When Politicians Hurt Low Income Workers

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As part of what The Washington Post called a “leftward lurch” during the Virginia gubernatorial primary, Lt. Governor Ralph Northam signed onto a number of liberal policy initiatives aimed at shoring up his left flank – among them, increasing the minimum wage to $15 an hour.

Bad timing for Northam.

Last month, the National Bureau of Economic Research published a study conducted by economists at the University of Washington demonstrating that the cost of an increased minimum wage to low-wage workers in Seattle outweighs the benefits by a ratio of three to one. The number of hours worked by low-skilled workers dropped by more than nine percent – and the number of low-wage jobs declined by more than 5,000.

What distinguishes this paper is that it makes use of more detailed data than in any study of the minimum wage, pulling in actual state records of wages and hours for individual employees. This doesn’t use theoretical assumptions – it uses hard fact.

The study was commissioned by the city to evaluate the wage, employment, and hours effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016, on the road to a planned $15 per hour wage. As a result of these changes, the study estimates the average low-wage worker in Seattle lost $125 a month.

Small Seattle firms, unable to afford the increased wage requirements, responded by reducing hours, putting off new hires, or even letting workers go. More importantly, in industries like restaurants – where seven in 10 workers already made more than $13 an hour — owners simply hired more skilled workers whose experience would produce more revenue, rather than less skilled workers on whom more time needed to be spent in training.

Simply put: A business forced to pay $15 an hour is going to make certain that those they hire have the skills to justify the higher wage. This prices untrained workers out of the market, preventing them from stepping onto the first run of the economic ladder, damaging their opportunity to do better later on in life.

Nor does the Seattle study stand alone.

A 2013 paper from Texas A&M University found that a 10 percent increase in the minimum wage reduces job growth in a state by 0.5 percentage points.

A 2015 summary published by the Federal Reserve Bank of San Francisco concluded that higher minimum wages had led to reduced job opportunities for teen-agers and low-skilled workers.

An April study from Harvard University and the Mathematica Policy Research used two million ratings from Yelp to examine how more than 35,000 restaurants in San Francisco performed under the more than 20 minimum wage hikes between 2008 and 2016. It’s conclusion? A $1.00 increase didn’t impact a five-star restaurant’s likelihood of closing – but a 3.5 star restaurant was 14 percent more likely to close.

In other words, a minimum wage increase likely won’t affect a top-rated steakhouse that probably already pays more than minimum wage. But it could shut down a lower-rated neighborhood bistro – and take the jobs of all its employees along with it.

Restaurant employees are becoming wise to the impact. In Maine, among those most outspoken in support of a measure to overturn increases in the minimum wage this year were restaurant employees. They recognized very quickly that higher costs to owners would lead to increased prices, reduced shifts, and possibly cuts in customer tips. Dozens testified against the increases and more than 5,000 joined a Facebook group dedicated to overturning the increase.

As 55-year-old bartender Sue Vallenza put it: “I don’t need to be ‘saved,’ and I’ll be damned if small groups of uninformed people are voting on my livelihood. You can’t cut someone off at the knees like that.”

What is worst about the Northam proposal is the greatest negative impact will be on those who need experience the most. According to the Bureau of Labor Statistics only 2.7 percent of hourly workers earn the prevailing federal minimum wage or less. Of these, half are under the age of 25; a quarter are teen-agers.

These are precisely the workers lacking the soft skills and work ethic employers are desperately seeking and that make someone a successful employee: Show up on time and prepared to work. Dress appropriately. Treat customers well. Learn to follow instructions and why you need to follow them. Learn to collaborate and problem solve.

Setting a higher bar to their employment (and their opportunity for “on the job training”) doesn’t serve them well, and acts only to further stall the economic revival Virginia so desperately needs.

Demanding a $15 an hour minimum wage makes a good soundbite for politicians looking to position themselves as “helping the poor,” the reality is the opposite: Raising wages by fiat beyond what employers can pay actually hurts the poor and their economic future.

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About Christian Braunlich

Chris Braunlich is vice president of the Thomas Jefferson Institute and past president of the Virginia State Board of Education. The opinions expressed are his and do not necessarily represent the views of the Institute or its Board of Directors. He can be reached at chris@thomasjeffersoninst.org.

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