A minimum wage hike back in 2016 in Seattle resulted in lower, not higher, pay for low-wage earners, revealing the ugly truth of the $15 minimum wage movement -- a “living wage” isn’t an entitlement, it must be earned by delivering value to the consumer.
That’s the key finding of a recently released study by a team of economists at the University of Washington. “Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent,” write the authors of the study. “Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase.”
The minimum wage movement has a pretty side and an ugly side. The pretty side is about the promise it makes to low wage earners—a “living wage.” The ugly side is the way it wants to deliver on this promise -- by disconnecting pay from performance, turning business enterprises into welfare agencies.
That’s a radical idea that can be traced back to Maoist China and the Soviet Union, where corporations were "units" within a centrally planned economy; and in countries that fell in love with these systems -- like pre-crisis Greece, where government bureaucrats and union bosses rather than markets set wages.
We all know what happened to those economies.
Fortunately, these systems never gained popularity in America. That’s why corporations of all sizes remained for-profit businesses in a free enterprise system, where markets -- not government bureaucrats or union bosses -- set wages.
But there are a few exceptions to this rule. Like the minimum wage mandate, too, which sets a floor on what companies can pay for labor, irrespective of what workers who receive it deliver to the other side, the customer.
While the government can set the minimum wage, however, it cannot tell corporations how to organize their operations, or how much labor to use vis-a-vis other resources, capital and technology.
So, when the government hikes the minimum wage, corporations change the way they produce things, replacing workers -- who are now more expensive -- with machines, which usually become more efficient and less costly overtime.
In response to minimum wage hikes, for instance, major retailers like Wal-Mart and Target are already replacing cashiers with self-checkout counters. Restaurant chains like McDonald’s and Panera Bread and the like are also replacing cashiers with apps and ordering kiosks.
That's a trend that is expected to accelerate, as America is advancing towards a $15 minimum wage, completely eliminating the need for cashiers and other low skilled labor.
That's bad news for people earning a living from these occupations.
While mandates like the minimum wage help low paid workers bring home a higher pay in the short term, they send these workers to the unemployment lines in the long term, as companies replace labor with machines.
Worse, minimum wage hikes, together with other regulations that restrict economic freedoms, undermine business creation, which makes it even harder for younger people to find jobs.
It should come to no one's surprise, therefore, that countries like Greece and France have been suffering from astronomically high youth unemployment rates; and the same is true for American states with high minimum wages.
That’s how a good cause turns into a bad cause. And that’s the ugly truth for the $15 minimum wage movement.
