New York raised its minimum wage to 15 dollars an hour. The change went into effect on January 1, 2019. The smallest businesses had until the end of 2020 to raise their pay rates. The minimum wage hike was predicted to cause a number of problems we are now seeing, based on previous failed minimum wage increases. What are the predictable problems arising from the increased minimum wage, and why haven’t politicians learned from these mistakes?
The Impact of the Increased Minimum Wage
The minimum wage hike was passed based on the belief it would raise earnings and thus quality of life. However, it is having the opposite effect. For example, people aren’t willing or able to pay twice as much to eat out. This is causing restaurants and bars to close. Others shift to business models that require fewer staff such as buffets and take-out. That reduces employment by a third or more, causing many of those who were supposed to get a pay raise to lose their jobs. Overtime has been eliminated, and many businesses have reduced their hours to reduce costs.
One study found that three quarters of NYC restaurants slashed hours. A third laid people off. And ninety percent of them raised prices. Only four percent of restaurants surveyed three months after the law went into effect did none of the above. A BLS survey showed that more than four thousand workers at full service restaurants lost their jobs, continuing a downward trend in restaurant employment as minimum pay ratcheted up from 10.50 to 15 dollars an hour. This is despite overall employment in the city rose by more than 160,000. Further cuts are coming. One industry study found that half of full service restaurants planned to cut additional people in 2020. That was on top of the third that said they’d already eliminated jobs. Those who remain have to work harder, because there are fewer staff on shift. And many earn less overall, because their hours were cut.
Nor can you blame the general economy for these cuts. During the Great Recession, between December 2007 and June 2009, the number of restaurant jobs actually increased by nearly 2,000.
Why This Was Predicted
There are numerous studies that show that hiking the minimum wage hurts those it purports to help. Seattle, Washington raised its minimum wage from 9.47 dollars an hour in 2014 to 13 dollars an hour in 2016. The University of Washington found that the average low wage worker saw their earnings drop 125 dollars a month due to hour cuts.
The American Action Forum did a similar study on the impact of the last nationwide minimum wage hike. They estimated that it killed a quarter million jobs immediately and 1.7 million jobs long-term. For example, it pushed companies to automate packaging operations and install self-checkout machines. In the case of restaurants, they install point of service kiosks to take orders. And once they automate, they rarely go back. That’s aside from the temptation to outsource more work abroad, buy items made overseas instead of domestically, or hire illegal aliens who don’t pay payroll taxes and claim benefits.
Why Politicians Did It Anyway
There’s an interesting refrain in liberal politics. Never mind what failed before, from rent control to communism. The failure is never attributed to the political solution. Instead, blame is assigned to either the leadership at the time or those who opposed the idea. The solution is always more government, regardless of the harm and erosion of freedom that comes with it.
Politicians don’t learn because they don’t want to admit the policies they are pushing don’t have the intended effect. They already have a system to blame others or say it will work if they’re in charge. Nor do the harmful consequences matter, because the goal was always to have more power in the first place.