A high minimum wage won't always work in workers' favor
Erin Shannon, Director, Center for Small Business, October, 2013
The debate over raising the minimum wage is everywhere right now. Voters in the City of SeaTac will decide in November whether to increase the minimum wage for workers in that city’s hospitality and transportation industries to $15 per hour, fast food workers around the country are striking for higher pay, and Seattle Mayor Mike McGinn is demanding Whole Foods pay workers in that city more than the company’s current average wage of $16.15 per hour.
Proponents argue a mandated higher minimum wage than the state’s current minimum of $9.19 per hour (now the highest in the nation) is necessary to help lift low-wage workers out of poverty. There is plenty research showing that forcing a big increase in the minimum wage would have the opposite effect, hurting small businesses and pricing many low wage workers out of their jobs.
But the most compelling arguments against a super-high minimum wage come from homegrown Washington businesses with real world experience.
Take, for instance, some of Seattle’s most popular restaurants. Restaurant owner Tom Douglas voluntarily raised the wages of the employees of his 14 restaurants to $15 an hour last month. Douglas says the wage increase was a personal and business decision that he can afford after years of profitable success with his restaurants.
But Douglas readily points out that if he were forced to pay such high wages when he fir st started out, he would be out of business today: “You know, if I were to try and do what I’m doing now when I first started out 24 years ago, I would be bankrupt. I couldn’t have done it. So I think there is a time and place for this and I think there is a sense that in my mind that, you know, you have to be the business owner that wants to do it. I’m not a big believer in the whole government mandate.”
Seattle fast-food favorite, Dick’s Drive-In, provides another convincing argument.
Dick’s has made the choice to reward its 180 fast-food employees with reasonable pay and great benefits. The Seattle Times reported that Dick’s offers workers a starting wage of $10 per hour, as well as merit raises, employer-paid insurance, up to $8,000 for child care or college tuition, a 401(k) retirement program with employer match, paid time for volunteer service and up to three weeks paid vacation.
Government has not forced Dick’s to provide generous wages and benefits; the company does it because it chose a business philosophy that works for them.
Dick’s Drive-In founder Dick Spady ran his business according to two rules: “The No. 1 job of a business is to make a profit. If you don’t, it’s not worth anything. No. 2 thing is to take care of your people. They’re the key to success."
These two rules continue to drive the Dick’s business model. But the company’s vice president and the founder’s son, Jim Spady, recently told The Seattle Times that forcing businesses to pay a high minimum wage, such as the proposed $15 per hour, will hurt small businesses, especially new ones. These businesses rely on less experienced or low-skill workers and do not have the profit margin to withstand a massive forced wage increase.
Spady points out many minimum or low-wage companies, like Dick’s, are “transitional employers,” where the vast majority of workers start with no experience, develop valuable work skills and end up moving on to somewhere else. “The way to improve the wages of the poorest people is to encourage them to upgrade their skills, not to pass a law that requires we pay X dollars an hour… So if you force law abiding businesses to pay more, they will — or they will automate their processes so they use way less labor… So what these high minimum wage laws do is they help a few people get better wages, but a lot of current people will lose their jobs.”
Forcing employers to pay starting workers $15 per hour may make some people feel good, but it will have consequences. It may force many employers out of business, or reduce the number of jobs and hours available. In the case of Dick’s, it may result in the loss of many of that company’s popular employee benefits. Or it may result in young or inexperienced workers being squeezed out of the market by their more experienced counterparts. These workers don’t earn $15 an hour; they get zero.
The real-world consequences may vary, but they will happen. And none of them will help low wage workers.