June 17 2014
Patrice J. Lee
The International Monetary Fund has called for the U.S. to raise the federal minimum wage. In delivering an assessment of the U.S. economy the IMF’s Managing Director Christine Lagarde thinks the economy will rebound and we’ll reach full employment within a couple years, but most importantly, wages need a boost. What a joke.
The IMF doesn’t have the best track record on predicting where economies are or advising –i.e. tampering- with their internal economic policies. Just ask Great Britain.
Raising the minimum wage has been proven time and again to be harmful to economies as the brunt of the costs are born by small businesses and low-skill workers.
Seattle recently approved a gradual minimum wage increase to $15 over the next seven years. It’s an uneven move that requires big companies with more than 500 workers to get to $15 within three years and small businesses to raise wages within seven years.
While some workers are made better off, there are unintended consequences as well. Just ask residents in Seattle, Washington. They’ve seen sundry fees tacked on to services they use and rely on because of their new $15 minimum wage.
The Daily Signal reports:
In the city of SeaTac, Wash., where the minimum wage is now $15 an hour, one business is charging customers a “living wage” surcharge.
An airport parking service, Masterpark, “is charging customers an additional 99 cents per parking day,” reported Northwest Watchdog.
Near SeaTac, Seattle also is hiking its minimum wage. On Monday, the city council voted unanimously to raise the minimum wage over several years until it reaches $15 an hour. In an Associated Press interview afterward, City Council member Kshama Sawant, a self-described socialist, noted that “$15 in Seattle is just the beginning.”
James Sherk, a senior policy analyst at The Heritage Foundation, remains unsurprised by the development of a living wage charge in SeaTac. Sherk said when labor costs increase, naturally or by design, companies have only two options—decrease payroll or raise prices. In the case of Seattle, he said, “I expect to see both.”
Many Washington state business owners already have taken Sherk’s analysis a step farther. David Jones, the owner of Blazing Onion Burger, recently put the brakes on plans to open a new Seattle restaurant. “I would love to come to Seattle,” Jones said in a CNN-Money report. “But I have to do it responsibly.”
These are the implications of raising the minimum wage among those who bear the costs most. Raising the minimum wage adds to labor costs and of business costs overall. To stay profitable or even in business, companies will try to raise their demands and lower their costs.
For example, a baker may not have much control over the costs of her ingredients –especially if she wants to retain the quality and tastes of her goods- so she may cut labor costs by reducing the hours of her workers or eliminating one of them. She could raise her prices or add surcharges but that will just drive away her customers.
As businesses get creative with fees and surcharges their customers will be squeezed. While big companies may be able to absorb the costs, the smaller shops may not.
Americans need work at market rates that allow them to earn a sustainable living. Minimum wage is meant to be a starting point and temporary level for no- and low-skilled workers. These are jobs that teens and young people use to get their feet wet in the job market then progress upward. The idea that Americans should be raising their families on minimum is a fallacious and insulting argument. The majority of minimum wage earners are indeed young people not those with families.
If we want to increase the long-term success of low-wage workers let's create incentives that push people them forward instead of making life at the bottom comfortable.