Diary

$15 an Hour Minimum Wage Means Increased Automation and Decreased Employment

Fast food workers planned to strike in over 150 cities across the United States earlier this month to demand the minimum wage be raised to 15 dollars an hour. The demonstrations led to arrests in many cities50 were jailed just in Chicago, but these protesters are not alone in their endeavor. President Obama has also been clamoring for a minimum wage increase regardless of the consequences.

Late in 2013, Congressional members and even Obama himself advocated for a rise in the national minimum wage from $7.25 an hour to $10.10 an hour. As was expected, the bill to enact a $10.10 an hour wage floor stalled in Congress, but President Obama, also as expected, demanded action and pressed on without Congress. Using the power of his unilateral pen, he signed an executive order raising the minimum standard pay for federal contractors.

Some states and even cities are moving on without Congress to boost the minimum wage too. Already, more than 20 states have minimum pay standards higher than $7.25 an hour. Seattle raised its wage floor to $15 an hour, San Diego to $11.50 an hour, and many other cities have also taken action. Nine states have raised the minimum wage since the beginning of 2013 as well. Increasing the minimum pay standard does win over some voters, but it doesn’t come without major economic risks.

The fast food workers who are demanding a minimum pay of $15 an hour should be careful for what they wish. If the federal government were to enact a $15 wage floor, then the results would be devastating for many. The reality of raising it from $7.25 to $15 an hour means that more than half of all US states would see their minimum standard pay more than double, costing employers in these states an additional $17,500 per year per minimum wage worker. This sounds great to some, but this surge of costs must somehow be covered.

When employment costs rise dramatically, companies are forced to act to balance their budgets and once again become profitable. For many reasons, including the United States minimum wage, numerous companies have moved their manufacturing operations overseas to places including Mexico and China because of local cost advantages to become more efficient and competitive.

Small businesses and restaurants do not have the option of shifting their operations overseas, which leaves them with some difficult choices. Some could replace employees with contract workers to avoid increased costs or simply raise prices. The Oasis Café in Minnesota instituted a fee to counter the minimum wage increase. However, a $15 an hour wage floor would lead to stunning increases in prices and fees. A recent study found that a hike in the minimum standard pay to $15 an hour could cause a McDonald’s Big Mac meal to cost nearly $8 and a Turkey Breast foot long at Subway would be almost $9.

If a massive increase in prices isn’t a viable option, then companies will be forced to look at ways of relying less on costly employees. Advances in automated technology have already replaced many jobs and will make many other occupations obsolete. A large increase in the minimum wage only incentivizes companies to seek cheaper technologies to replace increasingly expensive workers. Newer and cheaper technology means that reliance on automation will only become more prevalent. McDonald’s, for example, introduced touch screen cashiers in Europe, and the success of the prototypes led to 7,000 of these automated machines to be installed in locations across Europe, replacing employees.

Those pushing for wage floor increases have concocted a tale about minimum wage earners. They would have you believe that these Americans are the primary income producers for their families and that they represent an exceptionally large portion of society. Minimum wage workers are actually a small and steadily shrinking segment of the workforce. The largest portion, 44%, work in the food industry, and 11% work in retail. Today, 3.6 million Americans earn minimum wage, which is only 2.5% of all workers. In 1980, 15% of all hourly employees made the minimum standard pay, but by 2012 it dropped to 4.7%. More than 60% of individuals earning $9.50 an hour or less are the second or third worker in their family, and more than 40% of those earning $9.50 or less actually live in homes that generate $50,000 a year or more.

The push for large increases in the minimum wage may sound good prima facie, but the results of a large pay floor hike will send shockwaves through the ever-underwhelming economy. Mandated wage surges will certainly lead to higher prices and lower employment rates. Proponents of such increases believe it is perfectly acceptable to impose such burdens on these “greedy corporations,” but small businesses will be affected in addition to large corporations. When the minimum wage dramatically increases, it’s the consumers, employees, and even the companies who are punished.