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$15 Minimum Wage- Will it Hurt, Help, or Have No Effect on Economy?

Fast Food Workers Organize Nat'l Walkout Over Low Wages
(Photo by Scott Olson/Getty Images)

Seattle has made it official.  They’re jumping off the economic diving board and going to find out if the controversial $15-dollar-an-hour minimum wage works…or not.

Do high minimum wages hurt, help or have no impact on the economy?   Depends upon which city, and the amount of the wage.

The Seattle Times months ago published a variety of studies done in San Francisco.  That city now has the highest entry-level wage of any in the U.S. at $10.74 per hour.   Santa Fe, New Mexico also has a similar high level.   According to studies done at the University of California Berkley,  researchers say the negative effect on the local economy has been ‘almost’ none.     They claim the higher wages are offset by less turnover, and greater worker productivity.   The bulk of the studies have been done in the food services industry, because that’s where most minimum wage workers are found.

These researchers do admit that ‘some’ businesses did go under, but they claim companies (smaller ones especially) are always starting up, and shutting down anyway.   They also found the average cost of eating out in restaurants went up anywhere from 2-4% in these communities.   However,  these studies were only done with a minimum wage of $10.74 or less.   Nothing has been done for $11, 12 or $15 dollars-per-hour.

The Congressional Budget Office claims a federal national wage of $10.10 (Obama wants that) would boost pay for about 16 million workers, but would cost at least 500,000 jobs.  One economist says a $15-dollar wage would wipe out profits by the average small to medium business by 4 times over.

One thing to keep in mind too, is that none of the economists say the boosted wage would “help” the economy grow, they only try to refute claims it would hurt.  Seattle officials claim the $15 wage will dump millions into the King County economy.

 Forbes Magazine online Tuesday ran a story showing how the $15 wage is going to cost Seattle’s economy between $75 and $100 million. Writer Jeffrey Dorfman said something that to us, sounded like this idea is more about redistribution of wealth:

“Raising the minimum wage adds no money into the local economy; it only redistributes money among people who are already part of the economy. Low wage workers will have more money to spend; business owners and customers of those businesses will have less to spend by an amount equal to the increase in wages. However, while this is an even trade of money from one group to another, one specific source of money actually shrinks.”  (Bold lettering added for emphasis).

He also said some economists who are pushing the idea say gradually phasing in the increases over time will allow businesses to “absorb” the impact.  The Seattle plan has about a 3- year window for bigger companies,  7-year for small.  But Dorfman says that isn’t the case, and points out what’s actually happening in this area in Europe:

“The more likely outcome is that the three to seven year transition period will allow businesses time to find ways to run their companies with fewer low-skill workers. In Europe, McDonald’s has been adopting automated ordering systems to replace workers for years. The technology exists.  Most businesses I talk to say their plan every year is to produce more with fewer employees.” 

He says the only reason we have not seen more automated ordering and even food preparation here is because researchers and companies have found Americans prefer human interaction when it comes to certain transactions – especially food preparation and serving.

Dorfman argues that no government policy can make us richer, but many CAN make us poorer.

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