Following a vote in 2014, the City Council of Seattle raised its local minimum wage from $9.47 to $13 in 2016 with the goal of eventually making it $15 by 2021. Other cities, including New York, San Francisco, Los Angeles, Pittsburgh, and Washington, DC, plan to put a $15 minimum into effect in coming years. California has a statewide law being phased in.

In a USA Today Op-Ed, Mayor Ed Murray, wrote:

"While not a silver bullet to address inequality, the minimum wage is a critical tool benefiting low-wage workers and our economy. Putting more money in workers' pockets leads to more spending at local businesses, growing our economy."

For small business owners, it is not that simple. We are already seeing that companies are finding ways to lower their mandated higher labor costs by looking to technology and automation to reduce the number of workers that they hire.

Further, a study by economists at the University of Washington found that low wage workers' incomes actually fell by an estimated $125 a month because employers reduced their hours. Raising the wage to $13 an hour yielded an average 3% in wages. However, employers cut workers' hours by 9%. This surely was not the intention when passing the law. Nonetheless, the figures speak for themselves.

At the same time, one must consider price elasticity where demand drops as the price goes up. This is a basic law of economics.

Mayor Murray insists that Seattle's economy is thriving, employers are competing for workers, and workers who perform low-wage jobs, such as dishwashing or food delivery, start at $15 or $20 per hour. He believes his city is "closing the inequality gap."

Liberals like Bernie Sanders are pushing for a national minimum wage of $15. Doing so would ignore the cost structures in various regions of the country. For instance, what employers in rural Iowa can afford to pay workers differs vastly from what companies in New York or Silicon Valley can pay.

Further, smaller employers in less wealth sections of the country might not be able to automate, as fast food outlets, such as McDonald's, have begun to do by placing kiosks in their establishments and reducing counter staff and cashiers. History has shown us that once these jobs are eliminated by technology, they are unlikely to ever come back.

Low wage jobs usually go to workers with low skills. Often they are first time employees who are just learning what it is like to get and hold onto a job. Minimum wage jobs, such as dishwashing or flipping burgers, typically are not intended for people raising a family, although sometimes that becomes the case.

Low wage workers may be individuals who did not do well in school, struggled in previous positions or perhaps who lost better jobs for reasons that might include chronic tardiness or absence, addictions, incarcerations or downsizing at other positions. The higher skilled and dedicated employees may move on to better paying jobs while the others are left behind. Fast food companies and small business owners provide openings for workers that might not be employable for other types of firms.

Adding to the cost structure of small businesses hurts their profitability and long-term viability. Raising the minimum wage to $15 an hour will hurt them and, in turn, their workers if employers are no longer able to keep them on.

Published on: Jul 6, 2017
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