

My take: unemployment benefits in the US are relatively low compared to European countries, so low that they by themselves do not play a driving role in job search decisions.  But one must be careful to consider other forms of assistance -- especially food stamps and Medicaid.  Job search intensity depends heavily on two variables: (1) the perceived odds of finding a job and (2) the difference in income between working and not working.  If there are not many jobs around and unemployment benefits are not very large, then cutting the number of weeks of eligibility for benefits is not going to make a big difference in the job search behavior of the unemployed.  It is going to make a modest difference in their income and economic well being.

Secrets to success after college

This Friday WSJ piece references a very interesting study about what determines success and happiness after college.  Released last May by Gallup and Purdue University, over 30,000 graduates of a wide range of educational institutions were surveyed about their engagement at work, their overall well-being, and how both relate to their college experience.

Two results stand out: (1) workplace engagement is more or less unrelated to what type of school you went to (exception: graduates of for-profit schools report much lower levels) and (2) the key variable predicting workplace engagement is successful engagement in college.  In other words, if you did nothing more than attend classes, hand in assignments and get passing grades you missed the boat. There is little payoff in workplace engagement unless you develop a close relationship with one or more professors, had an internship, or worked on a project that took a semester or more to complete.  (Aside: the payoff is even better if you do all three.)

More on the minimum wage

Back from vacation and back to blogging.  While I was gone WSJ ran a piece by David Neumark who is in my view the leading expert on minimum wage economics.  Neumark's main point is that the minimum wage is a highly ineffective policy tool for poverty reduction.  A large share (34% by Neurmark's calculation) of minimum wage workers are secondary earners in a household that overall is well above the poverty line.  A bigger problem is that a higher minimum wage is not going to help people who are poor because they cannot find full-time jobs, even at $7.25 per hour.  Needless to say their quest becomes much more difficult if employers become obliged to pay them $10 to $15 per hour!

So why are lefty pols so interested in raising the minimum wage?  This gets us into the murkier discipline of minimum wage politics.  My take is that supporting a higher minimum wage (1) makes it look like the pols are doing something to help the poor and (2) requires no funds from any government budget, all costs are shifted to employers who in turn adjust by raising prices and reducing employment and hours per person.