Democratic presidential candidates from centrists like former Colorado Governor John Hickenlooper to progressive champion Bernie Sanders have come to a consensus on the issue of a $15 minimum wage.
Meanwhile, Alexandria Ocasio-Cortez has declared, “Any job that pays $2.13 an hour is not a job, it’s indentured servitude.” She is referring to how the federal minimum wage for tipped workers is $2.13. This is part of AOC’s shtick about Americans having “dignified” jobs which require the government to step in and set payment standards.
The $15 minimum wage has received an extra boost after the U.S House voted for the Raise the Wage Act, which would establish the $15 wage at the federal level. Although this bill will likely be killed in the Republican-controlled Senate, the bill’s passage in the House keeps it in the news.
Increased Minimum Wage is Already Taking Its Toll in Certain States
With all the chatter about a $15 minimum wage, it would be a mistake to believe this policy is just a crazy, political thought experiment. The $15 minimum wage is no longer a theoretical proposal that is confined to discussions in progressive circles. It’s actually being implemented in real time.
States such as New York and California — well-known staging grounds for progressive policies — have implemented their own “living wage” policies. Andrew Rigie, the Executive Director of the New York City Hospitality Alliance, observed that “full-service restaurants recorded a 1.6 percent job loss, which is the first recorded annual loss in two decades” in 2018 alone. With the $15 statewide minimum wage policy going into effect last year on Dec. 31, 2018, more job loss is expected. According to the Hospitality Alliance’s survey, “A total of 76.5 percent of full-service restaurant respondents reduced employee hours, and 36 percent eliminated jobs in 2018.”
Similarly, California’s minimum wage policies are already garnering noticeable attention for its troubling results. An interesting caveat of California’s policies is that its policy won’t be a full-blown “living wage” of $15 per hour until 2022. Nevertheless, the data paint a bleak future for California’s projected wage hikes. According to a recent study from the University of California Riverside, the new minimum wage mandate is already beginning to take its toll on the restaurant sector.
The data suggest that while the restaurant sector in California has grown as the minimum wage increased, employment in the restaurant industry has grown slower than it would have without the minimum wage increases. The study found that “there would be 30,000 fewer jobs in the industry from 2017 - 2022 as a result of the higher minimum wage.”
Further, the study uncovered that the minimum wage’s impact was “greater in lower income communities than higher income communities” due to how restaurants in high income areas “can pass on the additional costs to customers more easily.”
The study concluded by demonstrating yet again that the most vulnerable and least-skilled were negatively impacted by this government-imposed wage hike: “Specifically, we see a decline in the employment share of low-skilled workers, disabled workers and part-time workers in the sector.”
On July 17, 2019, the economic realities of a $15 minimum wage policy surfaced again when Restaurants Unlimited filed for Chapter 11 bankruptcy. In a statement, the company cited the progressive minimum wage as the main reason for the company shutting down. The company owns 35 high-end restaurants mostly located on the West Coast, which includes seven in Seattle.
In its filing, Restaurants Unlimited declared, “Over the last three years, the company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast…the result was to increase the company’s annual wage expenses by an aggregate of $10.6 million.”
In the same bankruptcy statement, it detailed three examples of cities where minimum wages were raised during the last few years. Portland currently has a $12.50 minimum wage policy, while San Francisco’s minimum wage increased by 41 percent to $15.59 per hour. Seattle, America’s first city with a $15 minimum wage, now mandates large employers to pay at least $16 hourly.
Corporate Wage Increases: A Different Animal?
Even Whole Foods is witnessing negative effects from its new internal minimum wage policy which mandates a $15 minimum wage for employees. The result has been increased layoffs and reduced work hours for employees. Although this case deals with a private company pursuing its own policies, it shows that virtue signaling for higher wages does not always translate into good business policy. At least, this is a decision made that is only confined to Whole Foods and it is not a one-size-fits all policy that all businesses — small, medium, or big — are forced to follow by law.
Minimum Wage Laws Violate Basic Economics
Mark Hendrickson points out an inconvenient truth about how minimum wage laws, “have existed without interruption since the federal Fair Labor Standards Act of 1938” which has made the American populace accustomed to their existence. Whenever a new minimum wage hike is proposed, most people take these hikes almost as a given, while completely ignoring the repeated sets of negative consequences that accompany these laws — higher unemployment among lower-skilled workers, reduced work hours, and companies turning to automation to adjust to these arbitrary laws.
There’s a special kind of arrogance behind minimum wage policies. It assumes that politicians or bureaucrats can determine wage prices, and not the market. This fatal conceit, as F.A. Hayek might say, leads to subversion of the pricing mechanism and creates distortions in the markets as evidenced by the resultant unemployment.
Hendrickson is also correct in pointing out that higher productivity of labor and increased demand for labor are the principal factors behind increasing the purchasing power of wage earners. In the eternal quest of having governments “do something,” demagogic politicians ignore these crucial ingredients to wage growth.
Political myopia is at the center of the minimum wage debate. There is simply no time to look at real solutions, which require rigorous research and a political will to carry out reforms that may not sit well with the voting public. This is what is needed to correct the many errors that the present-day managerial state has created from income taxation to ever-expanding bureaucracy .
However, in today’s world of legislation as a solution to every problem, options to genuinely downsize the state are always overlooked. If people want higher living standards and more “dignified” wages they should shift their focus towards wholesale de-regulation at all levels of government.
Economic prosperity cannot be created via legislative fiat.
