I guess I shouldn’t be surprised that a nation that is $20 trillion in debt doesn’t know the first thing about economics. But, I have to admit, I am still shocked at the mistakes that our elected officials continue to make when it comes to our economy.
The latest evidence of this dynamic was presented to us Monday by the National Bureau of Economic Research, which published a working paper that “evaluates 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.
“Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent.
“Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016. Evidence attributes more modest effects to the first wage increase. We estimate an effect of zero when analyzing employment in the restaurant industry at all wage levels, comparable to many prior studies.’’
Seattle’s minimum wage increase was a result of the findings of the Income Inequality Advisory Committee, formed by Seattle Mayor Edward B. Murray. The committee was charged with delivering an actionable set of recommendations for increasing the minimum wage within the city of Seattle.
Video courtesy Think Americana
The committee’s recommendations were made public by Murray in May 2014 and later approved by a vote of the members of the Seattle City Council. The decision forces small employers (businesses with fewer than 500 employees) to increase the minimum wage to $15 per hour within seven years and for large employers (businesses with 500 employees either in Seattle or nationally) to increase the minimum wage to $15 per hour within three years.
How these brilliant economists didn’t see the logical outcome of this decision is absolutely mind-boggling to me. There was zero possibility that employers were just going to dig into their own profits, or their own pockets when there were no profits to dig into, to give employees more money. Many people tried to tell these geniuses that business doesn’t work that way, but to no avail. They were too busy doing the math on all that extra money low-income wage earners would be receiving.
Don’t get me wrong, I’m all for the working man and woman, or teen. I grew up in a family with a very modest household income. I remember my mom working two jobs during my youth, and one was in the service industry and I’m quite certain it was for minimum wage. If my memory serves me correct, my first summer job was as a janitorial assistant at Carson Elementary School in Carson, Wa. and I made minimum wage, which I believe at the time was $2.35 per hour. I worked several summers at a similar wage until I believe the minimum wage grew to $3.35 per hour after I graduated from high school.
I don’t enjoy the thoughts of anyone living in poverty. I wish life was a little easier for everyone, whether they deserve it or not. My son just graduated from Eastern Oregon University in La Grande, OR. He is in his third year working at a golf course in nearby Union, OR. and he makes little more than the minimum wage. I would love for him to make $15 per hour right now, but I’m thankful he has a job, a degree and a plan to improve his earnings potential in the future.
But, I would much rather my son keep his job at its current wage rather than lose it because his employer was being forced to increase his pay. I also don’t want to see him lose hours in his work schedule to help his employer compensate for the increased payroll created by a mandatory minimum wage increase.
That’s exactly what Monday’s report by the National Bureau of Economic Research revealed is going on in the city of Seattle. Minimum wage employees are either losing their jobs or having their hours reduced so employers can adjust to the minimum wage increase. There are also plenty of reports of national service industry companies like McDonald’s adjusting their infrastructure to create automation that will take the place of human employees.
The only alternative to employers decreasing the size of their staffs by eliminating positions or hours worked by employees is charging more for goods and services. What segment of the population has the least ability to pay more for goods and services? Obviously, those employees making the minimum wage.
Oregon’s minimum wage increase will begin to take effect on July 1. Employers in the Portland Metro Area will then be forced to pay $11.25 per hour. Another increase is scheduled for July 1, 2018. While it is not as dramatic of an increase as Seattle’s, it surely will have a negative impact on the very people it is intended to benefit. And that is a shame and it’s the direct result of politicians who don’t have even an elementary understanding of economics.