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New York city imposes minimum wage – and reduces worker wages

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New York city imposes minimum wage – and reduces worker wages

New York city imposes minimum wage – and reduces worker wages
January 23
18:59 2019

One of the mainstays of the political left is increasing the minimum wage. They really do not care what the minimum wage might be now, and it always needs to be raised. They maintain a one-dimensional view of the issue – that it improves the lives of workers – without consideration of its far more serious negative impacts.

New York City – that bastion of failed progressive experimentation – recently increased its minimum wage from $13 per hour to $15. For the workers who have been laboring for wages below the new level, it is a temporary plus – a modest increase in their take-home pay.

To understand why the efforts to raise the minimum wage is a terrible idea, however, we must understand what a minimum wage is and why it exists. First of all, it is not a “living wage” – never has been, never will be. Every economy – no matter how badly progressives desire to control it from topside – needs to pay people who do not need a living wage –who are only supplementing their economic needs. It is a modest compensation for interns, students, part-time workers, second income workers, workers with full-time working spouses, charity workers and others.

An average minimum wage – like all wages – is established by the market. It is the amount of money necessary to have people accept the job. Student interns may work for experience without financial compensation or possibly just a small stipend – usually less than one of those legislated minimum wages.

Because of the need to provide for work lower than the established minimum wage, many minimum wage laws exempt certain workers. That is why approximately 2.5 percent of workers fall below minimum wage levels – with the greatest proportion of those (about a third) being teenagers. If you include college-age workers, the number exceeds 50 percent. A full two-thirds of those under the minimum wage are part-time workers – and even those with full-time jobs are also students and live-at-home teenagers. In short, there are very few “breadwinners” – who may require a “living wage” – are making less than the minimum wage.

So, what are all the untoward consequences of regulating the minimum wage?

The most obvious, measurable and immediate is that increases underemployment and unemployment. CBS News reported that following the increase in the minimum wage in New York, one of the hardest hit sectors – food service – suffered a reduction in work hours.

Jon Bloostein, who operates six restaurants in the Big Apple has between 50 and 110 workers at each location. He told CBS, “We lost control of our largest controllable expense, so to stay in business, we’re cutting hours.” Patrons are no longer greeted and seated by a host or hostess, but by a sign that reads, “Kindly select a table.”

In other words, those workers who received the hourly pay increase, will not be taking home anymore – and possibly even less – money than they did before the increase.

If the competition will allow it, and if they need every employee, other employers will simply raise prices.

The benefit of any increase in the minimum wage evaporates over time because of inflation. Studies have shown that where such increases are imposed by law, one of the effects is that employers defer or cancel average increases over time. Even if a person is lucky enough to make an extra two bucks an hour, and even if they do not lose it to a cut in hours, they will see it slip away because of inflation AND that fact that they will not get any of those traditional increases in the future.

Raising the minimum wage has two additional negative impacts on employment and wages. It retards workforce expansion. Companies that are cutting hours and/or raising prices are not likely to be hiring that additional employee. The unemployed who will now go without that new job are anonymous in the crowd, so minimum wage increase advocates simply do not consider them. They become bleeding hearts for the low wage worker and cold hearts regarding the unemployed.

In fact, the promoters of an ever-increasing minimum wage do not care about those who become unemployed BECAUSE of it. To cut costs, workforces WILL BE reduced. Advocates of the increases basically have a “survival of the fittest” mentality – a term-of-art referring to a union negotiation where some workers lose their jobs so others can get pay raises.

Another effect of increasing the cost of labor is to make automation more economically attractive. The average McDonalds today has fewer workers even as the number of customers increases. Everything from the cash register to the frosty machine has been updated to require less personal labor. When was the last time you saw a McDonalds’ employee actually hand mix a milkshake? Burger King has kiosks where customers place their own orders without dealing with a counter order taker.

The impact of unreasonably high wages can be seen in the auto industry. Union pressure and management acquiescence produced some of the highest wages and benefits for auto workers. If you have had the opportunity to tour a modern auto factory – as I have – you may be shocked – as I was – to see how few humans are working on the assembly line. This new age of robotics is partially due to the high cost of labor.

When you weigh all the advantages of an imposed increase in the minimum wage – if you can find any — and all the unintended negative consequences, it becomes obvious that the long-chanted mantra for raising minimum wages is a loser – both for the workforce and for the economy in general. It is political snake oil being sold to a generous but uninformed public by unions and politicians purely for political benefit.

So, there ‘tis.

About Author

Larry Horist

Larry Horist

Larry Horist is a conservative activist with an extensive background in economics, public policy and politics. Clients of his consulting firm have included such conservative icons as Steve Forbes and Milton Friedman, as well as the White House. He has testified as an expert witness before legislative bodies, including the U. S. Congress, and lectured at major colleges and universities. An award-winning debater, his insightful and sometimes controversial commentaries appear frequently on the editorial pages of newspapers across the nation. He can be reached at lph@thomasandjoyce.com.

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5 Comments

  1. Spiker
    Spiker January 24, 19:56

    Increases in the Minimum wage leads to an increase in inflation. That makes prices of all goods, especially basic requirements, go higher. Those higher costs impact the very people working for minimum wages and those on a fixed income such as seniors the hardest. This means more and more seniors must go back into the workforce, often in low skilled jobs, where they compete with those other entry level workers. An increase i supply leads to a drop in wages so those jobs that would have or did pay above the minimum wage now pay a minimum wage. And the cycle continues.

    Reply to this comment
  2. Tekguyjeff
    Tekguyjeff January 24, 21:13

    You forgot to mention some union contract are written with wages at a certain multiple of “minimum wage” – they are pegged to that metric. Minimum goes up, so do their wages, automatically.

    Reply to this comment
  3. davidlaing
    davidlaing January 25, 00:45

    Let’s hear it for $1.25 an hour! If it was good enough for me in 1962, it’s good enough now!

    Reply to this comment
  4. Ed05267
    Ed05267 January 25, 16:39

    Minimum wage is for entry level jobs that allow people to learn how to be an employee and prove they are worth more. It was never intended to be a living wage.
    Regarding the $1.25 minimum wage in the sixties, consider buying power: then a loaf of Wonder Bread was 18 cents, the large one was 25 cents. In the mid-seventies when the minimum wage was $2.10, a Big Mac was 59 cents.

    Reply to this comment

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