$15 minimum wage likely to hurt workers
Supporters of a bill to raise Connecticut’s minimum wage to $15 over three years say it’s an act of fairness. But if the workers those lawmakers intend to help are harmed instead when their hours are cut, their pay drops or they lose their job, how fair is it?
Recent research on the impact of minimum wage bills around the country that rise higher than the market can sustain, show there is a tipping point where people at the low end of the pay scale are hurt far more than they are helped.
Under Connecticut’s last minimum wage law, pay was bumped up by 45 cents the first two years, and 50 cents in 2017. Under the new proposal, the size of increases rises precipitously — $1.90 the first year, and $1.50 in each of the two following years, landing at $15 an hour. That’s almost a 49-percent increase in pay in just three years. Small businesses would be especially hard hit.
It’s worth looking at a study last year contracted by the City of Seattle to measure the impact of that city’s second incremental wage hike to $13 an hour, on the way to $15. Nine months after that increase, about 5,000 low-wage jobs disappeared, the number of hours worked by low-wage workers dropped by 3.5 million hours, and their wages dropped by $6 million.
This year, a study by Harvard Business School looked at the connection between minimum wage increases and restaurant closures. With a $1 minimum wage hike, five-star restaurants weren’t significantly impacted, but those with a 3.5-star rating had a 14-percent higher closure rate.
A December study of California’s minimum wage hikes over three decades found there was a measurable decrease in employment among affected employees. Each 10-percent increase in minimum wage led to a nearly 5-percent reduction in employment in industries with a higher percentage of minimum wage employees.
Businesses that hire many lower-wage workers are more likely to have razor-thin profit margins. Facing higher labor costs, the owner could consider raising the price of the product, but consumers may not be willing to pay more. The other option is to reduce employee hours or lay off workers.
There are costs beyond just paying minimum wage workers more. Employers must raise pay for those making a bit more than that amount, or morale and productivity will suffer. Employers also face higher attendant costs such as increased payroll taxes, unemployment insurance and workers compensation premiums. Many small businesses may simply not be able to afford all the added costs.
The marketplace is complex, and lawmakers supporting the “Fight for 15” may find their efforts deal a knock out blow to both employers and employees. They must consider the unintended consequences.