The federal minimum wage currently sits at $7.25 an hour. Recently there have been discussions to increase that to rates of up to $15 an hour, and some cities have already taken steps to make that happen.
There are a plethora of issues with raising the minimum wage to a living wage, but the biggest one is its effect on employment.
According to Olivier Garret in his Forbes article “Raising The Minimum Wage Is A Jobs Killing Move,” in 2017 Wendy’s expected wages to increase by 4 percent, and they had three ways to respond.
“First, they could cut margins, but with an 8 percent margin, that’s unlikely,” Garret said. “The second option is to raise prices. Given how price-sensitive consumers are these days, that too is a non-starter. Finally, the firm could reduce the amount of labor they use.”
Wendy’s opted for the last option and eliminated 31 hours of labor per location, per week. Along with this, they began installing self-service kiosks, which Wendy’s CIO said would pay back in under two years.
Wendy’s isn’t the only company doing this. McDonald’s is also automating its stores, prioritizing locations like Seattle and New York, places with higher minimum wage laws in place.
Higher minimum wages result in companies reducing labor in order to make ends meet. Prices might not go up, and those who keep their jobs might be better off, but employers cannot continue to employ people at the same rate when wages are indiscriminately raised.
This topic has been studied extensively and economists widely acknowledge that when minimum wage is increased, job opportunities decrease.
In a 2015 publication by the Federal Reserve Bank of San Francisco, titled “Reducing Poverty via Minimum Wages, Alternatives,” it was stated that the most credible conclusion when it comes to job security and minimum wage is that a higher minimum wage results in some job loss for the least-skilled workers.
“Job cuts in the service industry don’t happen because businesses are mean-spirited,” the report said. “Rather, it’s because they’re caught between price-sensitive customers who can always stay home if a burger is too expensive and narrow profit margins that provide little room to absorb the cost of a mandate.”
This results again in the reduction of staff, and with improvements in technology, more and more companies are opting for self-service technology.
The other argument for a higher minimum wage is its effect on low-income families. But as stated before, these are indiscriminate raises and they do not target low-income households.
According to the same publication by the FRBSF, only 12 percent of benefits from a $15 minimum wage increase goes to poor families.
“Although there are isolated exceptions in both directions, the general conclusion from this literature is that there is no statistically significant relationship between raising the minimum wage and reducing poverty,” the report said.
This is no surprise, considering that many minimum wage jobs are unskilled work and many people in those positions are students. While some people will receive benefits of these minimum wage increases, others face unemployment because of it.
So while some people are better off, others are far worse off.
People find an increase in minimum wage appealing when they are earning minimum wage, but overall it causes a lot more harm than good in the grand scheme of things. The people these changes are supposed to help — college students, low-income families and people who work in any “unskilled” position — are the ones who have their hours reduced, or even worse, lose their jobs.