Supporters of raising the minimum wage market their policy fixes as cures. It sounds all well and good during election season when politicians are vying for votes and exploiting people’s emotions.
But once ballots are cast, reality begins to set in and people start realizing that bold campaign promises have consequences in the real world. And these consequences are quite deleterious for the working-class people whom minimum wage advocates supposedly champion.
Full Service Workers Alliance cofounder Simone Barron informed Fox Business that various restaurants in Seattle have closed down because of “burdensome” laws and regulations that have been imposed on them. Barron cited the minimum wage as one of those policies.
Starting this year, Seattle is increasing its minimum wage for companies with 500 workers or more, from $16 per hour to $16.39 per hour. For companies that employ fewer than 500 workers, their mandatory minimum wage increase goes from $15 per hour to $15.75 per hour in 2020. This only applies to companies that do not contribute $2.25 per hour to medical benefits or have workers who do not collect $2.25 per hour in tips.
These increases sound great in the short term for many workers. But like all things that sound too good to be true, minimum wage policies come with unintended consequences that politicians are careful to omit when they’re campaigning for these policies. One of these is business stagnation.
Barron has experienced the negative effects of the minimum wage increase. The current business she works at, her former place of employment, and the restaurant she had hopes of working at are all now closing in 2020. She offered her thoughts about all of these closures: “All of this is due to the minimum wage increase paired with other laws that are coming down through our city council.”
Barron raises a well-founded point. Politicians, who for the most part have not run businesses, are detached from the results of their policy proposals. It’s easy to talk about wage raises from your political pedestal, where you can promise all sorts of laws and handouts to voters. Actually increasing living standards in the real world is a whole different story, though. This requires increased productivity which is predicated on capital investment.
Wage increases are downstream from this. It should be noted though, the legislation will do nothing to increase wages. Price floors like the minimum wage can create numerous side effects such as increased unemployment, workers getting fewer hours, or even a move toward automation. This is largely due to how these laws violate the basic principles of supply and demand.
If the legislated wage is high enough, employers will have to lay people off and even stop hiring young workers who sometimes desperately need an entry-level job. For humbler businesses, an excessively high minimum wage could mean the difference between keeping the doors open or shutting down. All things considered, policymakers and political activists should exercise some restraint before jumping ahead with a legislative solution to the cost of living problems.
That is not to say that minimum wage advocates are wrong to complain. Many cities have become unaffordable and difficult to operate businesses in, but the actual causes behind their affordability problems tend to be overlooked. For example, we hardly hear anyone talk about easy money policies, oppressive regulatory policies, or outdated zoning ordinances, which make these areas more unaffordable for the lower and middle classes.
Instead, people will place blame on imaginary greedy capitalists and other boogeymen who have nothing to do with these problems. Sadly, the politicians and unelected bureaucrats who created these problems stay off the hook.
We should be prudent about how we assign blame. By misidentifying the cause of certain problems, politicians come up with responses that create even more problems.
This is one of many cases where politicians should not rush to pass bills for the sake of doing something.