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The Paradoxical Position of the National Restaurant Association in the Minimum Wage Debate

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NATIONAL RESTAURANT ASSOCIATION
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In recent weeks, supporters and opponents of the proposal to raise the federal minimum wage to $10.10 have circulated letters to further their cause. I was one of the 600 signers of the supporters' letter, organized and posted by the Economic Policy Institute on their website.

We learn in today's paper that unknown to its signers, the opponents' letter was organized and even partially drafted by the National Restaurant Association (NRA). From today's NYT:

The National Restaurant Association did not disclose upfront its role in helping draft and circulate a statement signed by more than 500 prominent economists, including four winners of the Nobel Prize, urging the federal government to reject the proposal by the Obama administration to increase the minimum wage to $10.10 an hour, interviews with signers of the letter showed.

OK, clearly smarmy but biz as usual in DC. Clearly, the (other) NRA thought they'd lose signatories if they revealed their role, a fear the Economic Policy Institute, a research organization (where I used to work), did not share.

But the NRA's hypocrisy is only partly in hiding its role to gain signers. What bothers me is the lobby's phony concerns about the impact of the increase. What they actually, and legitimately, worry about is the impact of higher labor costs of their members' bottom lines. But what they say they worry about in both the letter and other public statements is how the policy will hurt low-wage workers and not reach the enough of the poor.

The letter emphasizes how the minimum wage will cost jobs and is poorly targeted, arguments that are not even well supported by the CBO report that they cite (CBO finds that while 500,000 jobs are lost, 24.5 million workers benefit from the increase; and two-thirds of the direct beneficiaries of the proposed increase are in the bottom half of the income scale), though I'm sure many of the economists who signed the letter believe these claims to be true.

But the NRA does not exist to raise the living standards of low-wage workers. If they did, presumably they'd listen to those workers who loudly and persistently advocate a position on the minimum wage which is diametrically opposed to that of the NRA.

Here's what the NRA says it actually does:

We advocate for pro-restaurant regulation and operational freedom. And we empower all restaurant owners to achieve even more success than they thought possible.

Got that? The clients here are of course restaurant owners, who through their membership will achieve unimaginable success. Not minimum wage workers; not poor people. The fact that the NRA is protecting its members' profits is not exactly news, and in fact their letter notes that profit margins are tight among low-wage employers.

But their very presence in this debate, given their mandate, actually tells you something important about how minimum wage increases are absorbed in real life, and why we don't see anything like the job loss effects opponents decry. Higher minimum wages are partially paid for out of the profits of low-wage employers, from the franchisees to their large corporate parents, where profit margins are considerably fatter.

In other words, the NRA's very presence in this debate, the very fact that they planted this letter, is paradoxical evidence against the argument that the higher minimum wage comes exclusively out of workers' jobs and higher prices. It also comes out of profits, more specifically, out of redistribution from profits to wages, which in an era where the former is highly elevated and the latter very much depressed, makes it a timely policy.

Update: Both Noah Berger and Larry Mishel point out the following quote in the NYT from Robert Lucas, Nobel-winning economist who signed the opponents' letter.

"I was convinced that the minimum wage was not a good idea in Milton Friedman's class in 1960," he said, referring to the University of Chicago economist, whose classes he took as a graduate student.

In other words: I learned how this works 50 years ago so don't bother me with the path-breaking empirical work on the issue since then that's changed the way many, probably most, economists think about this.

This post originally appeared at Jared Bernstein's On The Economy blog.