The Minimum Wage Hurts as Much as It Helps

In an effort to mimic the damage other states and cities have done themselves, New York Governor Andrew Cuomo recently proposed a hike in the state’s minimum wage to $15 an hour. On the surface, it is hard to argue with the governor’s desire to give people a “living wage.” The problem is that higher minimums will fail to do that, at least on balance. Instead they will raise the cost of employing people and so drive employers to cut back payrolls. Some employees will collect more income. Many lose their incomes altogether. Minimums will do other, more subtle damage as well. By effectively encouraging classes of citizens to use politics to take advantage of each other, minimum wage legislation will further undermine people’s sense of community as well as their respect for government.

Advocates for increased minimum wages claim that all will win. By forcing employers to give those at the bottom of the wage scale higher pay, their logic goes, workers will have more to spend, raising business’ sales more than enough to compensate for any increased costs. It all sounds appealing, so much so that one wonders why advocates stop at $15. By their logic, a minimum of $50 or $500 an hour would do that much more good for all. The fact that their demands remain relatively modest indicates that even they harbor suspicions about the validity of their arguments. They should. In reality, legislated wage hikes, whether small or large, force employers to reassess their hiring policies. Managers identify workers who can produce enough to warrant the new increased costs and those who cannot. The former benefit. The latter lose their job. Employers either replace those fired with automation or by scaling back their operations. Smaller employers, who generally have neither option, have to shut down, which means that everyone on their staff loses their job.

The facts on the ground leave little doubt about these effects. Earlier this year, as the push for higher minimum wages gained traction, McDonald’s, Walmart, and other firms that hire low-skilled workers raised wages and benefits for large numbers of their employees, mostly to deflect criticism. Then, almost immediately, McDonald’s began to place more automatic kiosks into its outlets. Walmart and these other firms began to investigate ways to reduce staffing. By summer, all announced layoffs. Underscoring exactly what was happening, executives, when itemizing the job losses, stressed the need for “efficiency.” McDonald’s acknowledged hundreds of pick slips, and Walmart announced a 5 percent cut in headquarters staff. Statistics on individual McDonald’s franchises or Walmart stores are not readily available, so it remains difficult at this point to determine whether the net effect as yet is positive or negative for workers as a group, but whatever the results of such a calculation, it would offer little comfort to those who have lost their jobs.

Perhaps of less immediate concern but no less significant is the damage minimum wage legislation does to the social contract underlying our communities. When politicians decide to help a certain class of people with the minimum wage, they claim that it is the right thing for the community to do. The community, however, does not bear the cost. Rather, the entire burden falls on a relatively small part of it, employers, large, and so presumably able to shoulder the burden, and small, such as an individual McDonald’s franchise or the corner bodega. Because most in the community get to feel generous at no cost to themselves, they can readily support the policy. What the politicians like Governor Cuomo effectively are doing, then, is rallying a majority to impose on one minority to help another, favored minority. The obvious inequality cannot help but have an insidious effect on social cohesion. It is a policy in which none can sense a concern for the common good. Even those who gain advantage can hardly respect a government that would facilitate such maneuvering.

New York can do without the additional unemployment. It can also do without any further erosion in people’s sense of community or their respect for government, neither of which are in abundance as it is. Rather than climb on the minimum wage bandwagon, Governor Cuomo might prefer to defend the state’s relatively low 5.2 percent rate of unemployment and find another way to help people that does not leave some destitute and the community injured.

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