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An increase in the minimum wage has some very predictable economic effects, some positive, but mostly negative, here’s a summary of some of those effects:
A. Positive Effects of Minimum Wage Increases:
1. Some low-skilled, limited-experience workers will benefit if they are able to keep their jobs (and some workers who manage to find a job) at the higher minimum wage, without having their hours cut and who don’t lose any fringe benefits (paid vacation, free uniforms, profit-sharing, health care, employee discounts, parking, tuition reimbursement, etc.).
B. Negative Effects of Minimum Wage Increases:
1. Low-skilled workers who lose their jobs due to an increase in the minimum wage.
2. Low-skilled workers who can’t find a job following an increase in the minimum wage.
3. Workers who keep their jobs following a minimum wage hike but have their hours reduced or who lose some of their fringe benefits to the point that they are worse off after the minimum wage increase than before in terms of take-home pay and total compensation.
4. Companies and small businesses who hire unskilled and low-skilled workers and find it difficult to absorb labor cost increases of 40% or higher, especially businesses like restaurants that operate on razor-thin profit margins of 5% or less. Some of these businesses may shut down, contract, or scrap any plans they had to expand their operations (e.g. open new stores or restaurants). Other start-up businesses that might have been planning to open may now decide that they cannot operate profitably with the higher labor costs mandated by a minimum wage hike.
5. Consumers and patrons of small businesses, book stores and restaurants who now face higher prices in response to an increase in the minimum wage if their preferred businesses can only remain open by raising prices. If some businesses close because they can’t absorb increases of 40% or higher in their labor costs, consumers can be harmed by a reduction in shopping options available to them, especially if they were loyal patrons of a preferred restaurant, store, book store, etc.
Discussion: Most of the discussion on the minimum wage focuses on the minimal benefits to some workers (Item A1 above), while ignoring the overwhelming negative costs and consequences for workers, employers and consumers (Items B1 to B4 above). The fact that 71% of Americans support raising the minimum wage suggest that the general public exaggerates the minimal benefits of higher mandated wages for a few workers while completely ignoring and/or under-estimating the significant costs and hardships for a much larger number of business owners, employees and consumers.
To help the general public understand the reality that “Raising the minimum wage has big consequences for small businesses,” the website “The Faces of $15” (a project of the Employment Policies Institute and MinimumWage.com) highlights “real faces of $15” with real stories of the employers who struggle to survive with significantly higher labor costs from minimum wage hikes (and who sometimes fail and go out of business) and of the real hardships that many low-skilled, limited-experienced employees face. As these stories show, increases in the minimum wage often mean fewer opportunities for both small businesses and for the unskilled and low-skilled employees that these laws are meant to help. Here are 12 of those stories:
1. Abbot’s Cellar in San Francisco. One of San Francisco’s most-buzzed-about new Mission restaurants closed its doors at the end of January, citing the then-impending minimum-wage hike on May 1 as its death knell.
2. Anonymous San Francisco Apparel Manufacturer. This family-run business that contracts to make clothing for a company in San Francisco had to slash its staff after Oakland’s minimum wage increased. It used to be the owner and her husband, plus five to six other workers; now it’s 1-2 additional staff members.
3. Boca Nova in Oakland. The restaurant’s servers will no longer receive tips. “A note on the menu reads: ‘In lieu of gratuity, a 16% Lift Up Oakland Surcharge and 4% Service Charge will be added to your check beginning March 1st, 2015.’ The 4% goes directly to servers. The 16% covers the cost of raising other staff salaries.”
The Contra Costa Times reports that this policy change represents a pay cut: Servers made between $38 and $70 an hour with tips before the change; now they’ll earn between $22 and $28 an hour. The Times said that “about 60% of the restaurant’s wait staff, concerned their income would drop, decided to quit because of the policy…”
4. Boot and Shoe Service in Oakland. The owner raised prices by 16% at his three restaurants in Oakland, following the city’s 36% minimum wage hike to $12.25 per hour in March.
5. Booth Memorial Child Development Center in Oakland. If the Salvation Army can’t scrounge up money to cover the 36% wage hike by writing grants and finding donors, it might have to cut some of its 63 child care slots.
6. Borderland Books in San Francisco. The owner was set to close his bookstore this year, in the wake of San Francisco’s plan to hike the city’s minimum wage to $15. But Borderlands Books is getting a lifeline from nearly 500 customers who have purchased $100 annual membership subscriptions — one that will keep it open for at least another year. If customers with a membership purchase one book per month, they would pay an additional fee of more than $8 for each book.
7. Comix Experience in San Francisco. The bookstore “will soon have to generate an additional $80,000 a year in sales just to meet the minimum wage rise. … In order to fully cover the shortfall, we need to sell 334 memberships at the yearly rate of $240.”
8. Icon Grill in Seattle. Following the minimum wage increase, all employees at the restaurant will now only get one week of paid vacation. Some employees who’ve worked at the restaurant for more than a decade will lose three weeks of vacation.
9. Chinatown in Oakland. Four restaurants and six grocery stores in and around Chinatown have already shuttered since January, at least partly for fear that the wage increase was going to put them over budget. Among them is Legendary Palace, one of two banquet restaurants in the neighborhood.
10. Reaching Beyond Care in Oakland. Child-care assistant Eunice Medina, 23, was thrilled when Oakland’s 36% increase in the minimum wage took effect in March. But almost as quickly, Medina’s workdays were cut and her hours shaved from eight to six. Her employer, Asiya Jabbaar, says she had no choice. Despite slicing hours and laying off one of three assistants, Jabbaar says she still may need to close her business next year and convert it to a part-time after-school program. Her experience illustrates what can happen to small employers when minimum wages jump suddenly.
11. Sterling’s Family Childcare in Oakland. The owner, Muriel Sterling, significantly reduced hours for her employees in response to the wage increase– they were coming in at 7:30 am, and now they come in at 10 or 11. She’s also planning rate increases for some families, and she’s had to eliminate a “free rides” service she provided to members of the community.
12. Z Pizza in Seattle. In August, Z Pizza is closing, putting 12 employees out of work. Owner Ritu Shah Burnham doesn’t want to go out of business, but says she can’t afford the city’s mandated wage hikes. “I’ve let one person go since April 1, I’ve cut hours since April 1, I’ve taken them myself because I don’t pay myself,” she says. “I’ve also raised my prices a little bit, there’s no other way to do it.”
Small businesses in the city have up to six more years to phase in the new $15 an hour minimum wage. But Shah Burnham says even though she only has one store with 12 employees, she’s considered part of the Z Pizza franchise — a large business. So she has to give raises within the next two years.
MP: As predicted above, the minimum wage increases in San Francisco, Oakland and Seattle have led to predictable and negative consequences: a) business closings (#1, #9 and #12), b) reductions in employment (#2), c) reductions in hours and fringe benefits (#8, #10 and #11), d) higher prices for consumers (#3, #4, #6, and #7), and d) reduced options for consumers (#5). And as even higher minimum wage hikes are phased in over the next few years in these cities (and as minimum wage laws are passed in other cities), we can expect the number of real stories highlighted by “Faces of $15” to grow larger and larger.
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