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The $15 minimum wage: It’s a really bad, job-killing idea

Written By | Jul 23, 2019

WASHINGTON:  Last week, the Democrat-controlled House of Representatives voted to raise the minimum wage to $15 per hour. The current Federal minimum wage is $7.25 per hour. Speaker of the House Nancy Pelosi proclaimed, “The Raise the Wage Act gives up to 33 million Americans a long-overdue raise — 33 million Americans — and lifts so many people out of poverty.”

Bernie Sanders, running for president as a Democrat, said that people deserve a “living wage.” He further said, “I want to applaud the thousands and thousands of workers, from coast to coast, people who work at McDonald’s, people who work at Burger King, people who work all over this country, who have stood up over the years and demanded that the Federal minimum wage be raised to a living wage of $15 per hour.”

Others, like the Economic Policy Institute, argue that America needs a $15 minimum wage because workers deserve it. It would raise the pay for millions of workers who need the wage increase. However, the Democrats’ latest exercise in virtue-signaling fails to note the serious downside to this legislation.

A $15 per hour minimum wage will do far more harm than good.

The Congressional Budget Office (CBO) recently reported that gradually raising the minimum wage to $15 per hour would lift 1.3 million Americans out of poverty. The problem is that it will also cause up to 3 million workers to lose their jobs.




Many of those who lose jobs will be those very same workers at McDonald’s and Burger King. And these are supposed to be the people the Dems claim they want to help. The reason for the likely job loss is simple: The workers involved simply aren’t worth $15 per hour to their employer. That will encourage them to adopt less expensive alternatives. Meanwhile, most of their remaining workers will get pink slips.

Employers will replace labor with capital.

In most fast-food restaurants, a minimum-wage worker takes customer orders and handles the payment process. If the minimum wage went to $15 per hour, the labor cost would rise to more than $33,000 per year per unskilled worker. Since a minimum wage worker has no skills, that figure means business will hire fewer workers.

Existing workers would find themselves gradually replaced by technology (aka, capital). A touch screen would take orders  directly from customers. In turn, customers would pay for their orders via credit or debit card right on the touchscreen device. That would eliminate enough jobs so that the business could operate efficiently and still maintain profitability, without having to significantly raise prices. Looking ahead, an increasing number of fast food restaurants have already begun to install such devices.

Restaurants already closing in $15 minimum wage cities

The cities of Seattle, San Francisco and Portland have already raised their minimum wage. In some cases, the minimum wage increased to $16 per hour. The result of these moves is already being felt. Among early casualties,  Restaurants Unlimited has filed for bankruptcy. They own 35 restaurants on the West Coast.

In its filing, the company declared, “Over the last three years, the company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast … the result was to increase the company’s annual wage expenses by an aggregate of $10.6 million.”

Regardless of what some liberal economists may say, the truth is that raising the minimum wage always reduces the number of jobs available. Consequently, an unreasonable minimum wage also raises the unemployment rate. Even today when the overall U.S. unemployment rate is under 4 percent, the unemployment rate for those who earn minimum wage is about 13 percent. The $15 minimum wage would significantly raise that figure. It would be catastrophic for unskilled workers.

Collateral damage: A loss of worker incentives for learning and growing in a job

Even for those workers who would still have a job, raising wages without requiring any increase in output causes additional problems for both the worker and the employer. That’s because it severely reduces any incentive for working harder and rising within a company or organization. Current minimum wage workers who retain their jobs would see their wages more than double with the new $15 per hour wage. And the worker would not have to do anything to get that wage increase.

That will cause problems in the long run. Workers will believe they are entitled to higher wages no matter how productive they are. But the way our system works is that workers are paid according to the value of the output they produce. To earn more money, workers must figure out how to contribute more. And workers generally do this by increasing their knowledge and skill sets.

At a time when the economy is focusing on increasing economic growth after a lost decade (from 2006 to 2016) of near stagnation, artificially raising wages does far more harm than good. The economy is better off when workers are paid according to their true value.

Consumers will get hit as well with higher prices across the board

The increased minimum wage doesn’t benefit consumers either. All consumers will pay notably higher prices for goods and services across the board.  This doesn’t benefit businessse that have higher labor costs. It doesn’t benefit their workers either, since up to 3 million of them may lose their jobs. Even unskilled, minimum wage workers who may still have a job at the higher wage won’t benefit in the long term. That’s because the mandated higher minimum wage reduces incentives to learn new skills.



Since virtually no one benefits from a dramatically increased $15 minimum wage, Congress should not increase the minimum wage. Fortunately, the Senate will not approve the increase. And the President won’t sign it.

— Headline image: Unemployment line, 1930s. (Vintage image via Wikipedia)

 

Michael Busler

Michael Busler, Ph.D. is a public policy analyst and a Professor of Finance at Stockton University where he teaches undergraduate and graduate courses in Finance and Economics. He has written Op-ed columns in major newspapers for more than 35 years.