The Democrat-controlled House of Representatives voted to raise the minimum wage to $15 per hour. The current minimum wage is $7.25 per hour. Speaker of the House Nancy Pelosi said, “The Raise the Wage Act gives up to 33 million Americans a long overdue raise — 33 million Americans — and lifts so many people out of poverty.”
Bernie Sanders, who is running for president as a Democrat said that people deserve a “living wage.” He further said, “I want to applaud the thousands and thousands of workers, from coast to coast, people who work at McDonald’s, people who work at Burger King, people who work all over this country, who have stood up over the years and demanded that the federal minimum wage be raised to a living wage of $15 per hour.”
Others, like the Economic Policy Institute, argue that America needs a $15 minimum wage, because workers deserve it. It would raise the pay for millions of workers who need the wage increase.
But a $15 per hour minimum wage will do far more harm than good.
The Congressional Budget office (CBO) recently reported that gradually raising the minimum wage to $15 per hour would lift 1.3 million Americans out of poverty. The problem is that it will cause up to 3 million workers to lose their jobs.
Many of those who lose jobs will be the workers at McDonald’s and Burger King. And they are supposed to be the people the Dems want to help. The reason for the job loss is simple; the workers aren’t worth $15 per hour to their employer and there are less expensive alternatives.
Employers will replace labor with capital.
In most fast food restaurants a minimum wage worker takes the orders and handles the payment. If the minimum wage went to $15 per hour that would mean the labor cost would be more than $33,000 per year per unskilled worker. Since a minimum wage worker has no skills, that figure means business will hire fewer workers.
Workers would be replaced by technology (capital). A touch screen would take orders and payment would be made by a credit or debit card right on the touchscreen. That would eliminate enough jobs so that the business could operate efficiently and still maintain profitability, without having to significantly raise prices.
Seattle, San Francisco and Portland have already raised their minimum wage. In some cases the minimum wage increased to $16 per hour. The result is that Restaurants Unlimited filed for bankruptcy. They own 35 restaurants on the West Coast.
In its filing, it 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.”
Regardless of what some liberal economists may say, the truth is that raising the minimum wage always reduces the number of jobs available and raised the unemployment rate. Even today when the overall unemployment rate is under 4%, the rate for those who earn minimum wage is about 13%. The $15 minimum wage would significantly raise that figure.
Even for those workers who would still have a job, raising wages without requiring any increase in output causes problems for both the worker and the employer. Current minimum wage workers who retain their job would see their wages more than double with the new $15 per hour wage. And the worker did not have to do anything more to get the wage increase.
That will cause problems in the long run as workers will believe they are entitled to higher wages no matter how productive they are. The way our system works is that a person is paid according to the value of out the worker produces. To earn more, people must figure out how to contribute more.
At a time when the economy is attempting to increase economic growth after a decade (from 2006 to 2016) of near stagnation, artificially raising wages does far more harm than good. The economy is better off when each worker is paid according to their true value.
The increased minimum wage doesn’t benefit consumers who will pay somewhat higher prices. It doesn’t benefit business who will have higher labor costs. It doesn’t benefit workers since up to 3 million may lose their job. Even the unskilled, minimum wage workers who will still have a job at the higher wage, won’t benefit in the long term, because the mandated higher wage reduces incentives to learn new skills.
Since virtually no one benefits, the minimum wage should not increase. Fortunately, the Senate will not approve the increase and the President won’t sign it.
Dr. Michael Busler, Ph.D., is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.
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