Last night the election results revealed wins for Republicans in almost every state. But in four states where the GOP gained ground — Alaska, Arkansas, Nebraska, and South Dakota — the poor and unskilled suffered a loss.
In each of those states, voters passed ballot measures that will increase the government-mandated minimum wage. Beginning in 2015, the wage in South Dakota will increase to $8.50 an hour. In 2016, Alaska’s wage will be $9.75 an hour and $9 an hour in Nebraska. Arkansas will also raise the wage-floor to $8.50 an hour by 2017.
While the measures appear compassionate — who doesn’t want hard-working people to receive more money? — the effect will be that each of those state will likely see unintended consequences of the action.
Here are four ways the increased minimum wages will hurt low-skilled workers:
1. Minimum wage laws will reduce the number of low-skilled jobs —even in states that didn’t raise the wage — In 1950, there were over 81,000 gas stations and only about 200 self-service stations (almost all in California). Self-service stations weren’t popular until the two gas shortages in the 1970s (1973 and 1979) caused higher fuel prices that led consumers to look for pricing relief. Almost overnight, full-service stations became all but extinct—taking an entire sector of low-skilled jobs with it.
Rapidly increasing the minimum wage will have the same effect. A small group of employees will see their pay increase while many more would find their jobs disappearing completely, never to come back. Because most of the increases won’t occur for 2-3 years, employers have time to find alternatives to the increased cost. One of the most likely changes will be automation in the fast-food industry.
In Europe, McDonalds has ordered 7,000 TIOSs (Touch Interface Ordering Systems) to take food orders and payment. In America, Panera Bread will replace all of their cashiers with wage-free robots in all of their 1,800 nationwide locations by 2016. There is even a burger-making robot that can churn out 360 gourmet hamburgers per hour. Increasing wages will encourage corporations to speed up the implementation of automated services. By the time the wages go into effect in Arkansas, there will likely be fewer fast-food jobs available.
But the corporations won’t just use the automation in states with high minimum wages; it’ll be more cost-effective to roll them out nationwide. So the unintended consequences in these four states will affect the labor market for the whole country.
2. Minimum wage laws don’t substantially affect poverty — Most people who support or oppose minimum wage laws and/or increases share a common objective — helping the working poor. Because both sides have noble intentions, the merits of the debate over minimum wage laws and minimum wage increases should be based on empirical evidence that it will actually help, rather than harm, the poor.
In a piece for the National Center for Policy Analysis, David R. Henderson explains there are two myths about minimum wages and the poor:
Most workers earning at or close to the minimum wage are not the sole earners in a household and most of them are not in poor households. For those two reasons, raising the minimum wage is not a targeted way to help poor people.
Henderson notes that from 2003 to 2007, 28 states raised the minimum wage to a level higher than the federal minimum wage. Using this as a basis for study, San Diego State University economics professor Joseph J. Sabia and Cornell University economics professor Richard V. Burkhauser examined the effects this had on poverty levels in those states. The result shows that there was no difference in poverty levels in those states as compared to states with lower minimum wages.
Further, they calculated the effects of a proposed increase in the federal minimum wage to $9.50 on workers then earning $5.70 (or 15 cents less than the minimum in March 2008) to $9.49. They concluded that increasing the minimum wage from $7.25 to $9.50 per hour “will be even more poorly targeted to the working poor than was the last federal increase from $5.15 to $7.25 per hour.”
3. The minimum wage redistributes wealth from the low-skilled poor to the more skilled working poor and middle class — Many supporters of minimum wage increases mistakenly believe that increases in wage rates are transfers of wealth from employers and investors to the workers. But as Anthony Davis explains, the money to pay for the increased wage must come from at least one of four places: higher prices for consumers, lower returns to investors, lower prices to suppliers, or a reduced work-force. Empirical research has shown that the primary effect of minimum wage increases is reduced employment, which essentially transfers the wealth (in unearned wages) from the less skilled to the more skilled working poor and middle-class teenagers.
4. Minimum wage increases disproportionality affect African Americans — Employment among African American males between the ages of 16 and 24 is disproportionately responsive to the minimum wage. A ten percent increase in the minimum wage would reduce employment by 2.5 percent for white males between the ages of 16 and 24, 1.2 percent for Hispanic males between the ages of 16 and 24, and 6.5 percent for African American males between the ages of 16 and 24. Professors Even and Macpherson estimate that in “the 21 states fully affected by the federal minimum wage increases in 2007, 2008, and 2009,” young African Americans lost more jobs as a result of minimum wage hikes than as a result of the macroeconomic consequences of the recession.