Minimum Wage Increases, the Law of Unintended Consequences at Work

John Kabateck
California Executive Director, National Federation of Independent Business

Everyone wants to earn more money, especially in a state like California where we have higher taxes, fees and other income reducers than anywhere else in the U.S.  But just because you want something – doesn’t mean that it is the right thing for you.  Take, for instance, raising the minimum wage.  It may look good on paper and appear to be ‘feel good’ public policy – but is it really the best thing for California and our job creators?  We would argue that the answer is a resounding ‘No’!

Raising the minimum wage discourages small businesses from doing what they do best – creating jobs!  Think about it – if a small business owner has ten employees working at minimum wage and is forced to increase that wage – where does the extra income come from to cover that cost?  Small business owners are either forced to raise the prices on what they sell or lay off staff – both of which affect the consumer either through higher costs for goods or fewer employees to help them.  In fact, many entry-level minimum wage employees are among the biggest customers of businesses affected by a hike…so when a small restaurant, retailer, movie theater is forced to raise the minimum wage, it’s those employees and their families who feel the hit the most.  And small business owners certainly aren’t going to be adding staff if the minimum wage increases – they cannot spend more than they earn, unlike government.  None of those things are good for the economy or job creation.  Increased costs are transferred to the public, offsetting any pay raise.

An increase in minimum wage also affects young people, lower skilled, and minority workers in higher proportion – and not in a good way.  Instead of these workers being able to get in at “the ground level” and gain some experience, business owners will look for workers with more experience that requires they earn more.  One NFIB member in Long Beach said that in addition to paying his employees minimum wage, he also provides them with training and the tools they need to do their jobs installing upholstery and convertible tops in cars.  If the minimum wage goes up, this small business owner will need to seriously look at not providing those tools for his staff going forward, or hire employees who already have experience and the equipment needed for their job.  Employers simply cannot pay their employees more than the value they bring to the business – or they will go out of business!

At the end of the day, small business owners want to – and do – pay their employees a fair wage.  Many also provide additional benefits such as training and supplies for new employees to start out the right way in their jobs.  But when elected officials in Sacramento and Washington D.C. make ‘feel-good’ policy decisions, the results can be unintended consequences including layoffs, higher prices for consumers and fewer opportunities for employees entering the workforce.  None of that helps build the economy in California or support our job-creating small businesses.

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