“Economically minimum wages may not make sense,” said California Governor Jerry Brown last week as he signed into law the state’s new $15 an hour minimum wage level. That says it all. We can go home now.
California’s new law will raise the minimum wage to $15 by 2022. New York State is following right behind with a $15 minimum wage increase in New York City and its suburbs by 2021, and eventually it will roll out to the entire state. Other cities and states have either set higher wages or are pondering it. And, the Fight for $15, an activist organization advocating for the higher wages, has been building a national network.
Fight for $15’s website says that, “we work for corporations that are making tremendous profits, but do not pay employees enough to support our families…These are billion-dollar companies that can afford to pay their employees better.” Some are billion dollar corporations, but when you set a local, state or federal minimum wage, you hit every business, including the local mom and pop restaurant in your neighborhood, the auto parts warehouse that your neighbor works at, and franchised ice cream shop. Even Chick-fil-As are franchised. Small business owners are responsible for making their budget and payroll work. Raising the minimum wage has real consequences for real people.
The problem with raising wages so dramatically is that business can’t absorb that impact so quickly or even in the long-term. What Fight for $15 members do not understand is that ramifications occur when wages are forced so high. Force is the key here. First, employers will raise prices; and second, employers will lay off workers, freeze hiring, and/or use machines and technology to replace human workers.
Seattle passed a $15 an hour minimum wage two years ago. And guess what? The city’s previous positive employment growth stagnated. “There hasn’t been as large an increase in jobless rate over a 9-month period – in this case from April to December 2015 – since the end of the Great Depression” (The Detroit News, April 5, 2016). Massachusetts, too, increased their minimum wage at the beginning of 2015. They are now struggling with their “longest stretch of net job losses since the recession in both the retail and the leisure and hospitality sectors” and prices for products such as Dunkin Donuts coffee has increased (Investor Business Daily, April 7, 2016).
It’s just common sense. If an employer’s costs go up, the difference has to be made up somewhere. Business owners are in the business to make a profit and certainly not a loss. Employers must pay vendors, the electric bill, taxes, and insurance, too. With onerous regulations and burdensome taxes, forcing higher wages is another difficulty in owning a business.
The recipients of the minimum wage are overwhelmingly younger workers without higher education. They need the jobs the lower level positions provide. They then gain experience and move up the ladder. “Although workers under age 25 represent only about one-fifth of hourly-paid workers, they make up about half of those paid minimum wage” (Bureau Labor of Statistics). By increasing minimum wage, these folks face higher unemployment. In 2006, New York raised their minimum wage and it resulted in a reduction of employment in younger, less-educated individuals by 20-22 percent (The Detroit News).
As employers cut back on employment, they tend to keep the employees with more experience, who are also making higher hourly wages. The entry level, less-skilled workers find it harder to find employment.
Did you know that about two-thirds of minimum wage earners gain pay raises within the first year of employment? “From 1981 to 2004, the median annual growth in wages for minimum wage employees was nearly six times that of employees earning more than minimum wage” (American Legislative Exchange Council 2014). Employers should be the ones to reward, through higher pay, those employees who work hard. As an employer, I know how hard it is to find good people. And believe me, I want to ensure those great team members stay with our firm. I want to pay them as much as I am able.
Forcing higher wages through government intervention is not the way to improve our economy. It is a way for government to redistribute wealth. Hard, capable workers should be compensated according to their value added. That is a decision of the employer, not the government.