The Real Cost of Minimum Wage

by Esther Rhoads, Age 14

The Real Cost of Minimum Wage

Imagine you have just begun your first job as a teenager. Your parents rejoice, as you have finally climbed the first rung of the ladder to self-sufficiency. A month later, the state you live in raises the minimum wage to 15 dollars per hour. You are excited; this is positive news, right? Unfortunately, you are fired the following week. Not only does a higher minimum wage make it harder for entry-level workers to find a job, but it also forces small companies to fire less skilled workers or even shut down altogether.  Employees who keep their jobs often lose benefits and hours. Finally, to understand the ill-effects of a minimum wage, the supposed savior of the minority, you need only to look at its historical roots.

The notion that raising the minimum wage will reduce income inequality seems logical on the surface.  And since it is often minorities and single moms working low-income jobs, raising the minimum wage should reduce gender and racial inequality as well. Not only that, but don’t entry-level workers deserve minimum wage? As Robert Reich says in his video The Big Picture: Fight for $15, “No one who works full time should be impoverished.” So why would any ethical person argue against raising the minimum wage?

          Though some believe a higher minimum wage would help entry-level workers, in reality, the opposite happens. When the minimum wage is increased, the first rung on the job ladder is sawed off. Merv Crist, owner of The Prime Cut, explains why in John Stossel’s video segment Minimum Wage: “Minimum wage jobs are an entry level job to get someone some experience to do something. You raise that high enough, you cut those people out of the market, completely!” Ironically, the minimum wage actually keeps more people jobless. 

Moreover, a higher minimum wage eliminates jobs and even entire businesses. While large companies, such as Walmart or Google, are less affected, smaller businesses do not share the same security. Businesses, such as Z Pizza in Seattle, have been forced to close, unable to meet increased minimum wage requirements.[1] Similar situations have grown more numerous. On New Year’s Eve 2018, the minimum wage in New York increased from 13 to 15 dollars an hour. Jon Bloostein, who operates six New York City restaurants, reported that “the effect of the higher minimum wage on payroll... represents ‘an immense cost’ to his business.”[2] So, even if a business is able to survive, it cannot afford new hires and may be forced to let go of others. 

          Even those lucky enough to keep their jobs might have their hours or benefits reduced. Bloostein conceded, “‘We lost control of our largest controllable expense… So in order to... stay in business, we’re cutting hours.”[3] In Oakland, child-care assistant Eunice Medina at Reaching Beyond Care “was thrilled when Oakland’s 36% increase in the minimum wage took effect in March.”[4] Medina quickly realized, however, that this was not a good change.  Her employer, Asiya Jabbaar, says she had “no choice”[5] but to cut Medina’s work hours.

          To see first-hand how raising the minimum wage would affect local businesses, I interviewed Nicole Sellors, manager of The Daily Grind in Marietta, Georgia.  Using a cup of coffee as an example, she explained that if the minimum wage is doubled, so would the cost of everything else. Consequently, she would have to charge more, to meet not just her payroll, but also the increased cost from her suppliers, who will charge more so they can pay their minimum wage employees. “Right now,” she said, “you can get a cup of coffee for about $2.75. Imagine coming in for your plain cup of coffee and it’s about six bucks… People would not want to pay for that.” When I asked if she’d continue to hire entry-level workers if the minimum wage was raised, she replied, “No... We wouldn’t be hiring; we’d be laying people off.” Consequently, service quality would decline since she would not be able to afford sufficient staff.

          With all the talk that the minimum wage is supposed to help the destitute, it’s ironic that its early supporters saw it as a way to rid America of the lower class precisely because they knew it would eliminate low-wage workers from the workforce. Congressional debates about the minimum wage during the Great Depression reveal that early advocates of the minimum wage wanted to use it to protect whites from black labor, as blacks were willing to work for less pay. For example, Representative Clayton Allgood insisted that they needed the minimum wage to curb “cheap colored labor that is in competition with white labor.”[6] Economist Walter Williams writes that in the early twentieth century, “71 percent of blacks over nine years of age were employed, compared to 51 percent for whites.” After the Davis-Bacon act (the law that created minimum wage) was enacted, black unemployment shot up relative to whites.[7] But it gets worse. The minimum wage didn’t just target blacks, but an entire class of “undesirables.” Eugenics advocates realized that with a minimum wage, the unemployables from the community could “simply be stamped out.” It would sift out those who did not produce enough to be worth the minimum wage, making them jobless and thereby tagging them as people with inferior genes, the point of eugenics.[8] Frank Taussig, a Harvard economist, said, “We have not reached the stage where we can proceed to chloroform them once and for all; but at least they can be segregated, shut up in refugees and asylums, and prevented from propagating their kind.’”[9]

                   Obviously, excitement over a mandated higher minimum wage is not well-placed.  The list lengthens of workers who have lost hours, or benefits, or even their jobs. Furthermore, the unemployment resulting from an increased minimum wage will impede the economic growth that it is meant to achieve. So what is the real cost of the minimum wage? Ask the victims, and you decide.

[1] Mark J. Perry, “’The Faces of $15’: Real Stories of the Real Consequences of Raising the Minimum Wage,” https://www.aei.org/publication/the-faces-of-15-real-stories-of-the-real-consequences-of-raising-the-minimum-wage (Jan. 11, 2019).

[2] Megan Cerullo, “NYC Restaurants Cutting Staff Hours as Minimum Wage Hits $15,” https://www/cbsnews.com/news/nyc-restaurants-cut-staff-hours-to-cope-with-minimum-wage-hike-hitting-15 (Jan.16, 2019).

[3] Ibid.

[4] Perry, p. 3.

[5] Ibid.

[6] Walter E. Williams, Race & Economics: How Much Can Be Blamed on Discrimination? (Hoover Institution Press Publication, 2011), pp. 33-34.

[7] Ibid.

[8] Thomas C. Leonard, Illiberal Reformers: Race, Eugenics and American Economics in the Progressive Era (Princeton University Press, 2016), pp. 159,161,165.

[9] Ibid, p. 165.