The Unintended Consequences Of Raising Minimum Wage To $15
My wife, the kids and I went shopping over the long Fourth of July weekend. We stopped into Target for a few items — and ended up with more than we came for — and sped through the self-checkout line. The next stop was Home Depot to get supplies for a project and, once again, we checked ourselves out without the assistance of a cashier. Then, we made a last stop at Whole Foods for our family barbecue and chose the self-checkout line.
A recent study by the Congressional Budget Office, entitled “The Effects on Employment and Family Income of Increasing the Federal Minimum Wage,” was conducted to determine how increasing the federal minimum wage from $7.25 to $10, $12 or $15 per hour by 2025 would affect employment and family income. The conclusion was that increasing the federal minimum wage would have two major impacts on low-wage workers: earnings would increase for many, which would lift some families out of poverty. However, other low-wage workers would become jobless, their family income would drop and it could place them below the poverty threshold. This issue is timely, important and deserves an open and honest conversation, as there will be an upcoming vote in the House of Representatives on a bill to raise the federal minimum wage to $15 an hour by 2024.
The idea of raising the minimum wage is noble and commendable, but many of the arguments rely upon raw emotion and neglect sound economic ramifications that will adversely impact the same people it’s trying to help.
Raising the minimum wage has a number of serious and negative unintended consequences. Employers, especially small family and midsize businesses, will be disproportionately hurt by the extra costs incurred. The local neighborhood stores and businesses with razor-thin profits will be forced to raise prices to make up for the addition labor costs. With the increased prices, customers may elect to take their business elsewhere. Losing customers means losing income, which could result in the business having to layoff workers.
Large corporations with big budgets will weigh the increased labor costs and elect to invest in technology to displace workers. This trend will soon become prevalent in the food service industry, hospitality, retail, construction and manufacturing. Amazon recently opened up several prototype Amazon Gostores that are self described as “a new kind of store featuring the world’s most advanced shopping technology. No lines, no checkout — just grab and go!” Fast food chains and large department stores will follow suit and implement self-service checkout to save costs. Corporate executives will recognize that the $15 per hour could be routinely raised. They will weigh the future unknown costs associated with additional increases, coupled with the ever-increasing insurance costs, plus the time-consuming task of finding employees, training them and dealing with turnover. It’s easier and less expensive to have technology take over. The unintended consequence will be that there will be far fewer jobs available for those that need them most.
We have a steady stream of immigrants coming into the United States, which is good news. However, as anyone who lives in a suburb recognizes, there are many people working at jobs that would ordinarily pay minimum wage, but unscrupulous business owners compensate people in cash far under the minimum wage. This practice closes the door to opportunities for young people, students and mothers returning to the workforce to get a job.
A rough back-of-the-envelope calculation of a typical restaurant that employs workers at $15 an hour exemplifies the unintended consequences of the minimum wage increase. If employees work eight hours a day each week, over the course of one year, the labor costs will be $436,800. This does not include insurance costs, benefits, payroll and other taxes. Most service-sector businesses have thin margins and an increase in this magnitude could close the company. If the restaurant raises prices too high, then they’ll lose their customers to other restaurants that either pay people under the table — skirting the laws — or deploy technology.
While some people may benefit with an increase in their hourly earnings, other employees will be let go to save costs. Employers may elect to cut hours across the board for everyone. Whichever way the employer goes, some of the workers will be in a worse situation. Seattle’s move to $15 an hour, a few years ago, resulted in workers given fewer hours and experiencing a net loss in pay.
In the past, as a society, we had viewed the entry-level jobs as a way to earn some money during school and over the summer. Certain menial jobs were never intended as a means to provide for a family. The minimum wage jobs were primarily an entry point into the workforce. The lower-end job was the ideal place to learn about the real world, how to deal with managers, interact with customers and gain the experience to move onto bigger and better things.
With the best of intentions, the $15 hourly wage can lull people into staying at a role for far too long. My nephew, Matthew, skipped college, as he enjoyed the cash from working at a local deli. Living at home with free room and board, he felt flush with money. Five years later, he’s in his late 20s, living in a new apartment with his boyfriend and he has suddenly realized that the money doesn’t go so far. Because he stayed at this minimum wage job too long, Matt’s finding out that he’s not very marketable. There isn’t a huge demand for a high-school-educated person with very narrow food-service experience, living in a small town. If his pay was lower, it may have served as a motivation to seek out other work that offers future growth potential.
These types of jobs are not designed to provide for a family. They’re either for someone looking to get a foot in the door and join the workforce or someone looking for an extra income or a temporary port in the storm, if they’ve lost their job. We are misleading people to think that these lower-rung jobs will afford a sustainable lifestyle. It also reeks of discrimination. It’s as if we are telling a certain segment of the population that they can’t achieve greater things. By telling a group of people that it’s acceptable to spend your life in a minimum wage job, we’re really saying that we don’t believe that they’re capable of anything more than cleaning toilets, making beds, flipping burgers or mowing lawns. Nothing is worse than telling someone that they are doomed to a life of low wages, hard work and no bright future ahead. Would you want that for your own children? We should encourage people to think of these jobs as a starting point toward bigger and better things.
We would better serve this segment of the population if we allocated money to train people to enter areas in which there are shortages of workers, such as the trades. We should offer apprenticeships to learn marketable skills in a specific trade. If a person could learn to become an electrician, carpenter, plumber, heating and cooling professional or mechanic, they could built a long-term financially rewarding career. Continuing education, computer training and career coaching would help people too.
If you’re in a job earning a minimum wage, I’d like to share some advice. Use this opportunity to learn. Show up early, work hard, stay late, assume responsibilities, seek out new challenges, ask a lot of questions and take pride in your work. If you work at a fast food restaurant, strive to be a manager, then a district manager and maybe set your sights on opening a franchise of your own. You don’t have to settle with where you are at now. View where you are currently as a temporary stop along your journey toward success.
If you didn’t receive a high school diploma, carve out time to get a GED. If you’re a high school graduate, pursue an online or in-person college degree. Find a job that you are passionate about and gives you purpose. You will work harder, be happier and people will notice and promote you. Have a strong work ethic, even if you are doing the grunt work. It will lead to a better job that will then steer you to even greater work. You have to be mentally strong to push forward and grow to avoid staying trapped or complacent in a dead-end job. A minimum wage is just the start and it should never define you or your future.