By Griffin Edwards ’17
Let me begin with a little disclaimer.
I don’t hate “the poor”. I believe that, as a human being, I am a brother to every other human being on earth, a member of the same global family. And I think a lot of people think that way too. Ask anyone, and I guarantee you, most- if not all- would agree that, yes, it’s good to help the poor. The only ones that might respond in the negative probably keep a copy of Ayn Rand’s The Fountainhead on their bedside table; but even the most miserly people generally agree that helping others less fortunate than oneself is usually a good thing.
So: we all want to help the poor.
That being said, raising the minimum wage is not a good way to help the poor. Or the middle class. Or even the upper class, for that matter. Really, it’s detrimental to just about everyone, despite what Bernie Sanders and his legions of angsty college students and old-school populists would have you believe.
“Why?” you ask. “Isn’t more money in the hands of the poor a good thing? Isn’t this the least we could do to better those less fortunate than our privileged selves here at St. Olaf College?”
The short answer is simply that it causes unemployment. Like any good, raise the cost of human labor, and the demand will drop, as fewer people can afford it and firms make do with less. To answer this in more depth, however, we can turn to a real-life case that solidifies basic economic theory: Seattle.
Seattle has long been a bastion of American progressivism. Host of the world’s largest cannabis festival, the first US city to equip its police force with bicycles, and home to a 16-foot-tall bronze statue of Lenin, it’s definitely an American anomaly. So it should come as no surprise that in early 2015 a new law was instituted raising the city’s already pretty high minimum wage from $11 per hour to $15 per hour. The raise would take place over a long period of time to as to mitigate possible economic shocks. At first, unemployment decreased by 1%- same as the rest of the nation. However, by August, when January-June unemployment numbers were published, it was estimated that some 1300 food-service jobs were lost in the Seattle-Tacoma area in the first half of 2015: the sharpest decline since the 2008 recession. It’s now estimated that on average, a restaurant in Seattle employs 14 people- lower than 17, the nationwide mean.
Restaurants are usually hit hardest by minimum wage hikes because of their low price margins. In layman’s terms, restaurants have a hard time turning a profit even in places with lower minimum wages, and it’s even harder when your labor costs (usually the most expensive cost in running any business) increase. As a result, restaurants have had to hire and retain fewer employees, even though restaurants and other foodservice companies employ a lot (over 50% of minimum wage workers in the US, according to a recent BLS report) of minimum-wage workers. Effectively, sources of minimum wage jobs began to dry up as rates of low-income employment dropped.
Put yourself in an unskilled worker’s shoes. Granted, some workers are retained. For them, they’ll enjoy their $15 an hour. But for others, they may lose their job, or, if already involuntarily unemployed, it’ll be even harder to find one, as firms will be more conservative when hiring. The already disenfranchised are now in an even worse situation than they were before.
Now move yourself one step up on the socio-economic ladder. Imagine now that you are a small business owner in downtown Northfield, MN. Let’s say you own an artisanal mayonnaise store. Business is okay, and since you started the store yourself, and your personal finances are closely tied to its success, you usually make about $20,000 in profit every year, which goes towards your own living expenses as well as annual investments in the store (gotta order the 2016 aioli flavors, repair the damages from the pipe that burst last year). Assume store investments are $5,000- now you’re living on $15,000 a year, roughly a little less than federal minimum wage (keep in mind Minnesota, like other states, has a higher state minimum wage than the national level- $8 rather than the federal $7.25. After all, price levels can differ by region- goods in Northfield may be less expensive than in downtown Minneapolis). So already you personally make less than minimum wage as the owner of this small business. Let’s say you have two other full-time workers who help in the store, whose pay comes out of the running expenses- not the $20,000 a year you make. Suddenly their wages increase such that they each make $5,000 more a year, each. You now only make $10,000 a year. If $5,000 of that money remains in store investment, you, the owner of a store, are only making $5,000.
You could raise prices. But that could make you uncompetitive. No one wants to pay $30 for a jar of mayo, so you’ll have to keep prices at $10 a jar (Not to mention that, on the macroeconomic level, if everyone raises prices, inflation will increase, further lowering the purchasing power of your now meager income). You could let one of the employees go, but you really need the help. But it’s unreasonable for that small business owner to live on $5,000 a year, even as those employees enjoy a higher income. You’ll be forced to either shutter your business to work somewhere else- sad, since you spent all this time and money making it into what it is today- or try to run the business single-handedly, at the expense of two jobs.
Blow this up into a larger scale, and you can see for yourself what the consequences can be. “But that’s not true,” you say, “What about big corporations? What about the Walmarts and the Apples and the Exxon- Mobils of the country? Surely they could pay their employees more.”
Yeah, they probably could. But chances are, if they’re paying you minimum wage, they really don’t care about losing a few employees here and there. Wage increase? They could do it, but a couple more expendable employees could be nixed in doing so. Or, alternatively, they could institute more automation. Several McDonald’s locations now have automated ordering, and I’m sure we’ve all seen and used (maybe unsuccessfully) automatic check-out machines at a grocery store. They have to keep profits up, and although the margins may not be as tight as our friendly neighborhood mayonnaise store, if they have to pay their workers more, it will behoove them to have fewer. That’s how the world works, sadly.
Or think of it this way. Imagine you work at a position at a tech firm where you make roughly $60 and hour (you’re probably salaried, so that’s an estimate). In your state, let’s say minimum wage is originally $10. Therefore, theoretically, your work is roughly six times more valuable than the guy washing dishes (that’s how prices work). If the minimum wage increases to $15, suddenly your work is only four times as valuable as the dishwasher. Has the value of your work decreased? Chances are you haven’t worked less, or the quality of your work declined.
Some use the counter-argument that only 2% of people make minimum wage. Since I’m not a utilitarian, I find this number irrelevant. But you can bet that if the minimum wage rises, more people will be on it: if the wage rises to $15, suddenly EMTs (for instance) are making minimum wage (the current average hourly wage for an EMT is $14.84). If we connect this to the above example, suddenly the work of a highly-trained medical professional- and a common St. Olaf outcome- has a theoretical value of work equivalent to a dishwasher. This is not to say that a dishwasher is less of a human being than an EMT; simply that, by any measure, the work done by an EMT is, in most cases, more beneficial to society as a whole than that of someone washing dishes, so the value of said work ought to be higher.
At the end of the day, there are lots of ways to help the poor. Help out at a homeless shelter or soup kitchen, donate money, provide education. Be a good human being. But at the end of the day, I think most would agree that it’s better to have a low-wage job than no job at all. Does minimum wage have a place? Absolutely. But raising it higher and fighting against the market forces will do nothing to increase the station of the impoverished; if anything, it will further marginalize those on the bottom, hitting minorities and the underprivileged the hardest, the same people a wage hike purports to help. Be wary of political snake-oil and honeyed words, especially as the election season continues to heat up.