- The “Fight for $15” is nothing more than compulsory unemployment for the low-skilled
- Advocates, including the NC Justice Center, ignore common sense and basic economics
- Minimum wage laws end up harming the very people they are supposedly designed to help
The “Fight for $15” is an effort to raise unemployment and deny opportunities for society’s most vulnerable.
Criminalizing voluntary work agreements has no place in a free society. There should be no government restrictions on wages at all, and raising the minimum wage serves to increase the financial hardship of low-skill workers, especially minorities.
Sadly, yet predictably, the NC Justice Center ignores these issues in their recent report titled “Why raising the minimum wage is good for everyone in North Carolina.”
Following are five major flaws that discredit their report:
1. Why Not More, Why Not Now?
The Justice Center report lends support for a legislative initiative that will raise North Carolina’s minimum wage from $7.25 to $15 an hour by 2024, a move they claim “will transform thousands of low-wage jobs into good paying, family supporting jobs without increasing overall unemployment.”
But why so stingy? Why only $15 an hour, not $25 or $50? And if there is no downside in the form of increased unemployment, why phase it in over four or five years and not implement it immediately?
The report is silent on these issues.
2. Rise of the Machines
Part of a business’ decision regarding the production process involves the labor to capital ratio. That is, how many workers they employ relative to the amount of capital goods being used in production.
When labor becomes more expensive relative to machinery or automation, then naturally employers will tend to utilize more automation and less human labor.
The Justice Center report’s claim that a minimum wage increase to $15 an hour would result in the “160,000 people working in the food services industry” receiving “almost $6,000 more every year, lifting their wages above poverty level” with no downside is quite naïve.
In 2017, Wendy’s announced its plans to install self-service kiosks in 1,000 of its locations, to “help reduce labor costs” according to COO Robert Wright. The head of Hardee’s and Carl Jr.’s parent company similarly said in a 2016 interview that “higher minimum wages made restaurant automation more attractive.”
In New York City, jobs in the car wash industry have been decimated and driven into the black market because of increased automation since the announcement in 2016 that the minimum wage in New York City would increase to $15 an hour on Jan. 1.
While not the only factor facilitating the automation of low-skill jobs, minimum wage hikes are certainly quickening the pace and leaving fewer work options for the low-skilled population.
3. It’s Not Just Hours That Would be Cut
Surprisingly, the Justice Center report does acknowledge some potential downside to a minimum wage increase. “While it’s true that raising the minimum wage increases labor costs for businesses, the reality is that employers in the short term can reduce workers’ hours, rather than lay them off,” they admit.
Yes, in addition to laying off workers entirely, employers will often respond to the higher labor costs by reducing the hours of those remaining low-skilled workers.
As one restaurant industry magazine reported: “In a survey conducted by New York City Hospitality Alliance late last year, about 75 percent of the more than 300 respondents operating full-service restaurants reported they’ll reduce employee hours this year because of the new wage increases, while 47 percent said they’ll eliminate jobs.”
While continuing to ignore the real effect of workers losing their jobs, the Justice Center report dismisses the concern about reduced hours by stating that hours would be reduced by a percentage rate less than the minimum wage increase, and as a result workers would still come
out ahead.
While doubtful the majority of workers lucky enough not to be eliminated would see a net gain in wages after having their hours cut, there are other ways employers would respond to minimum wage increases as well.
Non-wage benefits like health care, vacation time, schedule flexibility and working conditions and safety may also be reduced to compensate for the minimum wage’s mandated increase in labor costs.
Employers may also attempt to pass along higher labor costs to customers. The NYC Hospitality Alliance survey also found close to 90
percent of respondents expected to raise menu prices this year. Such price increases of course hit low-income people the hardest and eat away at any wage gain for the few who actually benefited from the minimum wage increase enjoyed.
4. Studies Say…
The Justice Center wants to fool people into discarding common sense and real-world experience by cherry-picking “studies” that purport to show minimum wage increases have no employment impacts. “The most statistically rigorous empirical studies conducted by professional economists of actual state minimum wage increases have repeatedly found that states that enacted a raise did not see any job losses when compared to states that did not raise the wage,” they write.
Such “studies,” however, are extremely limited and should not be counted as reliable. In order to evaluate the specific labor market impact of minimum wage laws and compare them among states, the researchers would need to somehow isolate the minimum wage’s impact from all the countless other changing economic factors occurring. This is an impossible task.
Moreover, the key question isn’t the impact on overall job losses, but the impact on low-skilled workers in particular.
The latest real-world example we can look to is New York City, which raised its minimum wage to $15 an hour effective Jan. 1, 2019.
As pointed out by economist Mark Perry, New York’s restaurant industry has seen the “worst annual decline since the sharp collapse in restaurant jobs following 9/11 in 2001.” At a time when the economy continues to grow, full-service restaurant employees in New York City are losing jobs at the fastest rate in nearly two decades.
Indeed, few things unite economists – who scarcely agree on much of anything – like the recognition that minimum wage laws harm employment prospects for low-skilled workers. A 2015 survey found nearly three-fourths of economists opposed a federal $15 an hour minimum wage, with 83 percent stating it would have a negative impact on youth employment.
5. Econ 101
The basic economic laws of supply and demand tell us how minimum wage increases will hurt low-skilled workers. These laws are not subject to a vote nor change according to your feelings.
The law of demand tells us that as the price of a good increases (other things held equal) the less of that good will be demanded. In this case, when the price of low-skilled labor is increased by minimum wage laws, employers will demand less low-skilled labor.
Most arguments over the minimum wage end there.
The law of supply, however, is also at play. It states that the higher the price of a good, the greater amount suppliers will be willing to supply. When it comes to minimum wage laws, when wages for low-skilled jobs are legally increased, more people will be willing to supply their labor at the higher wage.
This means that people with relatively high skills will enter the market for low-skilled jobs, crowding out low-skilled job applicants. The most vulnerable populations will be locked out of their most viable job opportunities, leaving them unemployed for longer stretches of time and making them less employable.
Conclusion
Advocates “fighting for $15” claim to have the best interest of low-skill workers in mind. They don’t. Common sense, experience and basic
economics tells us that minimum wages price the lowest-skilled workers out of the labor force.
Their jobs are either eliminated altogether or shifted to automated capital goods. Low-skilled applicants for jobs are crowded out by a greater amount of higher-skilled applicants drawn to the higher wages.
Meanwhile, those low-skilled workers fortunate enough to keep or find work at the higher minimum wage suffer from the consequences of other cutbacks like reduced hours, fewer fringe benefits or poorer working conditions.
In the end, minimum wage laws end up harming the very people its advocates claim it will help.
