The failures of the $15 minimum wage

Politicians have well-documented problems when it comes to maintaining a budget.  At least 31 states (including West Virginia) faced a budget shortfall this fiscal year.  The federal government is much worse. The debt is over $20 trillion and Washington cannot pass a balanced budget.

However, that does not stop politicians from exerting their will on the budgets of private sector employers by, among other things, determining the value of labor.  Twenty-one states and Washington, D.C., raised their minimum wage this year and 15 more states will impose an increase January 1. (The federal minimum wage is $7.25 an hour.)

Senator Bernie Sanders of Vermont is one of the leading advocates for doubling the minimum wage.  He supports the #Fightfor15 movement that advocates for a $15 an hour. “The #Fightfor15 started only four years ago. But huge progress has already been made because people everywhere see the justice of that idea,” he tweeted.

As usual, the advocates for an arbitrary wage unrelated to the actual value of the labor or the fiscal realities of business are oblivious to the unintended consequences.  California is a good example.

The Golden State passed a law last year that gradually increases the minimum wage to $15 an hour by 2022 (it rises to $11 January 1, 2018).  The results were easy to predict; businesses like restaurants and retailers that rely on entry level positions started closing or cutting back.

A study released this month by the Employment Policies Institute, a fiscally conservative non-profit think tank, looked at the effects of minimum wage increases in California from 1990 to the present.  The researchers found that “each 10 percent increase in the minimum wage has lead to a nearly five-percent reduction in employment in industries with a higher percentage of lower-paid employees.”

The study predicts that by the time California’s minimum wage reaches $15, approximately 400,000 jobs will have been lost as a consequence.  Nearly half of those job losses will have been in food service and retail.

Higher labor costs also push businesses toward more automation. A study released this year by the National Bureau of Economic Research, a private non-profit organization, found that “increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become unemployed.”

Just notice the trend in fast food.  Earlier this year Wendy’s announced it is adding self-service ordering kiosks at 1,000 of its restaurants. The Los Angeles Times reported, “With minimum wages rising—to $15 in some parts of the country, including California—many chains are looking at ways to slash labor costs.”

Government mandated arbitrary increases in labor costs don’t happen in a vacuum. As studies and anecdotal evidence show, there are consequences—thousands are forced out of work and many more will find it increasingly difficult to gain an entry level position in the economy.

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