On Friday the California legislature voted to raise the state’s minimum wage in 2016 to $10 an hour. The wage is currently $8 and will go to $9 next year. The question is: Will this really help the working poor or will it make things worse?
The argument for raising the minimum wage is that it will lift the standard of living for those workers who are in low skill jobs. This will allow them to be able to purchase more goods putting more money into the economy. Are they right or is will it only make things worse?
There are several reasons why raising the minimum wage will not help the poor, in fact it will hurt them, and that is profit. In order to survive businesses need to make a profit. Whether one likes it or not this is how they continue in business. Not only do they have to pay their workers, they also have to pay their taxes, rent, and other expenses. When a company makes a profit, they reinvest in the company, they may expand and hire more workers or they may raise the wages of all workers. Raising the minimum wage increases costs and cuts into this profit.
All businesses have a profit margin they must attain to stay in business. If they are forced to pay workers more, they won’t make this profit. If we look at fast food restaurant industry where most of the low wage workers are employed, they would have two choices, both harmful to their employees.
Their first choice would be to cut expenses by laying off workers or cutting their hours. This would also affect full time workers as they may cut back those workers hours which would also save the company from paying full time benefits. This is already happening as a result of Obamacare. Any gains made by an employee by the increase in the hourly wage would be negated by the loss of hours. The company would also be less likely to hire new, inexperienced workers, instead finding those who are already trained meaning that those entering the workforce would not be able to obtain jobs.
The second choice would be to raise prices. This would also hurt the very people that the increase in minimum wage are trying to help because it would likely cause a decrease in demand for their product which would again cause reduction in hours since the employees would not be needed to serve customers who are no longer coming in.
This would also add to the increased tax burden which California businesses are being saddled with. According to TaxFoundation.org California places the third highest tax burden on businesses in the country.
As the Republican minority leader in the California Senate said “It’s a feel good thing – people want the lowest earners to make more money but it actually accomplishes just the opposite. I’d rather have the number of jobs we have now at $8 an hour than fewer jobs at $10 an hour.”
Written By: Paul Roy