Big Hike in Minimum Wage Will Be Self-Defeating for Workers

Commentary by Pamela Villarreal

Source: Investor’s Business Daily

This week, another fast-food walkout will take place in 100 cities.

Evidently, this one claims to be much larger than previous protests.

And no doubt the Service Employees International Union and other organized labor groups play a major role in supporting the walkout and also make up the lion's share of the protestors.

The goal? To push for an increase in the minimum wage to $15 an hour.

But as the old adage goes, the road to hell is paved with good intentions.

The arguments made by advocates of a living wage are flawed on so many levels, and will end up hurting the people they purport to help.

One need look no further than the evolution of large retailers. Thirty years ago, there was no such thing as a self-checkout lane.

I used to walk in to my local big-box retailer, and there was very little that was high-tech about checkout lanes.

Scanners were just starting to be used to price and sell merchandise, but the clerks had to scan each item personally, with a hand wand. In spite of the burgeoning computer technology, a warm body was still needed.

But much of the retail transformation can be attributed to increasing labor costs and decreasing technology costs.

How does this relate to this week's walkout? It is simple. If higher wages are forced on the fast-food industry, capital eventually will replace labor in that industry as well.

Sadly, this is all under the guise of helping people, but the result will be that teenagers and low-skilled workers get the shaft.

The unemployment rate among teenagers is the highest of all age groups.

In some areas, such as Washington, D.C., it is above 50%. Teenagers there would be happy to work for $8.25 an hour.

Recently, Washington's council almost passed an ordinance that would require the area's newly established Wal-Mart stores and other large big-box retailers to pay a "living wage" of $12.50 an hour.

Given that 23,000 applications were submitted for the 600 jobs that were available when Wal-Mart opened its first stores in the D.C. area, it is evident that many job-seekers are willing to work for less than $15 an hour.

The fast-food industry will also seek out those people.

But once those who are willing to work are employed, any excess demand for labor will be supplied in the form of whatever is most efficient, either by enticing more workers with a higher wage or using technology instead of human capital.

It does not matter what is mandated by a city or the federal government, or what is demanded by protesters.

Businesses seek to maximize profits, and if they must replace or supplement human capital with automation they will do it.

Advocates argue that many fast-food and retail workers support families and also depend on public assistance, which costs taxpayers.

A study from the University of California, Berkeley, found that 330,000 fast-food workers are enrolled in Medicaid, the health care program for the poor, and 432,000 children of fast-food workers are enrolled in CHIP, the Children's Health Insurance Program.

But as many states offer Medicaid benefits to households living well above the poverty level, it is disingenuous to connect Medicaid benefits directly to fast-food workers.

In fact, there are 636,000 families enrolled in Medicaid and CHIP in Massachusetts, thanks to its generous eligibility criteria, but only 34,000 households with fast-food workers.

It would hardly make sense to blame Massachusetts' Medicaid burden on the fast-food industry.

But far be it for facts to get in the way of a good push by living-wage advocates.

Furthermore, if a minimum wage hike results in more low-wage workers becoming unemployed or unable to find a job in the first place, the cost of public assistance programs will likely increase.

The bottom line is that those who want to make $15 an hour flipping burgers should put their picket signs down and instead pursue education and skills that warrant higher pay.