The city of Los Angeles is patting itself on the back for raising the minimum wage to $15 an hour over the next five years; it should get a swift kick in the rear.
We are in completely uncharted economic territory when it comes to the size of the recent spate of minimum wage increases that has energized so many unions and left-leaning activists. And don’t forget, employers have to add health insurance on top of the wage increase.
Defenders claim that several economic studies show little or no adverse impact on those with the fewest skills and least experience. But those studies generally look at small wage increases, not jumps of 50 percent or more. Los Angeles imposed a 67 percent increase from the current $9.00 per hour. When health insurance is included, many employers are looking at close to paying about 100 percent for the same low-income worker.
How many of you as consumers—and employers are consumers of a person’s labor—would continue to buy a product or service if the price doubled, even if it’s over a few years?
The National Conference of State Legislatures says that 29 states, plus Washington DC, have imposed minimum wages higher than the current $7.25 federal level. Most of them tend to be around $9.00, or will be by January of next year. No state has passed a $15.00 minimum wage.
But three cities have: Seattle, San Francisco, and now Los Angeles. Plus Sea Tac (i.e., the Seattle airport) passed a targeted $15.00 minimum wage. Chicago has a $13.00 minimum wage.
Now, do the math with me. A minimum wage increase to $15.00 an hour is more than double the current $7.25 rate, and about a 60 percent-plus increase for those states that have passed something close to a $9.00 minimum wage.
But we can’t stop there, because employers (with 50 employees or more) must provide health insurance. The Kaiser Family Foundation estimates the average cost of an employer-provided policy for an individual is $5,571 (in 2013, the latest available). On average, employers pay about $4,411 of that cost, according to Kaiser.
A worker at the current federal minimum wage of $7.25 makes about $15,000 a year. Obamacare has already increased that cost by $4,411, or about 30 percent.
But with the $15 minimum wage, the minimum wage worker goes from costing the employer $19,400 in wages and health insurance to $35,600.
So I ask again, if you could afford to spend $15,000 on a new car, or even $19,400, does that mean you can afford to spend $35,600? Do you think that higher price might make you rethink buying a car? Or look for some other less-expensive alternative?
And it probably wouldn’t be persuasive if I pointed out, as minimum-wage defenders regularly do, that those people receiving your additional $15,000 to $20,000 for the same product would spend it and boost the economy. You might even assert that you would spend it too.
And remember, for employers it’s not just a one-time, one-person increase. A $15.00 minimum wage increase captures all of the employees below that level. And those whose experience and skill had them making above some of their minimum wage, coworkers, but less than the new $15.00 minimum, will reasonably want a proportional increase to, say, $17.00 to $20.00.
Of course, defenders say that employers will ultimately cry “Uncle Sam” and pay up because they have to have employees to do the work. But there are alternatives such as outsourcing and technological substitutes, especially for many low-skilled jobs. More and more restaurants, retail stores and service industries are moving to kiosks and other ways to cut down on labor costs.
The good news—if you can call it that—is that the growing number of minimum wage laws at the state and local level may quash any federal efforts to raise the national minimum wage. Raising the minimum wage to $10.00 or $15.00 an hour in high-cost areas like San Francisco or New York City will do a lot less damage than imposing that same rate on rural Mississippi. If the minimum wage is going to be raised, better to keep it contained.
But the minimum wage mania has gotten out of hand. Politicians are trying to outbid each other—only they’re doing it with employers’ money, not their own. And they are getting a lot of support from low-paid workers who may soon find themselves unemployed.