Last month, Gov. Andrew Cuomo called for a $15 minimum wage for all workers in New York State. The current minimum wage in New York is $8.75. The increase would phase in by 2018 for New York City and by 2021 for the rest of the state. While such an increase may seem like a positive change for workers in general, this action would cause more harm than good for both the people it is intended to help, as well as others involved.
A wage increase of this magnitude could result in the laying off of a sizeable percentage of the workers whom the law is supposed to help. It’s a matter of economics. Picture a standard demand curve, which is downward sloping. As price increases, demand decreases. This basic economic principle can be applied to workers. As the price, or wage, for workers increases, the demand for them will decrease.
So, what’s the big deal if some workers lose their job? They can find a job somewhere else, right?
Businesses most likely will be forced to find ways to compensate for the wage increase. This can be done by increasing production efficiency, and efficiency is increased through two primary channels: better machines and better workers. Investing money in improved technology equates to less money spent on human workers. Businesses actively seeking out better workers means that the low wage workers, who are generally unskilled, may have an even harder time finding jobs. As a result, higher skilled workers could take many of the jobs previously held by the low-wage workers.
Another issue is that businesses might be strained to create revenue. As previously stated, businesses may have to fire some workers and increase production. They may also have to alter existing prices. Prices might be increased as businesses try to compensate for the large wage increase. These increased prices may drive existing and prospective customers away. In addition, if many businesses are compelled to raise their prices, then the cost of living for consumers in that region may increase, essentially voiding the intended added income benefit of a $15
Seattle has already signed a bill into legislation mandating a $15 minimum wage that will phase in over the course of several years. The law took effect in April, and already the city is experiencing negative impacts. One consequence is that restaurants have already started increasing their prices to keep profit margins afloat. Even with such compensatory measures, many businesses can’t keep up. Restaurant closures in particular are exhibiting an upward trend, or increase in frequency, in Seattle.
Even former Chief Economist for the U.S. Department of Labor Harry Holzer has misgivings about a drastic wage increase. In his article “A $15 Dollar Minimum Wage Could Harm America’s Poorest Workers,” Holzer says that a wage increase of 50 percent to 100 percent in cities with significant unskilled worker populations will almost certainly raise unemployment rates. A secondary result could be an increase in undocumented workers. In addition, the businesses themselves may decide to shift operations to a locale where the minimum age hasn’t been raised, in order to save money.
Raising the minimum wage is the wrong way to go about giving people more income. If the government truly wants to help, it would provide widespread and improved benefits to those struggling. For example, programs like the Earned Income Tax Credit would provide families with more income through much need tax breaks.
Increasing food stamp distribution, providing medical care, and a whole array of governmental subsidies would all provide greater assistance than a mandated wage raise. Unlike a wage increase, which may result in the worker losing their job, the benefits provided by the government would be guaranteed.
The minimum wage increase is a ploy to provide false hope to struggling workers. Rather than getting to the root of the poverty issue plaguing the United States, Gov. Cuomo and like-minded people would prefer to keep the disgruntled people happy by making businesses pay them more. In a vacuum, that would be great. However, we don’t live in a Dyson Ball. The economy changes everyday, and businesses are forced to change with it. Mandating a $15 minimum wage will only negatively impact consumers, business owners and the many workers who will lose their jobs and have trouble finding work elsewhere.