Jan 27, 2021 2 min read

The Real Effects of the $15 Minimum Wage

The Real Effects of the $15 Minimum Wage

Increasing the minimum wage leads to increasing unemployment without affecting the poverty rate.

Unemployment

By increasing the cost of employing low-wage workers, a higher minimum wage generally leads employers to reduce the size of their workforce.

A study done by the Manhattan Institute estimates 6 million jobs could be lost with a federal $15 minimum wage.

Those whose productivity levels are below the minimum wage (commonly younger, less experienced, or less skilled workers) would be among those most affected.

A majority of economists say that raising the minimum wage would result in lost jobs, as employers would cut payrolls.

Seattle case study: Seattle passed a $15 minimum wage in 2014. Researchers from the University of Washington looked at its effects.

  • Workers' hours were cut, resulting in an average of $125 less in monthly income.
  • The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one.
  • Around 5,000 low-wage jobs were lost.

NYC case study: Many point to NYC, which increased the minimum wage between 2013 to 2018, as a minimum-wage success story. Prices went up, but customers and jobs weren't lost. Why?

  • NYC isn't like other parts of the US. Rural areas wouldn't respond to a minimum wage hike like NYC. A report on the minimum wage hike in NYC showed that it wasn't the minimum wage that caused an increase in restaurant employment, it was the city's fast rate of private job growth.

Israel case study: After Israel's minimum wage hike on businesses between 2006 and 2008, businesses with a majority minimum wage staff saw profits almost cut in half.

Sources: Manhattan Institute, WaPo, University Of Washington, Center NYC Affairs, The Economist, WSJ

No Effect On Poverty Rates

The Southern Economic Journal found that the federal minimum wage didn't affect poverty rates. The federal minimum wage was increased between 2003 and 2007.

Not only were poverty rates not affected, but the poor were disproportionately affected by the loss of work.

According to a study done by the Congressional Budget Office, a $15 minimum wage by 2025 would:

  • Lift 1.3 million citizens out of poverty.
  • Put 1.3 million people out of work.
  • Reduce overall family income by $9 billion.

Sources: CBO, Southern Economic Journal

It Will Crush Small Businesses, Especially After COVID.

Because of COVID lockdowns, small businesses are struggling. 60% of the businesses that temporarily closed are now gone. A federally mandated minimum wage hike would crush them.

Smaller businesses operate in an extremely competitive environment with thin margins. They won't be able to compete with big businesses, which would remain unscathed.

Big businesses can handle the wage increase, smaller businesses cannot.

It's a huge win for large corporations like Amazon who've gained because of the lockdowns.

It Promotes Automation

Executives and CFOs are gearing up for a potential $15 minimum wage. They're afraid that increases to the minimum wage would hurt profits and lead businesses to offset the increased spending on labor through saving measures.

An easy way for these large corporations to find savings is to automate. Fewer workers, more robots.

[Automation is] the most significant investment that we can make...when it comes to lowering the impact of potentially higher labor costs down the road  -Pool Corp CFO Mark Joslin

A higher minimum wage would affect low-wage workers directly. Grocery stores employ a large percentage of them and have already begun the process of automating self-checkout lines.

Sources: WSJ, FEE

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