$15 Minimum Wage

Posted by Deepish Thinker on October 17, 2013
Current Events, Economics, Seattle, US Politics

There is currently a great deal of enthusiasm in Liberal circles for raising the minimum wage. In fact, a $15 minimum wage is on the ballot for upcoming elections in the Washington city of SeaTac and both Seattle mayoral candidates have expressed interest.  To many this seems like an idea whose time has come.

The optimistic case for a $15 minimum wage goes something like:  Low wage workers spend a high percentage of their incomes, so increasing the minimum wage will increase demand which, along with lower turnover, higher productivity and higher employee satisfaction, will more than compensate employers for the increased wage cost, so there will be no impact on employment. 

In short, it’s all sunshine and bunnies.

There are several potential problems with this argument.  However, if you want to dissuade a Liberal friend from voting for a $15 minimum wage it might be better to point out that even if the optimistic case turns out to be substantially true in the short term, raising the minimum wage makes low skill workers more expensive relative to possible substitutes, foreign labor and automation.  Given time employers will find ways to utilize those substitutes.

Consider your local McDonald’s restaurant.  Low wage workers take your order, fill it and clean up the mess you leave behind.  McDonald’s has experimented with automating all of these things to some degree.  The reason your local McDonald’s still employs a bunch of people is that they’re currently cheaper and more flexible than the automation alternatives.  Double the cost of employing those people and the cheaper part may no longer be true.