The Folly of the Fight for $15 Movement: It Will Hurt the Poor
Minimum wage laws often hurt the very people they are intended to help.
Other than a general, palpable, and sometimes hysterical, antipathy to Donald Trump, there is perhaps no issue that unites the new progressive movement like the so-called “Fight for $15.” In a nutshell, the hardcore left-wing of the Democratic Party believes that every American is entitled to earn a minimum wage of USD $15 an hour. The Bernie Sanders wing is increasingly taking over party organs at the state and local levels, and demanding that Democratic candidates adhere to its militant brand of socialism.
Bernie-endorsed candidates have had mixed results so far in primaries. Yesterday, however, two Berniecrats won key primaries: Ben Jealous in the gubernatorial primary in Maryland, and newcomer Alexandria Ocasio-Cortez defeated Joseph Crowley, in New York’s 14th Congressional district: a Queens and Bronx based district with a considerable Latino population. This was particularly a surprise because Crowley was top leader in the House, and had been widely expected to be a leading contender for Speaker of the House if the Democrats take back the Senate.
Bernie Sanders and his followers are quick to pitch simple solutions for complex economic problems. The problem is, such solutions demonstrably fail in real world settings. Sanders examines the world and sees that there is poverty: therefore by his logic, if we interfere in the labor market, and force anyone who provides a job to offer a set minimum wage, we will end poverty.
The problem is that Sanders and allies are completely oblivious to the unforeseen consequences of such simplistic solutions. Ultimately, minimum wage schemes often hurt the very people they are intended to help.
Sanders proposes ridiculous schemes because he has no understanding of how the free market works. He has never worked in the private sector, and has been enjoying sucking at the government teat for the better part of four decades. He knows nothing about running a small business, or what the effect of such a policy would have on small business.
Workers who earn at the lower end of the pay scale are predominantly found in two industries: food services and retail. In Bernie’s class struggle perspective, greedy employers and business owners would rather hoard their ill-gotten wealth, than give their employees the wages they deserve. In the reality of entrepreneurship and capitalism, nothing could be further from the truth.
Restaurants and retail stores are extremely low margin businesses. Employers will hire employees if they generate a profit for their business; not because it is their social obligation to provide jobs. If an employee generates $11 an hour in income, then an employer can afford to pay an employee $10 an hour. If an employee generates $16 an hour, an employer can afford to pay $15 an hour. No entrepreneur is ever going to hire an employee if doing so is ultimately going to lose money for the business.
Bernie Sanders may succeed in raising the minimum wage at the national or various state level, but he will not be able to succeed in preventing companies from firing workers. And that is exactly what will happen.
These will be the consequences of a $15 an hour minimum wage; many of which will harm low income workers.
As it stands now, relatively few restaurants and retail outfits in the United States or Latin America are using automation, and virtually none are maximizing the potential for automation. That will change if a $15 an hour minimum wage is introduced. Across Europe, kiosks are rapidly replacing food service industry workers. Expect that trend to accelerate worldwide.
The fast food industry will see rapid automation in everything from orders and customer service, to food preparation, to inventory and logistics. Fewer and fewer human beings will soon be working at fast food restaurants. Businesses will automate out of necessity; a kiosk or a robot is simply better, in many cases, for running a profitable business.
Restaurants and Shops Will Close
A high minimum wage will have a chilling effect for the entire restaurant and retail industries: currently restaurateurs and small shop owners generally enjoy very slim operating margins, in the realm of 5% to 10%. Many restaurants do not survive their first six months or year, and must close their doors. A $15 an hour minimum wage will make a considerable number of restaurants’ business models inoperable, and they will close their doors.
Expect to see a hollowing out of the middle in the restaurant industry, with casual chain dining becoming the norm. Think Panera, where you will now go in, order your food at a kiosk, take a buzzer, and then go pick up your food at a counter. If you are a respectful and considerate customer, you will then clear your own dishes, before heading to your car.
The typical small, family-run restaurant will not be able to continue business as normal, and they will close, or drastically alter their business model to keep costs in check. Consider that a typical small family-run restaurant must now pay employees $120 per day for an 8 hour shift. A typical restaurant, which needs 4-6 such employees even for the smallest operation, would now need to earn $480 to $720 a day, just to cover labor costs! That is before paying rent, utilities, taxes, advertising, and food and beverage purchases.
Of course, there will still be plenty of high-end restaurants with $20 and $30 and $40 entrees, for that special night out. But they will become the exception, not the norm, and prices at sit-down restaurants will rise by considerable amounts; so much that only the wealthy will be able to dine their regularly.
It Will be Harder to Find Help in Retail Stores
When was the last time you went into a store and had a hard time finding someone to help you? Regardless of whether it was a clothing outlet, a supermarket, or a big box chain, it seems like it is harder and harder to find an employee to help you with your shopping needs. Expect for that trend to drastically accelerate if the “Fight for $15” movement gets their way. Businesses will simply not be able to pay a team of employees $15 an hour to roam the aisles helping customers. You will be on your own. Look for an information kiosk, and hope that it can help you.
Fewer Jobs, More to do In Less Time
Companies that once hired more employees and paid them less per hour, will now be forced to hire fewer employees, and require that they do more in the same amount of time. This is common sense. For those businesses that still require the human connection, a $15 an hour job will place increasing demands on employees’ time.
The fortunate few who do land $15 an hour minimum wage jobs will now have far greater demands and expectations. And, of course, if employers see that existing positions do not make economic sense at $15 an hour (ie. turn a profit) they will simply eliminate those positions.
Does Bernie Sanders expect a small business to keep employees on, if they are losing money?
It Will be Harder for Teens, Minorities, and Residents of Low-Income Communities to Find Work
If it was difficult for a teenager, or racial minorities, or residents of impoverished, low-income communities to find work, before, why does Bernie Sanders think that raising the cost of hiring them by 10% or 20%, or even as much as 50%, is going to make it easier to find a job?
There will now be more workers competing for fewer available jobs, and those at the bottom of the income scale, and the youth, will be hit the hardest.
If I could sit down with Bernie Sanders, and then take him to walk a rough neighborhood in DC, New York, Los Angeles, or Chicago, here is what I would ask him: “Bernie…if this community (with a $10 a minimum wage) did not have enough businesses that were hiring local residents before…what on earth makes you think that raising the minimum wage to $15 an hour is going to bring entrepreneurs here to start businesses and hire people?”
As it stands now, it is hard enough for certain groups to find gainful employment. That difficulty will only increase for low-skilled workers with a $15 an hour job. They will not be able to find jobs: they will be replaced by a robot or a kiosk, the business they would have worked out will have gone out of business, or their job will be shipped overseas.
A small business exists to make a profit, not to provide employment as a social responsibility
If an entrepreneur is providing a job at a loss, that is not a business. That is a charity. Period.
The Sanderistas, or progessives, or social justice warriors, have no answer to these concerns. They are fundamentally and blissfully ignorant of free-markets: how they work, and the prosperity, stability, and wealth that they create wherever they go.
Nothing is more important for libertarians and lovers of free-markets, than ensuring that Bernie and his socialist Berniecrats do not succeed in their goals.