California Pretzel CEO Decides Minimum Wage Hike Good for Business

California, like South Dakota (there’s an intro that should give the SDGOP the creeps), started raising its minimum wage in 2014. California pretzel CEO Bill Phleps, like bumper-car bosses Al and David Novstrup, got nervous. But then, unlike South Dakota’s Republican Novstrups, Phelps looked at actual data:

Sales at his California stores immediately shot up.

“I was shocked,” Phelps says. “I was stunned by the business.”

The same exact pattern took place again in 2016, when the minimum wage rose again, Phelps said. There was a wage increase, and then boom, a bump in same-store sales across the state that held for most of the year.

Phelps is now convinced minimum wage increases aren’t bad for the fast food business; in fact, he says, they’re great [Sam Harnett, “Fast Food CEO Says Higher Minimum Wage Boosts Business,” KQED News, 2017.01.03].

Phelps is experiencing another facet of what Walmart has seen: raising the minimum wage is good for business.

23 Responses to California Pretzel CEO Decides Minimum Wage Hike Good for Business

  1. Darin Larson

    What do they think poor people are going to do with the extra money they earned? Put it in their offshore holdings? Look for undervalued companies in the S&P 500? Lock it away in the kids’ college fund? Jet off on a European vacation, taking advantage of the currency strength of the dollar?

    No, they spend every last dime they make just to live which fuels the economy. Big surprise!

  2. Don Coyote

    Then by all means we should raise the minimum wage to $20 or $25.

    Of course correlation doesn’t imply causation but don’t let sound logic get in the way of anecdotal “evidence” and a feel good story.

  3. Porter Lansing

    @Darin They think poor people are going to do with the money what they do with any money they’re given (No poor person earns anything. Everything they have was given to them by welfare, according to the conservative, white working class). They’re gonna buy meth with it.

  4. Not what I said, Don; not what CEO Phelps said, and not what anyone here is advocating. Your “logic” doesn’t beat Phelps’s experience or the empirical data that supports what Darin points out about how income boosts for lower-income workers translate mostly into spending and stimulus.

  5. Darin Larson

    I get it, Coyote. You like the “logic” of tax cuts for the wealthy who will rain down their largess on the rest of us like cattle urine fertilizes the pasture of our economy. Alas, I think your logic is really more like horse manure.

    Thank you sir, may I have another?

  6. Robert McTaggart

    I think an argument could be made that such a wage increase stimulates the release of some pent-up demand. What is unclear is what happens the year or so afterward as other bills go up and one is back to the same level of purchasing power that existed before. Unclear if wage increases continue in years 2-5 to sustain the economic boost.

  7. Forget “trickle down”, the key may be to “trickle up”.

  8. You don’t explain why this aberration exists in Libbyland, Mr. H. If this is a cause and effect then we should just pay teachers more and magically we get smarter kids. And we pay revenuers more and wala we get more tax money raining into our coffers. And we pay old people more and they are L more gruntled.

  9. Porter Lansing

    That’s pretty good logic, Goober but you’re a bit off the cheese. If you pay teachers more, teachers will spend more. If you pay revenuers more, revenuers will spend more. If you pay old people more, they may come out of their bedroom, turn off their right wing radio and spend more … or give more to their grandkids, who will spend more.

  10. Robert McTaggart

    But grudznick’s point (I think) is that it is not instant money. Not saying it is a zero-sum game exactly, but sustained purchasing power needs to come from value, not from fiat.

  11. Porter Lansing

    Sustained purchasing power can’t be realized if the wages of the poor are allowed to be usurped by their employers and their value is ignored for greed. Income equality helps society. Denying that people spend more and stimulate the economy when they’re paid more hurts society. What bills exactly go up that wouldn’t have gone up had the workers not gotten a raise?

  12. Mandated wage increases do not increase total income for the poor over-time for three reasons (even liberal economists understand this):

    1) The wage compression with jobs currently above the mandated wage impacts inflation because wages move upstream which returns the real purchasing power to what it was before.

    2) It reduces the quantity of jobs available subject to the mandated wage as it encourages automation or “Just doing without” the employee.

    3) It de-links wages from value of the work produced and productivity gains which long-term adversely impacts hardest lower wage earners.

    Economics has become the “dismal science” for liberals to such a level ignorance of economics seems to have become a badge of honor.

  13. Porter Lansing

    A good Friday afternoon to you, Little Buddha. Not true on all three. LWIY

  14. Let’s change the focus from theoretical to actual. It has been my experience that small businesses do not prosper in the long term by pursuing a ‘race-to-the-bottom’ strategy. In fact, the converse is true. Where there is competition for labor (as there is in SD) real benefits accrue from finding the best employees and treating them as though they really are and paying them as much as the business possibly can. The benefits are numerous, including (obviously) higher employee morale and loyalty and retention, and the opportunity for the business to become the most desirable employer in its sector. It’s natural for workers to aspire to be the best and to work with the best in their field. And I’ve seen it work exactly in that way.

  15. John Kennedy Claussen, Sr.

    Now Troy claims that “liberal economists” even agree with his viewpoint. So if Senator Bollin’s “Intellectual Diversity” (I believe that was a major available at Trump University) Act passes, does that mean that our State will have too spend tons of money looking to hire liberal professors who disagree with even some of their fellow liberal colleagues on this issue or others, in order to establish a just “Intellectual Diversity” on campus? Well, that’s interesting.

    Back to the minimum wage, Henry Ford understood this reality over a 100 years ago, when he paid his workers $ 5 a day, which was good wage back then, so that they could turn around and buy Ford’s Model Ts and enjoy the fruits of a livable wage.

  16. mike from iowa

    Higher wages is a win-win for Mickey Ds and WalMart. They pay a higher wage, workers and consumers spend more and Mickey Ds and WalMart no longer have to pay one employee each to tell korporate workers to go sign up for foodstamps and Medicaid because now they earn a pittance too much to qualify and korporate Amerika still doesn’t pay any taxes. What’s not to like?

  17. Darin Larson

    Troy, this is from Alan B. Krueger, professor of economics and public affairs at Princeton University and former chairman of President Obama’s Council of Economic Advisers who has studied the effect of the minimum wage for the last 25 years:

    “While some employers cut jobs in response to a minimum-wage increase, others find that a higher wage floor enables them to fill their vacancies and reduce turnover, which raises employment, even though it eats into their profits. The net effect of all this, as has been found in most studies of the minimum wage over the last quarter-century, is that when it is set at a moderate level, the minimum wage has little or no effect on employment.”

    Krueger says that a “minimum wage set as high as $12 an hour will do more good than harm for low-wage workers, but a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.”

    Former Secretary of Labor Robert Reich thinks that the upside of a $15 an hour minimum wage outweighs the downside.

    Dr. McTaggart, your statement that it is unclear about the effects of a raise in the minimum wage in years 2-5 seems to assume that everyone at all payscales is getting a raise. Troy’s criticisms also assume this. If all labor is getting a raise, then predictably, inflation may rise to negate the real value of the raise, assuming that employers don’t adjust their profit margin and that the better paid employees don’t have a higher level of productivity (which they may).

    If only the minimum wage workers are getting a pay increase, inflationary effects that would reduce the real value of their pay increase should be far outweighed by their pay increases. The minimum wage increase is not a proposal to give all labor a percentage increase in their pay. It is only the lower tier on the pay scale. This is only fair as Robert Reich points out as a huge portion of the real wage increases have been flowing to the top 1%, while the middle class has remained stagnant and the poor have lost a lot of ground.

  18. the fact remains that history shows that republican administrations with republican congresses run the economy into the ground. There exists not one example otherwise. It’s a matter if time, not a not matter of if or whether.

  19. John, your historical statement about republican administrations are accurate.

  20. Richard Schriever

    Troy – your logic assumes no progressive tax rate. In fact, your “model” ignores taxation altogether, and assumes a PURE supply/demand model of compensation with ZERO mitigating conditions. Yes, indeed your style of economics is in fact quite “dismal” (it’s all black and white – no color). Change the rate of taxation (mandated wealth distribution/sharing) to reflect more progressive structure (as it was prior to Nixon, Reagan, Bush, et al) and the impact of low-end worker wage increases is magnified.

    But you go ahead and stick to your dismally simple is as simple does approach to all things economic. It’s easier that way for you – I suppose.

    Coyote – (a dismally grey in color critter I believe) – The minimum wage of 1967 translated into today’s dollars would be a reasonable $10.12hr. Not the hyperbolic for the sake of argument double that you spit out with hatred toward those you NEED to see as less “deserving” to yourself.

    If we want to create a living wage, however, vs a minimum wage We might consider $15/hr. ($31,200/year). Such a living wage can be defined as a rate of pay that full-time employment would allow one to pay for rent, utilities, food, and health – a simple life with no frills – hand-me-down and Goodwill clothing – not “high end” stuff from Walmart, no new furniture, no new car, no cigarettes, etc. and live free from state or federal assistance. I.E., it would have a nice built in tax cut for the likes of you, Mr. Coyote. Or maybe instead of a tax cut for you, the country could pay its debts.

    Over your head? Or are you all just so blinded by your poor-hating you can’t see beyond it?

  21. Richard Schriever

    Curt – here’s a real-life Local South Dakota example of the race-to-the-bottom approach’s failures.

    Small town with two convenience stores. One is a national chain, one is a bit if a left-over from a farmer’s cooperative – nationally branded but locally controlled. The manager of the locally controlled store decides to “compete on prices” with the national chain store. These stores do not compete on cost – both pay the same minimum wage to employees, both buy through nation-wide purchase agreements the same products from the same vendors.

    The locally controlling manager gores dutifully EVERY DAY – twice a day – to check on the competition’s price of gas. Once a week he sends a “spy” to the other store to check on merchandise prices. he is constantly adjusting his prices to stay a few cents below the national chain on EVERYTHING he possibly can.

    Eventually (took about 4-5 years) the locally controlled store GOES OUT OF BUSINESS. Meanwhile, during that same 4-5 year period, the national chain has EXPANDED – in fact, built a completely new store. Why? What happened here?

    1. Lower margins – totally a “competitive” decision by the manager – led to lower ability to improve the condition of the property. Why is that important? Numerous industry surveys (read, but obviously not believed by the locally managed store’s manager) inform that the top 10 reasons people choose to patronize ne convenience store vs. another DO NOT INCLUDE PRICE. Instead, the include things like, clean, safe, well-lit, up-to-date feeling, courtesy, friendliness of staff, always have what I need, etc. The low margins made that difficult.

    2. People who are attracted primarily by lower prices, tend to be those people who have LESS TO SPEND. I.E., by taking the low-price approach to marketing, you are automatically appealing to customers who will have less to spend, and will therefor spend less – not able to even make an “impulse buy” of the little stuff on the counter – even if they wanted to.

    I tried to explain all this to that manager – never did “get it”. His focus was on price competition. Pure economics 101. No consideration of marketing/market factors beyond price – at all. One subject at a time thinker, finance/accounting background. Unable to synthesize ideas from across multiple business disciplines into a cohesive management policy approach.

    Lesson to be learned.

  22. Porter Lansing

    Excellent analysis , Richard .