To raise concerns about minimum wage and fair compensation, the natural inclination is to turn to either the government or the labor unions. We assume that these entities would stand up for the needs of the people, while businesses only seek to pad their bottom lines. Some workers will certainly benefit from an increased minimum wage. However, an increase can also lead to devastating effects for workers, particularly those whom the law seeks to protect.
Beginning April 2015, the city of Seattle faces the implementation of a $15 minimum wage, which is the highest in the country. The legislation calls for small companies with fewer than 500 employees to reach a $15 wage by Jan. 1, 2021, and larger companies to provide $15 by Jan. 1, 2017. Gov. Bill Murray claims the law is “a powerful tool for helping low-income workers and families in their communities.”
On the surface, this law appears to bring positive changes to minimum wage workers in Seattle, but the unintended consequences far outweigh the benefits. Nobel Prize-winning economist Milton Friedman, in his book “Free to Choose,” claims that “the minimum wage law requires employers to discriminate against persons with low skills.” Many companies will choose to forgo hiring low-skilled workers if they must pay more. This contributes to the widespread unemployment that many teenagers face, particularly African-American teenagers, which Milton claims is “both a scandal and a serious source of social unrest.” Rather than mandating higher wages, it would be more effective to allow teenagers to work at lower-wage jobs to gain the necessary skills that will help them become more employable in the future.
Additionally, minimum wage laws take a strong toll on small businesses. In fact, small businesses have filed a federal lawsuit against the city of Seattle. Within the lawsuit, the International Franchise Association claimed that the Seattle minimum wage law “unfairly and irrationally discriminates against interstate commerce generally, and small businesses that operate under the franchise business model specifically.” Franchises will take the biggest hit because the size of the company, and thus the speed with which they must comply with the law, is determined by the parent company, not the franchise itself. USA Today provides the example of “an independently owned Holiday Inn Express in Seattle with 28 workers.” This independent Holiday Inn will have a much shorter timetable to adjust its wages than other businesses of its size because Holiday Inn as a whole has more than 500 employees.
In effect, this will create an unfriendly business environment in Seattle, and the effects will reach beyond the city. Businesses will not want to establish themselves in the city because of the increased burden. Former U.S. Solicitor General Paul Clement claims that the law crosses into dubious legal territory because it negatively impacts companies outside of Seattle, and Congress is the only governmental organization that can regulate interstate commerce.
We need to look to the free market to raise wages. When we rely on governments or unions to increase the minimum wage, it must come at the expense of either businesses or the taxpayers. However, Friedman emphasizes that higher wages don’t come at anyone’s expense when they result from “higher productivity, greater capital investment, more widely diffused skills.” As a result, “there’s more for the worker, but there’s also more for the employer, the investor, the consumer, and even the tax collector.” Raising the minimum wage does more harm than good; we must seek out a solution that improves the quality of life for everyone.
Contact Lindsey Hubbart at [email protected]
