The Minimum Wage Debate: Where Will the Buck Stop?

With many arguments in favor of higher minimum wages, the debate comes around quite frequently. Some will argue that raising the federal minimum wage will lift families out of poverty, reduce employee turnover, and allow employers to attract higher quality employees. The problem is that the realities rarely mirror the rhetoric. In fact, quite the opposite is true.

The first thing that’s important to realize about raising the minimum wage is that it doesn’t lift anyone off the bottom. It places more people on the bottom. All employees who have worked for years to enjoy wages above the minimum wage are suddenly right back on the bottom – next to people who started working yesterday. Their wages do not go up in conjunction with the minimum wage increase. But their situations are about to get much worse. Here’s why.

Business Owners will Recover their Losses Somehow

Most businesses are small businesses, whether it is obvious or not. Your town may have six McDonald’s restaurants with six different owners. Most people do not realize that the McDonald’s Corporation franchises out their restaurants to small business owners across the country.

It’s not the corporation, with its billion dollars of revenues that will feel the pinch. It’s the franchise owner in your community who sponsors little league teams and gives out free ice cream or French fries for school fundraisers that will feel the sting of higher minimum wages.

Small business owners have little choice but to recover their losses or go out of business. This results in one of a few things happening.

Price Increases – Wages Purchase Fewer Goods

For many businesses this means raising prices. Here is where things get even trickier though. Small business owners that get their supplies from other small businesses now have higher prices to contend with from their suppliers on top of their wage increases. Double whammy. Right?

Business Closures – Loss of Employment

In fact, some small businesses will not be able to maintain a profit once the wage and price increases come into play. This means they will simply go out of business – eliminating all the jobs they provided from the local economy and resulting in a loss of income from the businesses that provided them with supplies. This will result in layoffs at the least and potential business closures for them as well.

In some communities the potential layoffs and business closures could easily prove devastating. Small businesses are the life blood of most small towns throughout the country. Eliminating them will effect real estate, education, and force the people who do live there to drive further for necessities.

More Automation – Eliminates More Jobs

Restaurants, grocers, and banks, throughout the country have been toying with the idea of automation for years. As talks of minimum wage increases intensify, more businesses are looking for ways to automate so that they can eliminate employees and reduce the sting of minimum wage increases on their businesses.

Walmart, for instance, raised their employee starting wages to $9.00 an hour recently but also began using self-checkout lanes that featured one cashier overseeing several lanes at once. This eliminated the need for many cashiers and allowed the company to cut labor hours to help offset the costs of higher wages.

Many restaurants allow customers to place their orders themselves from their tables so that servers can attend to more tables during their shifts – and servers in most states only make $2.13 an hour. Can you imagine how different your casual dining experience will be if those wages are increased?

The Seattle Experiment

The city of Seattle recently made a move to increase the minimum wage for all city businesses to $15 an hour in increments. The first phase of the increase was raising it to $11 in April of 2015. While we are only seeing the very beginning of the effects this wage hike is having, American Enterprise Institute is reporting that the city of Seattle lost 1,300 restaurant jobs from January to June of 2015. That was only the first increase in wages. Once the full effect takes hold we will probably see higher jobless rates and more restaurants, and other small business, closing.

So, where will the buck stop with higher minimum wages? The final result will be higher jobless rates and more people relying on federal welfare and assistance programs than even the Great Recession managed. It will mean more people on the bottom of the wage scale and higher bars than ever before to qualify for government assistance as a new standard of living will have been created. No, no one will be lifted from the bottom. The bottom will simply grow exponentially resulting in higher taxes, higher jobless rates, and a larger than ever segment of the population identifying as the “working poor.”