Increasing the minimum wage to $15 an hour has resulted in exactly what critics have predicted: A loss of low-skilled jobs and, according to a recent study, increased prices for the goods and services provided by companies that employ low-skilled workers.
Brad Polumbo reported at the Foundation for Economic Education on a recent study from Princeton economist Orley C. Ashenfelter and Czech economist Štěpán Jurajda, which found that minimum wage hikes led to much higher menu prices at McDonalds.
“They found a ‘full or near-full price pass-through of minimum-wage-induced higher costs of labor.’ In English, this means that by vastly increasing production costs, minimum wage hikes resulted in an equivalent increase in menu prices,” Polumbo reported.
Polumbo further explained:
Supporters of hiking the minimum wage point to workers’ nominal wages and argue, correctly, that some workers would see higher numbers on their checks every week. However, nominal figures aren’t actually what matter. A worker’s real income and standard of living is best measured by the purchasing power of their wages.
If a McDonald’s cashier’s take-home pay increases 20% after a minimum wage hike, but the prices for the food and other things they spend their wages on increase by a similar amount, they aren’t actually any better off.
This would happen throughout the economy, not just in fast food.
Increased prices on goods and services are just one consequence of a minimum wage hike, Polumbo pointed out. The nonpartisan Congressional Budget Office estimated that an increased minimum wage would lead to 1.4 million lost jobs. Examples in major cities that have enacted an higher minimum wage have backed up this estimation, with a New York City survey finding restaurant job losses in the Big Apple. Those job losses occurred before the hike was made official, but at the time it was well known the minimum wage would be increased, which the survey determined caused restaurant owners to react in preparation. Survey respondents also said they could continue cutting jobs and hours because of the policy.
Seattle, Washington has become ground zero for studying the minimum wage hike, after it was enacted during an economic boom in the city. Multiple studies, including one from the National Bureau of Economic Research, found that “low-wage workers lost more than $2 in forgone employment opportunities for every $1 gained from higher hourly wages.” As Paul Mosimann reported for The Daily Wire, the study also found that “the lost income associated with the hour deductions of low-wage employees was greater than the wage increases, which resulted in a net loss of $74 a month for each employee.”
The Heritage Foundation also reported that a minimum wage hike would lead to higher childcare costs as well.
“Childcare costs would increase by an average of 21 percent—an extra $3,728 per year for two children—and up to 43 percent, or more than $6,000, in some states,” Heritage found. “The impacts would be greatest in lower-cost areas; in Louisiana, Oklahoma, and Mississippi, costs would surge between 37 percent and 43 percent.”
In the lead up to congress’ vote on another coronavirus relief bill, President Joe Biden backed away from supporting an increase in the minimum wage in the bill.