The $15 Minimum Wage; A Defiance of Basic Economics

Time to read
3 minutes
Read so far

The $15 Minimum Wage; A Defiance of Basic Economics

September 29, 2019 - 08:51
Posted in:

Recent calls for a $15 federal minimum wage hike have been emboldened as National House Democrats pass the “Raise the Wage Act” which would gradually raise the federal minimum wage to $15 by the year 2025. If you work at McDonald's, Burger King, or any other entry level job, this may sound like a phenomenal upgrade from $7.25. However, when you realize your purchasing power is all but eliminated and it is almost impossible to find an entry level job due to the un-affordability of low skilled workers, you may have second thoughts about this economically destructive policy.

Ever since the United States Congress enacted a federal minimum wage in 1938, there has never been a mechanism in place to allow the minimum wage to rise or fall in correlation to price changes. This not only defies the fundamental role of prices, especially in a free market economy, but also reduces overall purchasing power when inflation comes into play as the price of goods and labor increases to cope with a minimum wage hike. For example, according to the Bureau of labor statistics, and U.S. Census, the current federal minimum wage of $7.25 is now worth 16% less than when it was implemented ten years ago. In regards to the “Raise the Wage Act” that was passed in the House of Representatives in July of this year, the overall value of the bill’s $15-an-hour goal will have dropped by nearly 20% by the year 2025. In other words, a $15-an-hour federal minimum wage in the year 2025 will be worth as much as $11.93 in the year of 2012. Clearly, a larger number does not always mean a larger value, especially when it comes to the minimum wage.

Now that we have established your loss of purchasing power, let's move on to your loss of employment and working hours. When the City of Seattle, Washington increased its minimum wage from $11-an-hour to $13-an-hour in January of 2016, there was an overall steep decline in employment of low wage workers, a loss in working hours for those lucky enough to keep their jobs, and low wage workers earned $125 per month less due to a higher mandatory minimum wage as concluded by a team of economists from the University of Washington.

It gets even worse as you move to the other side of the United States, specifically the City of New York. Over the past four years, the minimum wage for restaurants that employ 11 or more workers in N.Y.C. has increased from $10.50-an-hour to $15-an-hour. As a result, in the last three months of 2018, 4,000 people lost their jobs at full-service restaurants according to the Bureau of Labor Statistics. Although overall employment was on the rise in 2018, there were fewer restaurant workers in the City of New York at the end of 2018 than in 2016. This trend of unemployment is expected to continue as nearly 50% of full-service restaurants expect to cut jobs throughout 2019 in order to cope with the minimum wage hike. Furthermore, 75% of New York restaurants also cut hours for their workers.

Economist Mark Perry believes New York City’s “restaurant recession” is unarguably tied to the annual series of minimum wage hikes.

The restaurants being affected the most by the minimum wage hikes are low quality restaurants. In other words, “the little guy.” A Harvard Study discovered that a $1 increase in the minimum wage equals a 14% increase in the likelihood of a 3.5 star restaurant going out of business while having almost no impact on 5 star restaurants.

The overall impact of a $15-an-hour minimum wage or any minimum wage hike for that matter going into effect in cities and states around the U.S. in 2019 will kill roughly 260,000 jobs immediately and 1.7 million jobs over the long term according to the American Action Forum.

So if you want to keep your job, not to mention your work hours, you may want to stop marching in the streets in demand of a $15 minimum wage.

All in all, a $15 minimum wage will not only drive up prices, which subsequently reduces the value and purchasing power of the U.S. currency, but it will also lead to mass unemployment and a drop in working hours for low skilled workers as employers try to cope with a drastic increase in the federal minimum wage. As proven in Seattle and New York, an increase in the minimum wage is not only economically impractical, but it is demonstrably economically destructive. As a nation, let’s not repeat the economic failures of these cities. It’s time we reject the notion of a $15 minimum wage.

There is 1 Comment

Now that we have a real President, wages are market driven wages. No one out there is working for minimum wage, unless they are very new, young, or can't do anything but elementary task. The Trump economy has everyone paying well above the Obama wages, because the economy is great and demand for workers is also great. Anyone who can't exceed the minimum, needs to improve their skills, and stop demanding employers to pay you more that you are worth.

Add new comment

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.