Higher Minimum Wage = More Machines, Fewer Jobs

Posted by Olivia Grady on Thursday, January 31st, 2019 at 2:42 pm - Permalink

Today, many Democrat politicians are advocating for a higher minimum wage. In fact, Democrats in the House and Senate introduced the Raise the Wage Act this month. The bill proposes raising the federal minimum wage to $15 over five years.

Congressman Robert “Bobby” Scott, Chairman of the House Education and Labor Committee, introduced H.R. 582 on January 16, 2019, and Senator Bernie Sanders introduced the Senate companion bill, S. 150, on the same day.  

The Democrats claim that raising the minimum wage will help lower income individuals and families.

However, as the Employment Policies Institute’s recent report demonstrates, research clearly and consistently shows otherwise.

The Congressional Budget Office has found that raising the national minimum wage to $9 would result in 100,000 fewer jobs. If the minimum wage was increased to $10.10, there would be 500,000 fewer jobs, and a $12 minimum wage would cost almost 800,000 jobs. In addition, economists at the Federal Reserve Board and the University of California-Irvine found that 85 percent of the best research from the past 20 years concludes that a higher minimum wage leads to fewer jobs.

The Heritage Foundation also found in 2016 that a $15 federal minimum wage would lead to 7 million fewer jobs.

This reduction in jobs is because employers only have three choices if the minimum wage is increased. Employers can raise prices, cut services or reduce the number of employees. In addition, the fact that many of these jobs can be automated makes the decision for the employer a lot easier. 

As Rachel Greszler, Research Fellow in Economics, Budget and Entitlements at the Heritage Foundation, explains:

“For a restaurant that employs 10 minimum wage workers, a $15 minimum wage hike would cost them about $170,000 per year. If the restaurant currently earns profit margins of 5 percent, it would have to increase sales by $3.5 million per year, or an extra $67,000 every week.”

Raising the minimum wage also doesn’t reduce poverty. That is because at least half of adults living in poverty do not have a job according to Census Bureau data. They, therefore, aren’t able to benefit from a minimum wage hike.

Legislators, however, do not have to rely on economists and studies on how a minimum wage could affect employment. Seattle provides a real life example. In 2015, the city passed the Seattle Minimum Wage Ordinance, which increased the minimum wage gradually to $15 in 2017.

Unfortunately, workers suffered from this minimum wage hike according to a University of Washington study. The increase in the minimum wage to $13 per hour reduced hours worked by about 9 percent, and total payroll fell. Employees’ earnings, thus, fell by an average of $125 per month in 2016.

Given the evidence that a higher minimum wage would hurt lower income individuals, Members of Congress should support their constituents and vote against the Raise the Wage Act.