The Wall Street Journal reports that the town of SeaTac, Washington, is raising its minimum wage to $15/hour. This whopping 63% increase makes SeaTac's the highest municipal minimum wage in the USA. The State of Washington already has the highest state minimum wage rate in the nation, at $9.19/hour.
"Well done! Congratulations! Great news! This sure will return the gavel to us!" House Minority Leader, Nancy Pelosi (D-CA), and her ilk are likely to bellow. In the rarified bubble in which they live, increasing the minimum wage is a sure guarantee to assist the poor and to increase the number of jobs.
If that was true, it would be a miracle of biblical proportions!
Consider Han Kim, a partner in a SeaTac Holiday Inn Express franchise which includes two additional hotels. Kim estimates that the wage increase for all three businesses will cost an additional $400k in labor expenses.
So, why not just cut some jobs to cut labor costs?
Kim and his partners already have and cannot eliminate any more jobs.
So, why not cut prices to attract more customers?
Not an option, if the competing hotels keep their prices steady.
Will they? After all, won't they also have to pay the new minimum wage?
The answer to both questions is "Yes." But, competition in the marketplace will eventually force someone to close.
Then, too, Kim and his partners had planned to build a fourth hotel in SeaTac. Forget that for now.
No new hotel means no new jobs. No new jobs means those who could have been employed won't be employed.
No one wins due to increasing the minimum wage.
The "take away"?
In contrast to larger businesses, small businesses have smaller margins. They can afford neither to increase costs nor to increase the size of their businesses.
Then, too, workers in surrounding locales are likely to flood the SeaTac market for that whopping 63% increase in pay. So, the small businesses these workers will desert in search of additional pay will then have to scramble to find replacements who will work for "substandard" wages. Why? Success in the marketplace requires a consistent pool of those who are willing to work for low-paying jobs.
Raising the minimum wage is another liberal economic policy that sounds good "in theory" but is counterproductive. That sad fact is that it doesn't even have to be implemented to understand why.
Let the discussion begin...
To read the Wall Street Journal article, click on the following link:
"Businesses Stung by $15-an-Hour Pay."