OPINION:
For a business owner such as me, the minimum wage debate is not ideological. It is mathematical.
The federal minimum wage is $7.25 per hour. However, 30 states and many other localities have much higher minimum wages. At the beginning of this year, more than 20 states and numerous cities raised their wages.
A bill introduced this year in the New York City legislature aims to raise the minimum wage level to as much as $30 per hour for all businesses.
In California, where the minimum wage is approaching $17 per hour, large fast-food employers must pay $20 per hour. Beginning Wednesday, healthcare employers will have to start paying $25 per hour.
The impact of minimum wage increases has been studied for decades, and the results are always mixed. For example, a well-known 1994 study found that minimum wage increases in Pennsylvania and New Jersey increased employment, but a 2000 study, based on payroll records rather than telephone survey data, concluded that employment had decreased.
Two more recent studies examined the impact of California’s $20 minimum wage hike in the fast-food industry. Both studies found that, as wages rose by roughly 8% relative to the rest of the country, employment declined by as much as 4%.
More research released this month discovered similar results, and recent findings of “no job loss” are highly sensitive to methodological choices.
In defense of both supporters and critics, assessing the impact of the minimum wage on jobs is difficult. You cannot do these studies in a vacuum. Many other factors affecting hiring decisions are problematic to measure.
Inflation unrelated to wage increases puts pressure on overhead and employment levels. Changes in consumer tastes for fast food (for example) affect demand. Technology allows more to be done with fewer workers. Consumer spending is hard to predict. Methodologies for collecting and evaluating data is often faulty.
Political biases — despite the denials of those conducting the research — come into play. Who is funding the study? How accurate are responses? How honest are the people responding?
Supporters of a minimum wage argue that people cannot survive on just $7.25 per hour. They say higher wages will attract better employees, reduce poverty and turnover and stimulate consumer spending.
The higher the wages, they say, the more people will be encouraged to abandon government assistance and take jobs. Many workers are not mobile, and it is not easy to switch jobs, even with higher pay. They just want to be paid and treated fairly.
Critics say businesses should compete and pay for their labor like any other cost input. They say workers will move to companies that compensate more and companies that fail to respond will suffer the consequences.
Free market proponents say most companies pay well above the national minimum because they have no other choice. At least they do have a choice.
The challenge with government-mandated wage increases is that they assume legislators understand the economics of thousands of various businesses operating under vastly different conditions. When government mandates a rapid increase in labor costs, businesses are forced to respond. They will do everything they can to protect their profit.
A mandated increase in one component of their core costs (wages) can be met in only one of two ways: an increase in revenue or a decrease in other costs. Revenue could be increased by raising demand for products and services, which would require larger investments in marketing and sales, and no small amount of luck.
The alternative is raising prices. Otherwise, cutting costs means finding expenses that can be curtailed, investing in technology — or laying off workers.
Although I empathize with supporters, I am not a fan of the minimum wage.
The reality is that the ship has sailed. There will always be a minimum wage, and there will always be a strong populist movement to increase it.
Yet supporters and critics have a middle ground: If you are going to increase it, do it slowly and over time. When you bump it up significantly and quickly — as in California’s fast-food industry and potentially in New York City — businesses will have a knee-jerk reaction and more workers will be harmed than helped.
Most business owners are not opposed to paying workers more. The question is whether government should force those increases faster than businesses can realistically adapt.
If higher minimum wages are inevitable, then gradual increases are far more likely to help workers without putting their jobs at risk.
• Gene Marks, CPA, runs The Marks Group PC, a financial and technology consulting firm near Philadelphia.
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