Last week in a viral video, Congressman Keith Ellison (D-MN), sang a song to celebrate the decision of the Minneapolis City Council to increase their minimum wage to $15 an hour by 2024. With this decision, Minneapolis joins many other cities, including San Francisco and Seattle, who look to fight poverty with increased wages. This sounds good in sound bites - and now songs - but despite the Congressman’s celebratory tone, it’s unlikely his constituents will be singing the same tune.
In 2015, the city of Seattle implemented a plan to increase the minimum wage to $15. This was done, in the words of Mayor Ed Murray, to “ensure more people who live and work in Seattle can share in our city's success, and helps fight income inequality.” Just two years later, and not even fully implemented, this experiment in government wage controls falls far short of those lofty goals.
A University of Washington study found that the second in a staggered series of wage increases, from $11 to $13, started a ripple effect through the economy. Seattle saw the number of hours worked in low-wage jobs decreased by nine percent, about $125 per month. Faced with rising labor costs, employers were forced to cut hours and seek out alternatives, such as automation to compensate for the increased wages.
Other studies confirm this trend, with a disproportionate effect on the restaurant industry. An April 2017 study conducted by Harvard University, found that for every “$1.00 increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is a median rating).” Outside of the high-end market, most restaurants depend on low-skilled labor to run their businesses. With profit margins already slim, a wage hike for their low-skilled employees could lead to shuttered establishments.
In the same way, when a massive federal minimum wage increase was being contemplated in Washington D.C., the Congressional Budget Office (CBO) found that even a three dollar increase could kill up to a million jobs.
Regardless of numerous examples to the contrary, local, state, and federal lawmakers alike continue to push minimum wage hikes as an indisputable positive for low-income workers. It’s true that some may reap the benefits, but experience demonstrates that others lose their jobs, sinking even further into poverty.
Missouri is the rare exception to this rule. After the state legislature stepped in and overrode the $10 minimum wage set by the city of St. Louis, the lower statewide wage of $7.70 would be reinstated. Governor Eric Greitens explained why the state took this unusual step, “Politicians in St. Louis passed a bill that fails on both counts: it will kill jobs, and despite what you hear from liberals, it will take money out of people's pockets.”
Let’s hope that states and cities use the example of the Gov. Greiten and Missouri lawmakers to begin the rollback of these disastrous minimum wage increases before other localities suffer like Seattle.