OPINION:
It’s an unhappy New Year for less-skilled employees across the country, with 18 states and 20 localities raising their minimum wages on New Year’s Eve and New Year’s Day. The inevitable hangover from these wage hikes will be fewer job opportunities for those who need them most but find their skill level does not warrant the new pay floor.
As has been the case in recent decades, California is the poisoned apple of the minimum wage movement. Assuming the hike is sweet, individual cities have bit on the idea with 12 separate wage increases on New Year’s Day. Some state localities, with the happy names of Mountainview and Sunnyvale, are reaching the $15 an hour level. Obama and Clinton administrations economists have warned the results may not be so happy after all.
A new study by economists at Miami and Trinity Universities demonstrates the real cost California’s wage experiments and those paying the price. Using a variety of empirical models, and examining three decades of minimum wage increases in the state, the economists find that each 10 percent increase in California’s minimum wage would reduce job opportunities by nearly five percent in industries with a large percentage of starter employees.
The economists estimate that California’s $15 minimum wage will cost 400,000 jobs by the year 2022 when it is fully phased in. A majority of these lost jobs come in the restaurant and retail sectors which are responsible for providing the bulk of job opportunities for the least skilled. These are also the default option for teaching the invisible curriculum of the employment world to those whose schools and families have failed them.
The study is in-line with recent economic and empirical minimum wage research. Earlier this year, researchers at Harvard Business School and Mathematica Policy Research found San Francisco’s $15 minimum wage significantly increased the probability of closures in the midrange restaurant sector where price increases are harder to pass on. And a 2015 Federal Reserve Bank of San Francisco review of economic research found minimum wage increases have been more harmful to starter employment than previously thought.
Anecdotal evidence also backs up economic research. The Employment Policies Institute, a group that my firm manages, has chronicled over 100 stories of business closures, job loss, and reduced hours as a result of dramatic minimum wage increases on its website Facesof15.com.
These businesses are not being greedy. They typically operate on profit margins of a few cents on the dollar. And with labor making up roughly one-third of operating costs, there is simply no room to absorb dramatic wage mandates without reducing hours or employing more self-service (or less service) options.
Even when faced with the overwhelming evidence of the policy’s harm, some politicians have doubled-down on their support. Consider New York Gov. Andrew Cuomo, who recently bowed to backward union economics by suggesting the state eliminate the special wage for tipped employees. We’ve seen this movie before: Existing minimum wage increases have already contributed to a 2016 contraction of 500 restaurants in New York after many years of growth. Getting rid of the tipped minimum wage will only increase the rate of closures or reduce the rate of new openings.
It will also reduce income for tipped employees. The tipped wage allows employees to earn far more than the minimum wage, with higher earners bringing home hundreds of dollars a night. Eliminating the tipped wage has encouraged some restaurants to move to a no tipping model with a higher fixed wage (and higher prices). Tipped employees are obviously opposed to that concept. Many have demonstrated against a Cuomo-type approach in other states.
The consequences of a rising minimum wage have been observed in this country for nearly 80 years. Franklin Roosevelt’s Secretary of Labor Frances Perkins reported to the president in 1939 that “workers who had been receiving less than [the new minimum wage] had been laid off and replaced by more efficient workers.” The Carter Minimum Wage Commission also warned against big mandated wage hikes.
It was the Editorial Board of The New York Times that warned against mandated wage hikes in the starter job market. The economics of the labor market haven’t changed since then. And the societal consequences of shrinking part-time job opportunities will extend far into our future.
• Richard Berman is the president of Berman and Company, a public affairs firm in Washington, D.C.
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