The Dire Cost of Raising the Minimum Wage

I frequently remind my students of Richard Weaver's (1948) famous epigram that ideas have consequences. I also like to point out that often the consequences are the opposite of what might have been hoped. So often is this the case that the phenomenon has been dubbed a "law" - the law of unintended consequences.

We see one example of this law at work in attempts to improve the lot of minimum wage workers by mandating an increase in the minimum employers must pay their employees.

Flouting the law of unintended consequences, Democrats, led by the socialist senator from Vermont, Bernie Sanders, recently introduced a bill to raise the minimum wage wage from $7.25 an hour to $15 by 2024, while also eliminating the tipped wage credit by 2027. "The current $7.25 an hour minimum wage is a starvation wage," he said. "We're going to have a minimum wage that is a living wage."

Unfortunately, things are not that easy. Raising the minimum wage is likely to hurt the very workers it's intended to help. From the link:

Prof. David Macpherson, chairman of Trinity University's economics department, said that such an increase would be unprecedented, but not in the manner Sanders describes. While only 3 percent of hourly workers work under the minimum wage today, the increase would instantly bring 44 percent of them under that umbrella.

Despite that large increase, it would not alleviate the poverty rate as employers, particularly small businesses, eliminated jobs to offset the increased costs. Macpherson, using Congressional Budget Office methodology, found that 2 million jobs would be lost under a $15 rate with the most heavy losses coming in poorer states.

Heidi Mann, who operates a small franchise business of Subway restaurants in Washington state, said that the threat of lost jobs and shuttered businesses is real. She was forced to lay off four of her seven employees at a Seattle location after the city passed a $15 minimum wage and shortened the business hours to make do.

Her Seattle location will most likely shutter by March of 2020 as customers go elsewhere. She expects the same thing will happen across the country if the $15 rate becomes the law of the land.

Workers will bear the burden, she said, pointing to the fact that she can no longer take a gamble on inexperienced employees. Most workers at her suburban Kirkland location are teenagers, compared to the pair of middle aged workers that staff her Seattle Subway.

"These significant [increases] will not only lead to job loss, but our workers will lose out on building their work experience," she said. "It's been frustrating and deflating to watch."

Susan Kochevar, the owner of 88 Drive-In Theatre in Colorado, said her business has already taken a hit since the state raised the minimum wage to $12 an hour. She has been forced to cut her workforce to deal with increasing labor costs and payroll taxes. The move to $15 an hour could prove fatal for small business owners.

"The tax cuts … really helped a lot of small businesses in Colorado, and that will help us ride that minimum wage increase, but to increase it again will [hurt] small businesses," she said. "My labor expenses have already gone up, and I've had to get by with fewer people."

The restaurant industry would be especially hard hit:

Valerie Graham has worked in restaurants for more than 20 years and is a bartender at Jack Rose Saloon in Washington, D.C. She helped organize restaurant workers to oppose a referendum to eliminate the tipped credit in D.C. in 2017.

After voters approved the measure, she successfully lobbied the Democratic City Council to overturn the results and preserve the current rates. She said the $15 wage rate would cause a "massive upheaval" for restaurants and force businesses to close.

"It is one of the few fields where someone without a high school diploma or experience … can earn a middle class life," she said. "The most vulnerable people in our industry will not be helped by the reckless disruption of our industry."

The irony of this is that these workers often support the very politicians and political party whose efforts will ultimately cost them their jobs.

Of course, the workers don't realize that. They just know that they'd like very much to be making more money and that politicians like Sanders, and Ocasio-Cortez are trying to get it for them. They unfortunately never stop to think, as Ms Graham did, of what the unintended consequences of raising their wages would be.

So, they'll keep voting for progressive candidates while grousing that nobody seems to be hiring anymore and never thinking to make the connection between the two.