That said, some businesses might not be able to make the math work with a higher wage base. Those tend to be businesses that were struggling to begin with and might not have made it anyway.
The minimum wage seems to be Darwinian, driving weak competitors out: One study , for instance, showed that a company with a 3. Is it worth keeping the minimum wage low to save those firms, or to keep profits high at others? Stepping back even further: Does it make sense to allow businesses offering poverty wages to flourish?
Do we want, as a society, to have an economy made up of businesses that rely on poverty wages? The answer, I believe, is clearly no. Relatedly, some worry that higher minimum wages will disproportionately burden low-wage, low-cost-of-living rural areas, particularly in the South.
But in many one-stoplight towns, the predominant employers at the minimum wage are not independent farms, town-square barbers, and the like. The racial dynamics are important here, too: Poorer, lower-wage regions tend to have more Black workers. Keeping minimum wages low means keeping poor places poor, keeping Black families poor , and keeping the gap between Black and white families wide.
Again, these concerns are overblown. Businesses do pass the higher labor costs associated with minimum wages onto consumers. But the price increases tend to be quite small—a buck more for a sandwich, 50 cents more for a taco, a few dollars more for yard work.
One study, for instance, found that for every 10 percent increase in the minimum wage, prices for food consumed outside of the home rise just 0.
These are the supposed deleterious effects: somewhat less employment, perhaps, which could be offset with other policies; the faster failure of some weak businesses and the end of those truly reliant on poverty wages; modestly higher prices on some goods. The debate in Washington tends to focus heavily on that first metric, but it is not the only one.
Nor is it the most important one. The question is what kind of economy we want to have, what kind of jobs we want to promote, and how much poverty we want families in relatively low-wage—and often brutally difficult, emotionally draining, physically tiring, and societally essential—jobs to experience.
Right now, our policies do not just allow, but promote, destitution. We choose to have a large precariat, with tens of millions of families both working and poor. Indeed, all the focus on the drawbacks has overshadowed the good that higher wages would do. Millions of people would find it easier to put food on the table and gas in the car. Indeed, the failure to lift the minimum wage from its current level accounts for roughly half of the inequality between women at the bottom and women in the middle of the wage distribution.
The policy would help reduce the gender wage gap and the racial wage gap, too, as well as helping the poorest parts of the country catch up. Third, a higher minimum wage would support the creation of good jobs throughout the economy. In response to a higher wage floor, companies would have to make positions more interesting, more creative, more productive; they would have to invest in better equipment, and anticipate lower employee turnover.
Last, Americans want this policy —Democrats and Republicans, rural voters and urban voters, coastal states and central states.
On the other hand, there are also incentives in place that push firms in the opposite direction. This partly explains why firms generally employ a mix of full-time and part-time workers: Part-time workers are less expensive, but they also tend to be less productive.
Firms have always made trade-offs between worker productivity and labor costs, but when minimum wage increases, that balance shifts. And as our research shows, that shift leads firms to adopt practices that negatively impact worker productivity and wellbeing , in order to recoup the direct increase in labor costs that results from a higher minimum wage. In light of these market realities, what can policymakers do to achieve their stated goal of improving worker wellbeing?
One potential approach is to couple any minimum wage increase with additional mechanisms designed to ensure consistent schedules and adequate hours while avoiding placing a major burden on employers since that can lead to job losses.
These policies mandate that employers provide workers with greater stability and predictability in their work schedules, and in many cases, they also require employers to offer part-time workers the chance to increase their hours before adding new staff. The specifics of how such policies should be implemented and a comprehensive analysis of their effectiveness are outside the scope of our research, but there is evidence to suggest that they may improve both the well-being and productivity of workers — so we would argue that they are certainly worth careful consideration.
When it comes to assessing the impact of minimum wage on worker welfare, economists and policymakers tend to emphasize employment rates alone. But our study shows that other factors, such as benefits and worker schedules, can make a major difference.
Even if overall employment rates remain constant, increasing the minimum wage can lead firms to make strategic shifts in their labor scheduling practices that can ultimately have a substantial, negative effect on the welfare of the very workers these policies aim to protect. You have 1 free article s left this month. You are reading your last free article for this month. Subscribe for unlimited access.
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Raising the minimum wage has a number of serious and negative unintended consequences. Employers, especially small family and midsize businesses, will be disproportionately hurt by the extra costs incurred. The local neighborhood stores and businesses with razor-thin profits will be forced to raise prices to make up for the addition labor costs.
With the increased prices, customers may elect to take their business elsewhere. Losing customers means losing income, which could result in the business having to layoff workers. Customer scans his Amazon Go cellphone app at the entrance as he heads into an Amazon Go store in Large corporations with big budgets will weigh the increased labor costs and elect to invest in technology to displace workers.
This trend will soon become prevalent in the food service industry, hospitality, retail, construction and manufacturing. No lines, no checkout—just grab and go! They will weigh the future unknown costs associated with additional increases, coupled with the ever-increasing insurance costs, plus the time-consuming task of finding employees, training them and dealing with turnover.
It's easier and less expensive to have technology take over. The unintended consequence will be that there will be far fewer jobs available for those that need them most.
We have a steady stream of immigrants coming into the United States, which is good news. However, as anyone who lives in a suburb recognizes, there are many people working at jobs that would ordinarily pay minimum wage, but unscrupulous business owners compensate people in cash far under the minimum wage. This practice closes the door to opportunities for young people, students and mothers returning to the workforce to get a job.
This does not include insurance costs, benefits, payroll and other taxes. Most service-sector businesses have thin margins and an increase in this magnitude could close the company. While some people may benefit with an increase in their hourly earnings, other employees will be let go to save costs. Employers may elect to cut hours across the board for everyone.
Whichever way the employer goes, some of the workers will be in a worse situation. In the past, as a society, we had viewed the entry-level jobs as a way to earn some money during school and over the summer.
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