By: David Hebert

The federal minimum wage was last raised fifteen years ago this month. Vice President Harris has been on record supporting raising this to $15 per hour, co-sponsoring a proposed bill for doing so with Sen. Bernie Sanders in 2019. Today, lawmakers in Arizona, Alaska, and Oklahoma, not to mention plenty of municipalities throughout all fifty states, are considering raising the minimum wage of their respective areas.

Progressives will tell you that the passage of such laws will help workers in their uneven struggle with the bosses. Others insist that this will also pump more money into the economy.

Nothing could be further from the truth. Let’s consider the recent experience of California. It raised the minimum wage of restaurant workers from $16 to $20 per hour. In just the first two months after the law took effect, 10,000 jobs were destroyed and prices at restaurants have risen.

In 2019, lawmakers in New York City passed a nearly identical piece of legislation. They increased the minimum wage from $13 to $15 per hour (equivalent to $18.72 today). The result was eerily similar. 90 percent of restaurants surveyed had raised prices, nearly 77 percent reduced employee hours, and 36 percent eliminated jobs. As then-president of the Queens Chamber of Commerce, Thomas Grech, pointed out, “[small businesses are] cutting their staff. They’re cutting their hours. They’re shutting down.”

None of this is difficult to understand.

Our everyday experiences tell us exactly what happens when the price of anything rises. When egg prices soared earlier this year, for example, consumers responded by purchasing fewer eggs. Likewise, when gasoline prices rise, US drivers reconsider travel plans. Some don’t travel at all.

When prices rise, people find substitutes to further reduce their purchasing of the now more expensive items. California, for instance, has the nation’s highest gasoline prices. That’s one reason why California has led the nation in electric car sales, which do not run on expensive gasoline.

Employers respond similarly. When workers become more expensive, employers seek to automate. In 2022, the Government Accountability Office reported that “Workers with lower levels of education and who perform routine tasks — think cashiers or file clerks — face the greatest risks of their jobs being automated.” Increasing the minimum wage will only make this more likely.

What minimum wage advocates won’t acknowledge – at least openly – is that wages are a price, specifically the price of labor. By proposing minimum wage increases, lawmakers around the country are effectively telling employers, “We want you to hire fewer workers.” Yet, when employers respond to this implicit edict by laying people off, blame is shifted to a myriad of superfluous explanations, none of which address the cluster of closures around the dates that minimum wage legislation takes place.

The simple fact is that when the price of anything increases, people respond by purchasing less. With minimum wage legislation, reduced employment is concentrated on the very people who are supposed to be the beneficiaries. Instead of raising wages by decree, lawmakers should put the horse before the cart and focus on increasing worker productivity which will in turn earn them higher wages.

This effect is so obvious that lawmakers use it to impact policy. Rep. Don Beyer of Virginia proposed a 1,000 percent tax on assault weapons. In his own words, this was proposed to “inhibit and restrict sales [of assault weapons].”

Special, additional taxes have also been levied on sugary drinks, alcohol, and tobacco. In each case, the goal is to raise the prices of these items to curtail their consumption in the name of public health and safety. 

Clearly, people understand that when the price of something rises, we purchase less of it. Similarly, lawmakers understand that if they want people to buy less of something, they can use policy to make it more expensive.

Given the disastrous effects of such policies, why then do bureaucrats continue to propose them? Perhaps lawmakers are so divorced from reality as to not see what is happening all around the country. More likely, they arrogantly believe that this time will be different; that their version of a minimum wage will work where every other has failed. Unfortunately, this is what every previous lawmaker believed, too. Just like them, today’s lawmakers will find that the laws of economics are as immutable as the law of gravity.

Lawmakers playing around with the price system do more harm than good and history is rife with examples demonstrating this. It is time for bumbling bureaucrats to cease their would-be machinations and allow private citizens to find ways to serve one another more effectively.

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This article (Minimum Wages Wreak Labor Havoc) was published on the AMERICAN INSTITUTE for ECONOMIC RESEARCH and is republished here with permission and attribution to the author David Hebert and aier.org.

About the Author: Dave Hebert, Ph.D, is a senior research fellow at AIER. He was formerly a professor at Aquinas College, Troy University, and Ferris State University.  He has also been a fellow with the U.S. Senate Committee on the Budget and has worked for the U.S. Joint Economic Committee.  Dr. Hebert’s research has been published in academic journals such as Public Choice, Constitutional Political Economy, and The Journal of Public Finance and Public Choice and popular outlets such as The Wall Street Journal, Investor’s Business Daily, RealClearPolicy, RealClearMarkets, The Hill, and The Daily Caller. He also serves as an Associate Director of The Entangled Political Economy Research Network and is the Managing Editor of The Journal of Markets & Morality.

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