Eight months after instituting a $15 an hour minimum wage hike, New York City employers and workers are feeling the pinch. Reports show business operators are cutting staff, cutting hours, and even raising prices.
This is no surprise.
“Raising the minimum wage causes lost jobs and pushes technology and automation forward,” said IPI’s Dr. Merrill Matthews in a recent interview with WAVA’s Don Kroah in Washington DC.
It’s simple economics. When a consumable good’s price is raised enough, the consumer will choose a cheaper alternative. “Labor is what employers consume,” said Matthews. “If you raise the price of it, employers will consume less.”
The change is most evident by the growing number of self-pay kiosks and scanners seen in grocery stores and fast food chains.
“If you raise the minimum wage high enough, self-checkouts will replace labor, and it doesn’t cost as much and never asks for vacation,” said Matthews.
Arbitrarily hiking the minimum wage also causes a costly chain reaction, said Matthews, leaving employers with even less to spend on capital investment to grow their business. “Not only do the lowest skilled people get a higher wage, but other workers with slightly higher pay have to get bumped up, too.”
The ideal situation is giving employers the freedom to invest the best way they see fit. “In some cases, it’s providing higher wages for people so they can retain good workers, or it’s providing benefits,” he said. “So the employer who wants to give people health insurance benefits is now told by the government he needs to pay $20 an hour. The health insurance benefit, the additions to their 401(k), those go out the window. There are trade-offs.”
With New York joining a growing list of cities hiking the minimum wage to $15 an hour (Seattle, San Francisco, Los Angeles, etc.), and politicians like Reps. Rashida Tlaib and Tim Ryan outbidding one another on how high it should be, cities are missing the point that raising the minimum wage doesn’t eliminate poverty, said Matthews.
Large minimum wage increases exacerbate poverty because many employers cannot afford to pay lower-skilled employees that much, he said. “And these politicians are getting a lot of support from low-paid workers who may soon find themselves unemployed.”