The Minimum Wage Hurts. Here’s Why

Twenty-nine states and the District of Columbia, including the great State of California, have minimum wages higher than the federal wage. The misguided and ultimately destructive practice of raising the minimum wage has become in vogue, but, it is important to note that the higher minimum wage does not have any positive impact on cities or states that enact these policies. Theoretically, such a result is obvious and inevitable. Raising the cost of a firm’s inputs raises the cost of the good as well as the product cost of other firms that make use of that good in their own manufacturing. The increase in prices leads to a decrease in consumption of that good and the other goods that rely on that initial good. That forces businesses either to lay off workers or cut their hours. Usually, a mixture of both strategies are used. These results can be summarized as an increase in prices, a decrease in job growth, and a net decrease in earnings. These results disproportionately impact vulnerable communities, such as students, the elderly, and the poor. Students and the poor rely on low wage jobs as a primary source of income, and many are unable to afford the increase in prices coupled with a cut in hours or the loss of their job altogether. Elderly people and others on fixed incomes are also adversely affected: their purchasing power drops as prices increase, since social security and other government benefits are not inflation-adjusted.

A landmark study by economists David Card and Alan Krueger in 1994 showed the stability of employment levels in the midst of New Jersey’s raised minimum wage. They treated neighboring Pennsylvania as a control, as that state did not raise the minimum wage. After a simple, non-statistical comparison of the employment levels, they found that New Jersey employment did not drop relative to Pennsylvania, a finding which many progressives point to in support of a higher minimum wage. Ignoring for the sake of this article the numerous problems with that study, a myopic focus on the stability of employment levels in the midst of minimum wage hikes ignores the other long term effects of a higher minimum wage. Since the cost of doing business is higher, fewer businesses will open, floundering businesses will shut their doors sooner, and job growth in general will decrease. That is exactly what economists Jonathan Meer and Jeremy West from Texas A&M found after conducting a study of the effects of minimum wages in 2013.

The minimum wage does not only reduce job growth, it increases the likelihood of a firm’s exit from the market. It makes sense: a business that is already close to shutting its doors may make the decision to simply close for good after an increase in input cost like a minimum wage increase. Again, this disproportionately impacts lower-quality restaurants and the poor. A Harvard Business School study conducted by Dara Lee Luca and Michael Luca in April 2017 found that for every $1 increase in the minimum wage, the likelihood of a median-quality (3.5 star) restaurant closing increases 14 percent. While the minimum wage has “no discernible impact” on five-star restaurants, most restaurants are not five stars. The closure of businesses due to the minimum wage increase leaves even more people without a job, and forces more people onto government welfare. In addition, Luca and Luca found that increases in the minimum wage “deter entry” into the restaurant industry. Not only are people forced out of their jobs when a restaurant closes, but there may not be a new restaurant for suddenly unemployed workers to find employment.

Progressive leaders continue the misguided practice of raising minimum wages to this day, and nowhere are the results more clear than the City of Seattle. In April 2015, Mayor Ed Murray signed legislation to raise the minimum wage to $15 per hour in a series of staggered increases. Currently the minimum wage is at $13, on its way to the ultimate and destructive goal of $15. Recently, a team of six economists from the University of Washington found that the minimum wage increase actually resulted in a net loss of earnings for low-wage workers of $125 per month, without factoring in the impending wage increase from $13 to $15 per hour, which will further exacerbate the losses. The very groups progressives endeavor to help through legislation like this are made worse off.

Progressives and leftists will continue to introduce legislation to raise the minimum wage, no matter how conclusive the data against such policies become. They have a poor relationship with facts, but the facts are conclusive. There is no benefit to raising the minimum wage.

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Written By: Matthew Vitale

Executive Editor, The New American Right

External Vice President, College Republicans at UCR

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