On April 4, when New York Governor Andrew Cuomo signed legislation raising the minimum wage from $9/hr to $15/hr, he said:
“By moving to a $15 statewide minimum wage and enacting the strongest paid family leave policy in the nation, New York is showing the way forward on economic justice…These policies will not only lift up the current generation of low-wage workers and their families, but ensure fairness for future generations and enable them to climb the ladder of opportunity. I am proud to sign these programs into law, because they will ensure a stronger, fairer and brighter future for all New Yorkers.”
The wage hike will take place gradually over the course of two to five years, depending on the type of business, and where it is in the state.
National Review interviewed Jamie Richardson, the vice president of White Castle. According to Richardson, approximately 30 percent of every sales dollar goes to hourly employee salaries, “and that doesn’t cover management.”
Richardson says they’ll have to restructure the way their business operates to stay above water, telling NR that even small price increases over the years have been noticed by customers, and that it’s a ripple effect in a market where competition is stiff:
“Is there any room to raise prices to cover costs? We think we’d need to increase menu prices by something like 50 percent. It’s not something we’ve done before. It’d be catastrophic.”
Not only that, Richardson says that 444 of the top 450 jobs at White Castle are held by people who started at the bottom, and climbed the ladder over time. A mandated increase in the minimum wage would effectively put an end to White Castle’s ability to keep that cycle going.
He’s right. Common sense dictates it.
Here’s a simplified example:
A franchisee who owns a fast-food restaurant employs 60 people, 40 of whom are hourly employees. These employees are paid $10/hr, and work a collective 1,200 hours a week (an equal mix of part-time and full-time). That’s $12,000 a week going out in employee salaries, not including management. If the minimum wage increases to $15/hr for these 40 employees, $12,000 a week becomes $18,000 a week.
To cover the extra cost, this franchisee must fire current employees, stop hiring new employees, or raise their prices. The one thing they cannot do is nothing. A profit must be made in order to keep the business running, and invest in further developments.
Let’s go over each of these options.
Firing current employees to reduce the burden of an increased wage defeats the alleged purpose of increasing the wage in the first place. Forcing businesses to fire employees in order to stay afloat in the long run means that a new segment of previously employed people will now be out of a job, earning exactly nothing. If Governor Cuomo’s goal is to help the working poor, he’s done just the opposite.
A hiring freeze means that any opportunity a poor person might have had to get a low-wage starter job is gone. Again, if Cuomo’s intent is to help the working poor, he’s failing.
Lastly, a price increase. If a typical McDonald’s Big Mac costs $3.99 plus tax, it will now cost $5.99 plus tax–which won’t go over well with the general McDonald’s customer. This will cause people to go elsewhere for their food, or stay home. What this does is cost jobs. If a restaurant sees a decline in sales and profitability, they will take actions to stay viable.
What people tend to forget is that most fast-food restaurants aren’t operated by big corporations, but by franchisees, who may own a single restaurant. They operate on slim margins, and any significant decrease in sales will necessarily lead to cost-cutting measures.
Once again, if Cuomo’s desire is to help the working poor, he’s whiffing big time.
We’ve seen the results play out in Seattle, which began to raise its minimum wage to $15/hr last April. From April to the end of December 2015, minimum wage increased from $9.32 to $10 or $11. After January 1, that went up to between $12-$13, depending on the business.
American Enterprise Institute (AEI) reports:
“Early evidence from the Bureau of Labor Statistics (BLS) on Seattle’s monthly employment, the number of unemployed workers, and the city’s unemployment rate through December 2015 suggest that since last April when the first minimum wage hike took effect: a) the city’s employment has fallen by more than 11,000, b) the number of unemployed workers has risen by nearly 5,000, and c) the city’s jobless rate has increased by more than 1 percentage point…”
“By both measures of employment, that April to December 2015 drop in Seattle employment was the biggest decline over any 9 month period since between April and December 2009 period during the Great Recession when there were similar, but slightly larger job declines. And the loss of more than 10,000 Seattle jobs…in just the three months of September, October and November 2015 establishes a new record for the greatest number of Seattle jobs ever lost over a three month period going back to 1990 when the BLS first started reporting the city’s monthly employment levels.”
This is basic economics. Given that, I have to wonder if there’s an ulterior motive at play here. Either Governor Cuomo is a complete moron (entirely possible), or he’s using this as a vote-getting strategy.
Appearing compassionate is the Democrats’ go-to move. Regardless of the outcome, the left always plays the game to their advantage. Hard truths leave a bad taste in the mouths of voters, but sugar-coated lies taste great–at least for a while. Then, when the negative effects of whatever nonsense the Democrats signed into law starts to become apparent, they find a scapegoat (usually Republicans), and the cycle continues.
Forcing businesses to raise their minimum wage to a number that–for many–is unsustainable is bad economic policy from every angle. Oh, but as Cuomo said, it’s not economic policy, it’s “economic Justice.” Doesn’t that sound so much better? Let’s vote for that guy!