Viewpoint: Artificial Wage Hikes Are Not the Path to Prosperity

By Eric Oppenheim Jan 6, 2016
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There’s a battle in many municipalities and cities across the country where elected officials and groups are advocating to increase the minimum wage to $15 per hour.

On the surface, it sounds reasonable for workers to want to earn higher wages. There’s no question that living on the current minimum wage is hard—especially as prices keep increasing.

But while increased-minimum-wage proponents’ hearts may be in the right place, their heads are not. Wage controls backfire. They reduce job opportunities for those employees who need them most, exacerbating wage stagnation rather than alleviating it.

Training Wage

What proponents misunderstand is that the minimum wage is a training wage in jobs that gives young and low-skilled employees the skills necessary to quickly earn far more than the minimum wage.

And the evidence suggests that the vast majority of them do so: Two-thirds of minimum-wage employees earn a raise within their first year on the job, according to a study by economists at Miami and Florida State universities.

Readjusting Operations

What do changes in the minimum wage, or starting wage, mean to cities and small businesses across the country? Many small businesses will be readjusting their operations to deal with the recent increases to the starting wage, which will impact employees as well as consumers in the following ways:

  • Elimination of critical entry-level jobs.
  • Reduction in staff size.
  • Reduction in available shift hours with no option for overtime.
  • The creation of a part-time society that will decrease cross-training among job duties and curb the growth of entry-level employees to middle management.
  • Heavier strain on service staff, causing a decrease in service attention and quality of experience.
  • Wage compression that will eliminate the differentiation between different job positions and disincentivize workers to move up.
  • Increases in prices to the consumer.

This is certainly not the intent of increasing the starting wage. Supporters of the $15 minimum wage often argue it will help the poor and stimulate economic activity. Opponents, however, argue such policies will actually hurt the poor by limiting job opportunities. How little or how much it will hurt or help is an issue being argued daily, but even the nonpartisan Congressional Budget Office agrees that at least some job loss is expected.

Several studies also show that industries with low profit margins, like restaurants and retail, are more likely to be hit the hardest. A June report from the investor rating service Moody's claims the minimum wage doesn't even have to go up to $15 an hour for negative effects to occur.

Unionization Effort?

From rallies to media marketing campaigns, the “Fight for $15” movement has led efforts to raise the minimum wage to $15 per hour. Though claiming to be a grassroots worker movement, the group is highly influenced and funded by the Service Employees International Union (SEIU).

The SEIU has been criticized by some, like Worker Center Watch, for using the Fight for $15 protests as a way of bypassing labor laws to more easily unionize fast-food workers. Additionally, according to a report from the Center for Union Facts, a minimum-wage increase would benefit the SEIU directly while hurting nonunionized SEIU competitors.

There’s no question that stagnating wages are one of the great problems of our time. But legislating wages higher is not the answer because it means that many people will not have the opportunity to get a job at all, thus missing out on training that would allow them to quickly earn much more than the minimum wage.

Eric Oppenheim, SHRM-SCP, is a member of the SHRM Labor Relations Special Expertise Panel and is the executive vice president of Republic Foods Inc. in Rockville, Md. The views in this article do not necessarily reflect the position of SHRM.

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