Could it be that the $15 per hour minimum wage adopted by Los Angeles results in some serious cash being earned… by lawyers?
Within a few years it will be illegal for anyone whose skills are worth less than $15 per hour to have a job in Los Angeles. On the other hand, not everyone is eligible for welfare. Especially for adults who cannot obtain possession of a minor child it can take a long time to get on SSDI, work their way through the public housing bureaucracy, etc. Humans don’t want to starve and markets tend to clear despite government prohibitions against people entering into agreements. (Recent example that I learned about talking to a Swede: “There are a lot of apartments in central Stockholm that are owned by the government,” he noted, “and the rents are set very low. But none are ever available unless you pay a large amount of cash to the current occupant. If you stay 5 or 10 years it works out to be roughly the same as the monthly cost of a private apartment.”)
How could the labor market clear for people that employers don’t want to hire at $15 per hour? Contracting! There is no minimum wage for an Uber driver. If it turns out that he or she earns less than the minimum wage the government will still permit him or her to continue to operate the 1099 business.
What would it look like in a restaurant? Instead of hiring people to clear tables and clean at an hourly wage the restaurant could hire a person to be responsible for one bathroom, a portion of the kitchen, and five tables at a fixed monthly rate. The person would bring his or her own cleaning supplies and work the hours of his or her choice, as long as the cleaning got done. The restaurant could spin off the waitstaff as well. Perhaps a waiter rents ten tables from the restaurant much as a cab driver will rent a taxi from a medallion (value up to $1 million in the pre-Uber era thanks to government regulation!) owner. Customers pay the restaurant for the food and the waiter for providing the service.
Note that some employers that don’t want to have low-wage employees are already doing this, albeit typically through a contractor that does hire W2s. See “Costco’s Second-Class Citizens” (Bloomberg 2013) for example or any big company that hires a cleaning service rather than employing janitors.
Here’s where the lawyers come in. If lawyers can persuade a judge that Joe Contractor should have been a W2 employee and that Joe Contractor earned less than $15 per hour then the judge can order a company to pay years of back pay, a potentially good deal for Joe Contractor and a great deal for his attorney. As the factors that separate a 1099 from a W2 employee are subjective this could be a very fertile area for lawyers.
What do readers think? Is this the frontier that finally enables all of those extra law school graduates to get jobs?
My view was that raising the minimum wage was a payoff to unions, in that many union contracts have compensation rates that are based off the minimum wage. Raise the minimum wage, unions (who reliably vote Democratic) automatically get more.
The restaurant example is not so far fetched. Isn’t that the way many beauty salons work: the chair is rented and the stylist is an “independent contractor” or “free-lancer” aka entrepreneur.
As far as whether or not this is a good thing for lawyers: I know you’re just playing devil’s advocate. You know perfectly well that all laws and regulations, these days, are principally for the benefit of the law industry, any intended (or unintended) goals and/or benefits are strictly for show.
Already started in some forms in Australia. There is a clear attempt to make everyone have something that looks like ongoing employment.
Example:
http://revcorplaw.com.au/professionals-and-consultants-the-alienation-of-the-personal-services-income-rules/
> out-of-pocket cost of taxpayer-subsidized apartment in Sweden is roughly the same as out-of-pocket cost of private apartment
http://en.wikipedia.org/wiki/Coase_theorem
What would it look like in a restaurant? Instead of hiring people to clear tables and clean at an hourly wage the restaurant could hire a person to be responsible for one bathroom, a portion of the kitchen, and five tables at a fixed monthly rate. The person would bring his or her own cleaning supplies and work the hours of his or her choice, as long as the cleaning got done. The restaurant could spin off the waitstaff as well.
Why hasn’t this happened already? The minimum wage was created around 80 years ago.
Vince: Look at the chart in http://www.pewresearch.org/fact-tank/2015/05/20/5-facts-about-the-minimum-wage/ and you’ll see that $15/hour is beyond the range of previous minimum wages (previous peak was $8.54 in 2014 dollars). So we’re entering into, literally, uncharted territory.
I read an interesting column by a young economist who writes for Bloomberg, The large increases in the minimum wage in L.A., Seattle, and San Francisco should help illuminate the controversies surrounding the minimum wage.
http://www.bloombergview.com/articles/2015-05-27/finally-an-answer-to-the-old-minimum-wage-question
I had another thought about your idea that restaurants might start designating their waiters as independent contractors. This is not a new issue. There are a lot of businesses try to do that to avoid paying FICA taxes. The IRS has some guidelines that prevent that if the worker doesn’t have much discretion about how he performs his job. Local governments could easily include similar provisions in their minimum wage laws.