A wise man once observed that trying to solve a problem sometimes makes it worse. The higher minimum wage in New York City is a perfect example of this.
The problem is clear: People earning minimum wage weren’t making a livable income. And what seemed like the obvious solution – paying them more money – created additional problems.
That’s what happened in New York City, and now many small businesses are reeling from their increased costs; some have been forced to eliminate shifts, raise prices, and/or cut staff. And one informed opinion warns that these problems are not unique to New York City; other states that have adopted this policy will suffer the same consequences.
That voice belongs to Betsy McCaughey, the former Republican Lt. Governor of New York State (1995-1998). She told Fox News, “What you see happening in New York City you will see happening in the seven states that have already enacted gradual increases in the minimum wage to $15,” and those states include Connecticut, Illinois, California, and Maryland – blue states.
Fair, But Not Practical
In theory, a $15/hour wage is completely justified. Food, rent, transportation, and utilities, among other necessities, are so expensive that even this higher rate doesn’t come close to covering them. But implementing it has created serious challenges for both companies and workers.
McCaughey notes that this higher rate has already cost many low-income people their jobs. “The Congressional Budget Office has reported that if this were enacted nationwide, 3.7 million people would lose their jobs.” Of course, some people would gain because they will have more income. “But many more will lose,” she explains.
“The Democrats are arguing that nobody can raise a family on the minimum wage, and that may be true. But very few people who are getting the minimum wage are raising a family. If you look at the latest numbers from the Bureau of Labor Statistics, half of the workers earning this rate are under age 25, and six times as many are working at part-time as opposed to full-time jobs. These are entry-level people who are acquiring the basic job skills so they will ultimately be worth $15 or more.”
There are other unanticipated and undesirable consequences. For example, some fast food establishments and restaurants, forced to cut costs, have replaced human hosts and hostesses with automated ones. And other cuts along these lines may follow, as firms such as McDonald’s, Chipotle, and many others are looking for ways to cover higher transport, labor, and other expenses.
Kevin Bazner, the CEO of A&W Restaurants, explained that higher labor costs have become a significant problem even beyond the obvious. “You can’t hire people at minimum wage; you have to pay them more,” he says. And now the labor market is starting to face an even bigger challenge: finding enough labor regardless of the wage offered.
The Wall Street Journal recently ran a story titled “New York City Businesses Struggling to Keep up After Minimum Wage Increase.” A small business owner told The Journal that “what this really forces you to do is make sure that nobody works more than 40 hours.”
One well-known proponent of a $15/hour minimum wage learned the difficulties this creates from firsthand experience. Vermont Senator and Presidential candidate Bernie Sanders has often called for this higher rate. However, he was criticized when it became known that some of his campaign workers were earning less than that.
Facing budget pressures and, suddenly, PR problems, too, Sanders decided to raise their wages – but he also cut back the number of hours they worked. Bazner, A&W’s CEO, explained the difficulty this way: “The higher the minimum wage, the more you will have to work at reducing labor costs.”
The Best Laid Plans
Jake Dima wrote in The National Interest (nationalinterest.org) that “New York City’s $15 minimum wage, which began to take effect Dec. 31, 2018, was meant to bolster earnings and quality of life; but for a lot of residents it’s doing just the opposite.”
Others have come to the same conclusion. “Many people in the restaurant industry wanted to work overtime hours, but due to the wage increase, restaurants have cut back or totally eliminated any overtime work,” Andrew Riggie, executive director of the New York City Hospitality Alliance, told Fox News.
Meanwhile, the numbers coming from companies now paying this higher minimum wage are telling a very compelling story. Roughly 77 percent of NYC restaurants have slashed employee hours. Thirty-six percent said they had to lay off employees, while 90 percent had to increase prices. These statistics are from a NYC Hospitality Alliance survey.
As far as raising prices, “There’s only so much consumers are willing to pay for a burger or a bowl of pasta,” New York’s former Lt. Governor McCaughey observed. And as for laying off employees, “You can only cut back so many people before the service starts to suffer.”
Wanna Join the Party?
Fox News reports that only six percent of economists think that raising the $15 minimum wage nationwide is a good idea. Nevertheless, in July, Democrats tried to pass legislation that would do exactly this; in some regions this would have translated into a 100-percent increase in their minimum wage costs. This bill passed in the Democrat-controlled House, but was defeated in the Republican-controlled Senate.
The bottom line here is very clear: While the merit of a $15/hour minimum wage is obvious, implementing this is hurting many of the people it is intended to help. In addition, now that the rate is higher, questions are being raised about who should bear the costs of health care, subsidized child care, and other programs.
That wise man, who said trying to resolve a problem can make it worse, sure got this one right.
Sources: foxnews.com; nationalinterest.org; wsj.com. You Tube: New York City’s $15 Minimum Wage is Now Officially A Disaster; New York City Struggling Due To Minimum Wage Increase; A $15 Mimimum Wage Means Fewer Labor Hours