The Democrats plan to make raising the minimum wage an election issue. Senate Democrats intend to introduce legislation to take the federal minimum wage from $7.25 per hour to $12 per hour by 2020.
Over the weekend, there were protests around the country pushing for a mandatory $15 minimum wage like the one recently passed in Seattle. As reported by Western Journalism, though the new minimum wage is being phased in over the next few years, Seattle is already feeling its negative economic impact.
A survey of Seattle area small businesses found that 42 percent of employers were “very likely” to reduce the number of employees per shift or overall staffing levels. Furthermore, 44 percent stated they were “very likely” to scale back employees’ hours to help offset the increased cost of doing business. Sixty-three percent of business owners responded that it was very likely they would be raising prices. Of course, economics 101 says the demand curve ultimately slopes down as prices increase, i.e. less people want to buy what you are selling if it costs more.
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National Review reports that the number of firms seeking business licenses in the city has dropped off drastically, too, roughly corresponding with the passage of the minimum-wage increase. (See update below.)
Not content with their victory in Seattle (and the unintended negative consequences of achieving $15 per hour), some on the far left want to see the minimum wage raised to $20 per hour. There is no need to conjecture the effect even phasing in such a plan would have on lower wage workers.
In 2007, Congress passed a law which required American Samoa to raise its minimum wage from $3.36 to $7.25 per hour in phased annual increases — the equivalent of raising our current minimum wage to $20 per hour. By 2009, the wage had reached $4.76, and the effects on the economy were very devastating. Rather than increase the purchasing power of workers, stimulate demand, or raise living standards, it had quite the opposite effect.
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StarKist, one of the territory’s largest employers, laid off workers, cut hours and benefits, and froze hiring. The other cannery, Chicken of the Sea, shut down entirely in September 2009.
Heritage Foundation economist James Sherk testified before Congress:
The Government Accountability Office reports that between 2006 and 2009 overall employment in American Samoa fell 14 percent and inflation-adjusted wages fell 11 percent. Employment in the tuna canning industry fell 55 percent. The GAO attributed much of these economic losses to the minimum wage hike.
The Democratic Governor of American Samoa, Togiola Tulafona, harshly criticized this GAO report for understating the damage done by the minimum wage hike. Testifying before Congress Gov. Tulafona objected that “this GAO report does not adequately, succinctly or clearly convey the magnitude of the worsening economic disaster in American Samoa that has resulted primarily from the imposition of the 2007 US minimum wage mandate.” Gov. Tulafona pointed out that American Samoa’s unemployment rate jumped from 5 percent before the last minimum wage hike to over 35 percent in 2009. He begged Congress to stop increasing the islands’ minimum wage:
“We are watching our economy burn down. We know what to do to stop it. We need to bring the aggressive wage costs decreed by the Federal Government under control. But we are ordered not to interfere …Our job market is being torched. Our businesses are being depressed. Our hope for growth has been driven away…Our question is this: How much does our government expect us to suffer, until we have to stand up for our survival?”
Samoan employers responded to higher labor costs the way economic theory predicts: by hiring fewer workers. Congress hurt the very workers it intended to help. Fortunately, Congress heeded the Governor’s plea and suspended the future scheduled minimum wage increases.
Fortunately, the far left need not look as far away as American Samoa to get a basic economics lesson in supply/demand and job creation. Last fall, the Freedom Socialist Party — a leading proponent of the $20 minimum wage and strong supporter of the $15 minimum wage in Seattle — sought to fill a part-time web designer position on Craigslist for an advertised wage of $13 per hour. Questioned about the group’s hypocrisy in not being willing to pay a “living wage,” Doug Barnes, the party’s national secretary responded that, based on the group’s current revenues, “[W]e can’t pay a lot more than $13.”
Nothing like actually having to make a payroll to administer a strong dose of real world economics.
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(Update: In response to a reader’s request, I contacted the author of the National Review piece cited above via email regarding the reduction in new business licenses in Seattle since passage of the minimum wage law. He replied that his research found that there has been a drop-off in limited service restaurant license requests; however, after further review, he discovered there has been an increase in bar license requests, offsetting that loss. In other words, more time will be needed to see the effects of the $15 minimum wage law on new businesses openings.)
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