On Labor Day perhaps it's appropriate to revisit the debate over raising the minimum wage.
On the surface raising the minimum wage to $15 an hour seems like a simple solution to help unskilled, poorly educated workers struggling with poverty, but, like most simple solutions, raising the minimum wage has unintended consequences that hurt the very people it's supposed to help.
An article by Ellie Bufkin at The Federalist explains how raising the minimum wage has actually harmed many workers, especially in the restaurant industry.
New York state, for example passed a law several years ago requiring that businesses offer mandatory paid family leave and pay every employee at least $15 an hour, almost twice the previous rate. The results were predictable and indeed were predicted by many, but the predictions went unheeded by the liberal New York legislature.
Bufkin uses as an illustration a popular Union Square café called The Coffee Shop which is closing its doors in the wake of the new legislation. The Coffee Shop employs 150 people, pays a high rent and under the Affordable Care Act must provide health insurance.
Now that the owner must pay his employees twice what he had been paying them he can no longer afford to stay in business:
Seattle and San Francisco led New York only slightly in achieving a $15 per hour minimum pay rate, with predictably bad results for those they were intended to help.
As Erielle Davidson discussed in these pages last year, instead of increasing the livelihood of the lowest-paid employees, the rate increase forced many employers to terminate staff to stay afloat because it dramatically spiked the costs of operating a business.
Davidson noted that,
Understaffed businesses face myriad other problems [in addition to] wage mandates. Training hours for unskilled labor must be limited or eliminated, overtime is out of the question, and the number of staff must be kept under 50 to avoid paying the high cost of a group health-care package. The end result is hurting the very people the public is promised these mandates will help.How does this help anyone other than those who manage to survive the cuts? When these businesses, be they restaurants or whatever, close down it's often in communities which are "underserved" to start with, and the residents of those communities wind up being more underserved than they were before the minimum wage was raised.
Of all affected businesses, restaurants are at the greatest risk of losing their ability to operate under the strain of crushing financial demands. They run at the highest day-to-day operational costs of any business, partly because they must employ more people to run efficiently.
In cities like New York, Washington DC, and San Francisco, even a restaurant that has great visibility and lots of traffic cannot keep up with erratic rent increases and minimum wage doubling.
When the minimum wage for tipped workers was much lower, employees sourced most of their income from guest gratuities, so restaurants were able to staff more people and provided ample training to create a highly skilled team. The skills employees gained through training and experience then increased their value to bargain for future, better-paying jobs.
Some businesses will lay off workers, cut back on training, not hire new workers or shut down altogether. A Harvard study found that a $1 increase in the minimum wage leads to approximately a 4 to 10 percent increase in the likelihood of any given restaurant folding.
Moreover, raising the minimum wage makes jobs heretofore filled by teenagers and people with weak qualifications more attractive to other applicants who are at least somewhat better qualified.
Workers who would've otherwise shunned a lower wage job will be hired at the expense of the poorly educated and unskilled, the very people who most need the job in the first place and who were supposed to be helped by raising the minimum wage.
Despite all this our politicians, at least some of them, still think raising the minimum wage is a social justice imperative, even if it hurts the people it's supposed to help.
Or perhaps the politicians know it's a bad idea, but they see advocating a mandatory increase in wages as a way to bamboozle the masses into thinking the politician deserves their vote.
