Consequences

To repeat my earlier disclaimer, I do not oppose a $15 minimum wage, but I do oppose pretending that it will be entirely free of any negative consequences.

Dean Baker has a discussion today of criticism of the Sanders plan for health care in which he cites an example of a “single mother with two children, earning $26,813 a year,” and how her health care costs would be affected. He then points out in his argument that Sanders is also proposing a $15 an hour minimum wage and that “if this single mother were working a full time job, she would see her pay increase by almost $3,200 a year, even if her pay was only at the new minimum.”

He then throws the real kicker into the argument about raising the minimum wage, saying, “it is likely that her pay would increase enough to leave her still well above the minimum,” which is a very good point indeed.

Picture an employer which has some jobs which are unskilled and pay minimum wage, and these workers are working alongside other workers who are skilled and are being paid above minimum wage. I assure you, this is by no means an uncommon scenario. Now assume that the workers are told that all of them are being paid the same amount because the unskilled workers have gotten a big raise, from $7.25/hr to $15.00/hr, while the skilled workers have gotten a very small raise, from $14.50/hr to $15.00/hr. That is most certainly not going to fly.

Proponents of the raise in minimum wage claim that employers can afford it because they will only have to raise prices a miniscule amount to cover the increase for the minimum wage workers, but reality is that employers will have to bump their entire pay scale upward consistent with the increase at the bottom of it, and that represents a major increase in payroll costs. History has, in fact, shown this to be the case when the minimum wage is increased by any amount.

Some employers will not be able to increase revenue sufficiently to cover the increase in costs and will be forced to reduce their work force. It may be only a few, and we can hope that such is the case, or it may be more than a few.

So is the minimum wage something we want to do? Sure, maybe it is, but let’s be sure we are informed as to the consequences.