The Costs & Consequences Of $15/Hour – The Update
The Costs & Consequences Of $15/Hour – The Update by Lance Roberts for Real Investment Advice
In 2016, I first touched on the impacts of hiking the minimum wage.
“What’s the big ‘hub-bub’ over raising the minimum wage to $15/hr? After all, the last time the minimum wage was raised was in 2009.
According to the April 2015, BLS report the numbers were quite underwhelming:
‘In 2014, 77.2 million workers age 16 and older in the United States were paid at hourly rates, representing 58.7 percent of all wage and salary workers. Among those paid by the hour, 1.3 million earned exactly the prevailing federal minimum wage of $7.25 per hour. About 1.7 million had wages below the federal minimum.
Together, these 3.0 million workers with wages at or below the federal minimum made up 3.9 percent of all hourly-paid workers. Of those 3 million workers, who were at or below the Federal minimum wage, 48.2% of that group were aged 16-24. Most importantly, the percentage of hourly paid workers earning the prevailing federal minimum wage or less declined from 4.3% in 2013 to 3.9% in 2014 and remains well below the 13.4% in 1979.’”
Hmm…3 million workers at minimum wage with roughly half aged 16-24. Where would that group of individuals most likely be found?
Not surprisingly, they primarily are found in the fast-food industry.
“So what? People working at restaurants need to make more money.”
Okay, let’s hike the minimum wage to $15/hr. That doesn’t sound like that big of a deal, right?
My daughter turned 16 in April and got her first summer job. She has no experience, no idea what “working” actually means, and is about to be the brunt of the cruel joke of “taxation” when she sees her first paycheck.
Let’s assume she worked full-time this summer earning $15/hour.
- $15/hr X 40 hours per week = $600/week
- $600/week x 4.3 weeks in a month = $2,580/month
- $2580/month x 12 months = $30,960/year.
Let that soak in for a minute.
We are talking paying $30,000 per year to a 16-year old to flip burgers.
Now, what do you think is going to happen to the price of hamburgers when companies must pay $30,000 per year for “hamburger flippers?”
Not A Magic Bullet
After Seattle began increased their minimum wage, the NBER published a study with this conclusion:
“Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.”
This should not be surprising as labor costs are the highest expense to any business. It’s not just the actual wages, but also payroll taxes, benefits, paid vacation, healthcare, etc. Employees are not cheap, and that cost must be covered by the goods or service sold. Therefore, if the consumer refuses to pay more, the costs have to be offset elsewhere.