By Jerry Fraser
In his March 22 column, John Burbank tries to make the case that the mandated increase in the minimum wage has resulted in an increase in jobs. He cites statistics showing that job increases occurred simultaneously with an increase in the minimum wage. This is about as credible as the rooster claiming that the sun rises because he crows. Just because two events occur simultaneously doesn’t mean that one causes the other.
To further his case, he uses the restaurant industry as an example for how employers can cope with a rise in the minimum wage by shifting income from tips to wages without impacting the cost to customers. The restaurant industry is one of the few, or maybe the only industry that can employ such a mechanism. This mechanism might work for high-end restaurants such as Anthony’s, although some of their staff would see an income reduction because loss of tips would more than offset the increase in their wages. It might be great for employees of Denny’s, provided they get to keep their jobs, because Denny’s would still be forced to raise prices, which would result in loss of business and a corresponding loss in jobs — this is Economics 101. Walmart, MacDonald’s and most other low-wage companies will ultimately be forced to raise prices to cover the extra cost of wages. The patrons of these companies tend to be low-income, so they will bear most of the cost of the higher minimum wage along with those that lose their jobs at those companies.
Companies will also find other ways to cope, such as increasing automation to eliminate jobs. McDonald’s has already announced that they will install self-order kiosks in all of their U.S. stores. There has also been a robot developed that can flip burgers and place them on buns. Self-order kiosks are already widespread in some European countries with high wages. Not coincidentally, the youth unemployment rate is 20 percent to 30 precent in those countries.
One tragic consequence of high minimum wages is that people who are not worth that wage, such as people with disabilities or people with Down syndrome will be denied employment. They will not only lose their income, but also the structure, satisfaction and social contact that a job provides. The bottom line is that companies will not employ someone unless that person can provide more value to the company than the cost of his or her employment.
There are better mechanisms to help low-income families than increasing the minimum wage, such as the Earned Income Credit (EIC), which is basically a negative income tax. The EIC gives nothing to the 18-year-old high school dropout who works at McDonald’s and lives with his parents. However, for a single mom with two children earning the current minimum wage, the EIC is about $5,000. She also gets an additional child tax credit of $2,000.
Mr. Burbank’s hypothesis looks valid in the current environment where the economy is booming and wages are rising because of a shortage of workers, but it will fall apart fast when the next recession occurs and the high unemployment rate will be exacerbated by the higher legislated minimum wage.
Jerry Fraser lives in Snohomish.
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