Minimum wage workers in 19 states are bringing in 2015 with expectations that they’ll make more money this year than last. While the recent pay bump will no doubt lead to higher income, what many who supported wage hikes like Seattle’s $15 per hour minimum fail to consider is where that money comes from.
And no, it’s not going to be printed and distributed by the government (at least not at first).
It turns out that when you mandate wage increases for employees, said increase in compensation is actually paid for by the employer. As we noted in Stupidity Has a Price, that means one of three options:
Businesses in the area just saw a massive increase in their labor costs (and let’s not even mention new Obamacare health insurance requirements and taxes). There are really just three possible solutions here:
1) Businesses will be forced to raise prices, which will essentially wipe out the benefit of any wage increase because while employees may make more money they’re now paying more for the same goods.
2) Businesses will have to cut back hours. If you force a business to pay 50% more per hour per employee and consider how much money that is, many will have no choice but to cut back hours, which effectively leaves the employee making the same amount of money.
3) Businesses will have to let people go. It’s simple. If their revenue stays the same but their labor costs go up a business has no choice but to consolidate its work force.
The effects have already started appearing. What this boils down to is a basic game of arithmetic. If a business has to pay more for labor, they will subsequently push those costs onto consumers (and many of those consumers turn out to be the very people whose rising wages are responsible for the rising costs).
This may be hard to believe for those who blame America’s poverty levels and low wages on the private sector as opposed to the disastrous policies of our central bankers and government leadership, but it’s true. An analysis from The Heritage Foundation found that Seattle’s minimum wage hike will lead to across-the-board price increases with fast food chain customers set to see a whopping 38% increase in the cost of their super sized mega meals.
A visual from The Daily Signal sums it up and finally explains why we can’t just force businesses to raise everyone’s wage to $100 per hour:
One unforeseen problem is that many of the workers who will see a wage increase may be pushed into a higher income bracket causing them to lose access to public services like Electronic Benefits Transfer or other income assistance programs.
And for those on EBT or other social services that help them pay for the bare essentials and make ends meet, they are about to see price increases in food, clothing and everything else as businesses move to offset increased labor costs.
But no need to panic, because even though the government created these problems there is absolutely no doubt that as soon as people start complaining about not being able to afford their living expenses our elected officials will find a way to finally, once and for all, end the war on poverty.