Proponents of increasing the minimum wage generally argue that it will improve the standard of living for low-income earners. However, numerous studies – including one completed by the Congressional Budget Office, which provides nonpartisan analysis for the U.S. Congress – have shown that minimum wage increases actually reduce employment. Artificially mandating increased wages through government action also has the negative effect of increased inflation, thereby further reducing any potential gains made by low-income employees. The cost of goods and services rises as the money to pay the increased labor cost must come from somewhere.
The poor cannot afford counterproductive initiatives like the Flagstaff Living Wage Coalition is attempting to advance. Councilmember Eva Putzova’s husband, Joe Bader, who is a member of the coalition, has stated that businesses would benefit due to increased business revenue. The coalition has not spoken with the Chamber about this issue.
The Greater Flagstaff Chamber of Commerce, the Arizona Chamber of Commerce and Industry, the Flagstaff Lodging and Restaurant Association, the Arizona Restaurant Association and the Arizona Retailers Association are all opposed to this initiative. Multiple local restaurant owners have expressed extreme concern and are fearful they would have to close their doors if it went through. The executive director of the Flagstaff Family Food Center, Food Bank and Kitchen stated quite bluntly that if Flagstaff instituted a $15 per hour minimum wage, the Food Bank would have to close, stating there would simply be no way they could handle the additional payroll burden.
Our local economy is largely tourist-driven, with 31 percent of our jobs in retail trade, arts, entertainment, accommodation and food service. These are the businesses that will feel the brunt of an artificial wage increase as well as an increase in payroll tax that the employers must pay. Any major increase in a minimum wage affects the entire staff through wage compression. If an introductory employee’s wage goes up 50 percent, the entire ladder of staff pay, from bookkeepers to managers will go up 50 percent for parity among the entire group.
Wages are a cost of doing business and if cost increases, so must the cost of the goods and services provided. If the cost of labor is increased, and businesses are unable to raise their prices, they will be “out of business.” Our local retailers/restaurants/hotels, etc., have to stay competitive with extensive online price comparisons. They simply cannot price their local goods and services higher than what any of us can find online. Local companies going out of business will only exacerbate the poverty problem and will change the character of Flagstaff.
According to the U.S. Department of Labor, nearly 65 percent of minimum wage earners are part-time employees. Many of those jobs are held by students and those with no experience. The benefits of the experience gained through a first job, even at relative low pay, provide the first step on the ladder of upward mobility. The vast majority of people who start out earning minimum wage do not remain there for long.
We already see evidence of job losses and price increases in areas where an increased wage floor has been implemented. Seattle increased its minimum wage to $15 per hour by 2017. The U.S. Bureau of Labor Statistics published the effects of the wage hike on the Seattle metro area. Between January and June of 2015, employment in the Seattle metro area decreased by 1,300 jobs, the largest decline during that period since early 2009. In May, the month following the minimum wage hike to $11 per hour, restaurant employment decreased by 1,000, the largest single monthly loss of Seattle area restaurant jobs since the Great Recession. Restaurant employment in the rest of the state of Washington increased by 2,800 jobs, or 3.2 percent during the same period. The only honest conclusion that can be drawn regarding Seattle’s decision to artificially raise the wage floor is that it has been counterproductive.
Dr. Dennis Foster, Senior Lecturer of Economics at the W.A. Franke College of Business at NAU, has stated, “When the government sets a ‘minimum’ wage, it must lead to both a decline in the amount of labor demanded and in a rise in the amount of labor made available for work. The difference between these two is unemployment. The result is a matter of logic, and proponents of a minimum/living wage cannot escape that result.”
He went on to say, “The imposition of a minimum wage hurts the most vulnerable in our society and the societal problems that emerge will be magnified over time. If a teenager can’t get started in the workforce because the government sets wages above their equilibrium value, then this delays their acquisition of skills and experience. One may argue that income inequality is a direct result of such a government mandate.”
Most of us start out in entry-level jobs that pay much less than when we acquire increased skill and experience. I am grateful for my first job as a dishwasher, as it taught me the skills needed to move up to where I was able to learn even greater skills. When minimum wage levels are set without regard to productivity, those without corresponding skill sets would be priced out of jobs. There is nothing compassionate about reducing the chances of someone getting a job. Simply put, minimum wage laws have unintended negative consequences. Shifting wealth around does not generate real economic growth. Boosting productivity does. We would all love to live in a world where scarcity didn’t exist and everyone has everything they want – but we don’t.
By Stuart W. McDaniel
Stuart W. McDaniel is the vice president of Government Affairs for the Greater Flagstaff Chamber of Commerce.