The Minimum Wage Disruption

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Recently, I read an announcement posted in a place of business that told customers the establishment was raising membership dues because of the minimum wage increase. However, it was not because the establishment had many minimum wage workers, the announcement went on to say, but because of the increase in minimum wage, the business felt it necessary to boost the salaries of workers earning above the minimum wage, so customers had to pony up.

As many warned during the debate that would boost the minimum wage to $15 an hour, the increase would come with consequences. In the case of this particular business and others like it, a minimum wage increase caused a ripple effect pressuring higher-than-minimum-wage-workers to seek salary increases. Businesses then have to decide how to cope with the demands—cut work hours, lay off employees, raise customer fees, eat the cost or refuse to hirer new workers.

The news out of Seattle last month further strengthened the argument of those who warned a large and quick increase toward a $15 minimum wage would come with negative effects for workers.

A city sponsored University of Washington study that received much attention indicated workers intended to be helped by the minimum wage increase have, in fact, been hurt. The average minimum wage worker lost about $125 a month, mainly to reduced work hours, because of the wage increase.

Among other things, the study noted that some businesses in Seattle suburbs not subject to the minimum wage increase were flourishing while some Seattle businesses were finding it difficult to manage the wage increase—and the full $15 minimum wage required by the Seattle law has not even been reached yet.

Can a reasonable minimum wage mark be achieved without the negative consequences of reduced hours, fewer jobs and replacement by robots and other mechanized devices?

The minimum wage increase campaign was slogan driven. A “Fight for $15” slogan was born. While slogans are good for bumper stickers, they are rarely good for public policy. As pointed out here many times, demanding a statewide minimum wage puts the workers of Fresno in the same boat with workers of San Francisco, two places where cost-of-living varies widely.

Opinion writer Charles Lane of the Washington Post suggests a formula to find middle ground tying the minimum wage to a percentage earned by the average private sector hourly wage worker. While the formula might reach a more comfortable minimum wage amount for both worker and employer, regional differences are still ignored in such a plan.

Lane points out that President Franklin Roosevelt, who oversaw the first minimum wage law, suggested the Labor Department consider what the wage should be industry by industry. While that calculation would require a huge task force, a simpler version would be considering minimum wage by regions of a state.

Rethinking the $15 minimum wage law could happen sooner than anyone expected. The Seattle study, which has been called credible by a number of researchers, prompted warnings that California and its major cities that passed minimum wage laws could similarly see lost jobs or reduced working hours. UCLA economist, Edward Leamer, told the Los Angeles Times that Los Angeles should be alarmed by the Seattle result pointing out that Seattle has many high earners and should be expected to deal with the minimum wage increases better than most cities but that the UW study found otherwise.

And, let’s not forget that the governor’s office, prior to California approving a $15 minimum wage, projected a need for $4 billion more in the state budget to cover the costs once the program is fully implemented. What if that demand comes at a time of the recession Gov. Brown has been warning us about?

It is nearly impossible to take away a benefit or a mandate once it has been bestowed. But the lesson for California governing bodies is that minimum wage and other mandates come with consequences that cannot be ignored—as apparently happened with the “Fight for $15” issue.

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