Does anybody use cash anymore?

I do, and there are enough people like me to make cash transactions the subject of public policy here in Washington State.

To wit, the King County Council recently voted to require all in-person retailers to accept greenbacks as a form of payment in unincorporated portions of the county. The Pew Charitable Trust reports that cities such as New York, Philadelphia, and San Francisco, along with states such as New Jersey, implemented similar ordinances in recent years.

The ostensible reason for these new laws is to address the increasing number of stores and restaurants that are going cashless, which negatively impacts the poor. The “no cash” trend has become more common over the past decade as consumers increasingly rely on electronic payments (e.g., credit/debit cards, Apple Pay). Some businesses, such as Amazon Go, even have eliminated actual cashiers and charge people for purchases via a phone app as they walk through the store.

The COVID-19 pandemic accelerated this trend based on a fear that paper currency would spread germs. Restaurants forced by law to do only take-out and delivery started requiring pre-payment on all orders. They quickly learned that this was a fast-and-easy method of completing transactions and many just kept this as standard practice going forward. Other businesses such as convenience stores jumped on the bandwagon.

The Cashless Pushback

Although the growth in cashless transactions can be considered a market response to changing consumer demands and/or societal issues, not everyone is happy.

Activists and policymakers claim that cashless outlets discriminate against the “unbanked,” people who do not own smart phones with e-payment apps, nor who have the financial resources to qualify for debit or credit cards. The unbanked tend to be individuals at the lowest rungs of the socio-economic ladder, which includes the homeless. Not surprisingly, cashless-only businesses have been accused of racism, given that racial minorities are less likely to possess cashless financial resources (even after controlling for income – see Figure ES.2).

The cashless society also irritates another group in society: those who do not want their transactions tracked. I would anecdotally add old people like me who are generally inept with technology, don’t trust financial apps, and are just acculturated to paying for inexpensive items with paper bills and metal coins. (I admit a strong reluctance to use cards or apps for any purchase under twenty dollars.)

Despite such pushback, there has been a relatively dramatic increase in the percentage of people who never use cash, going from 24 percent in 2015 to roughly 41 percent in 2022 (according to the Pew Research Center). Younger people are the least likely to use cash, thus we should only expect the percentage of those relying on electronic payments exclusively to grow in the next decade.

But wait! Check those statistics again.

If only 41 percent of consumers are exclusively cashless, that means more than half the population still uses cash for at least some purchases. Wouldn’t rejecting a form of payment that is still fairly common be bad for business? Some business leaders argue that going cashless might disincentive consumers from making a purchase. Such reasoning seems plausible given that I actively have chosen not to buy various items if I cannot pay with green portraits of Washington or Lincoln (see below). If this is true, why would any business want to eliminate a form of payment that might bring in sales?

There are two answers to this question – crime and the minimum wage. The former seems obvious, whereas the latter may need a bit more explanation. Both causes reveal the unintended consequences that public policy often creates.

Criminals Love Cash

When asked by a reporter why he robbed banks, Wille Sutton reportedly answered, “because that’s where the money is” (although he denied saying this in his autobiography). It should come as no shock that cash would be a primary target of thieves given that it is easy to carry and fungible. And it is still a favored form of currency on the black market for illegal goods and services. For criminals, cash is king.

Commercial robberies have been on the rise over the past several years, and retailers are becoming increasingly concerned. Much of this increase in theft has been in the realm of shoplifting, although cash robberies have also increased. The King County Chamber of Commerce cited robberies and employee safety as the primary reasons they objected to the new law requiring them to accept cash. While accepting only electronic payments would not prevent shoplifting, it did reduce the probability that armed thieves would be interacting directly with cashiers.

That criminals would prefer to steal cash is also confirmed by the increase in robberies at legal marijuana dispensaries. Given that the federal government still considers marijuana a controlled substance, pot shops cannot easily accept credit cards for payment as it exposes them to charges of money laundering. For the same reason, large interstate banks are reluctant to do business with them. These stores rely heavily on cash transactions and, as one would expect, have become a major target of thieves looking for quick cash.

There are multiple socio-economic factors at play in the perceived increase in robbery, including staffing shortages and inflation. However, the de-policing of many urban areas and reluctance to prosecute “minor” theft has contributed to the problem. If theft carries a lesser penalty and probability of persecution, it should be no surprise that theft increase. Unsurprisingly, retailers respond by moving exclusively to cashless payments to mitigate exposure to cash robberies.

The Minimum Wage and Cashless Retailers

The increase in the minimum wage is another reason retailers are turning towards cashless payment systems. This connection isn’t obvious, so allow me a personal story to explain how I discovered this. (While I understand that anecdotes are poor social scientific data, they nonetheless can lead down the path of discovery if one is sufficiently curious and observant.)

Back in 2014, Seattle passed a minimum wage increase that would move all businesses to $15 per hour by 2021, with large-scale employers needing to meet that requirement by 2017. My university, which resides in Seattle, is considered a large employer, thus student workers were boosted to the higher wage quickly. Indeed, given our concern for student welfare, we paid an even higher minimum. (The current minimum wage in Seattle is $18.69!)

About eight years ago, I went to purchase a cup of coffee before class at one of the small bodegas on campus. The purchase was under $3.00 so I pulled out a five-dollar bill. I was immediately informed that the shop no longer accepts cash.

“Why?” I inquired.

The student cashier responded perkily, “Because we want to serve all of our customers better.”

That made no sense to me. I pointed out that I was part of the “all customers” and that I rarely used a card for anything under $20. The student dutifully responded that since more people were paying with cards, they could better serve their customers by not accepting cash. (Note the tautology.) It was clearly a line that employees had been asked to memorize.

Being the principled person I am, I refused the coffee and walked away without paying. Deadweight loss was poured down the drain. Nonetheless, I continued my crusade for several days and always received the same response: “We’re here to serve you better.” (If this makes me sound like a jerk, I am willing to accept that label for the benefit of economic education.) The cashiers got to know my schtick and would not pour any coffee until I had paid.

Finally, after several futile attempts to trade cash for coffee, one of the employees noted that the reason for only accepting electronic payment was because their managers didn’t want them counting cash at the end of the shift. Eureka! An honest answer.

I followed up with management. As it turns out, having employees count out their register adds work time to their shift. Given that hourly employees are paid by rounding up to the quarter hour after punching out, just spending a few extra minutes counting cash added 15 minutes to the payroll. During particularly busy shifts with lots of cash transactions, this closing out procedure might add up to a half hour of extra pay. (Employees also have an incentive to “slow count” their register for a few extra dollars. If you ask how I know this, I will plead the Fifth Amendment.)

While a quarter hour of pay may seem trivial, it adds up. Hundreds of employees working an extra 15-30 minutes across seven days a week and across twelve months accumulates to significant costs for the employer. Any effort to reduce costs so as to keep consumer prices low will be considered.

The solution chosen by the campus food service was to eliminate cash transactions so as to eliminate the fractional hourly wages needed to cash out an employee’s register. With electronic payments, all an employee has to do is push a few buttons to report sales made during shift. (There is the added benefit of minimizing cashier error or theft, which is more common with cash.)

This should not be surprising given that a University of Washington study (conducted by scholars in the same building where I was buying my coffee) found that Seattle’s minimum wage increase led employees to reduce the average number of hours worked by employees, ironically lowering their total monthly take-home pay. Higher hourly labor costs? Shorten the hours worked !

[Side note: While scholars such as Card & Krueger argue that minimum wage increases have little impact on overall unemployment, they miss the fact that employers will not necessarily lay off employees, but instead reduce their work hours. This may result in less take-home pay, as it did in Seattle, and worse customer service as businesses become understaffed.]

In short, a government-mandated wage increase set employers on a course of trying to minimize labor costs, which included eliminating the hassle of employees counting cash.

Unintended Consequences Everywhere

Government regulation is often seen as the savior to problems that arise in the market economy, such as giving the poor fewer payment options for consumer goods. However, laws frequently focus on a single issue arising in markets without considering that the underlying cause may be the unintended consequences of other public policies.

When a government policy is enacted, it often seeks to change individual behavior. But human beings are clever and will often respond to policy initiatives in ways that either counteract the initial policy’s goals or create new problems in other spheres. If policymakers don’t understand this (or willfully ignore it), it becomes easy to blame private entrepreneurs for problems politicians created.

This is what happened here. The new King County law requiring retailers to accept cash was designed ostensibly to help the poor access goods and services from businesses that had gone cashless. However, the reason why businesses were eliminating cash transactions was because of other policies designed to aid the poor. Changes in the criminal justice system intended to be less punitive on “petty crimes” (often perpetrated by the homeless or poor) led to more robberies, which in turn incentivized businesses to make themselves less of a target by removing cash from their premises. Law-abiding poor folks paid the price with less access to various goods and service.

Minimum wage laws aimed at improving living standards further pushed businesses to find ways to lower labor costs, which included eliminating the need of employees to handle cash. The result was that low-income “unbanked” individuals had less consumer opportunities before them.

The bigger lesson here is to always dig deep for the sources of problems that public policy is trying to solve. When politicians enact new laws to alleviate economic hardships, we should first ask if they were the source of those problems. Often, they are. The solution may be less laws, not more.

At the end of the day, I would prefer more retailers accept my greenbacks. And I would imagine businesses would like the same. However, this decision should not come about via government mandate.

Anthony Gill