How a $15 Minimum Wage Will Cause Maximum Damage

There has been a lot in the news lately about the minimum wage being raised to $15 in many cities across the nation. In addition to Seattle, cities like Los Angeles and San Francisco have also taken the plunge.  There are viewpoints out there that say absolutely nothing bad will happen and there are those that state these increases will cause food costs at McDonalds and others to soar. I am here to tell you that both are wrong!  If nothing bad was going to happen, the minimum wage would have been raised years ago. Likewise, If McDonalds and others could charge more for their product.....they would!  

Ok.....I'll take the bait you say. What will happen? The answer in all of its glory is simple, the labor market will shrink. That is companies will refuse, or flat out be unable, to pay the new rate for labor.  But don't they need someone to make their hamburgers? Of course they do....but while Rosie takes potty breaks, Sparky does not.  They will decide instead to use automation to replace that labor. A recent study shows that employers will use automation when said machines are 15% cheaper than human labor. 

Therefore if we suddenly double the minimum wage to $15 from $7.50, this will give business no time to adjust and force the change to ore automation. I use the example of an aging paint company needing to automate as a way to keep prices competitive in my economics class. If the company does not modernize they will but forced to close down. Yes, buying the machines means less workers will be required, but that is how it gos.

In the end what we want is as many jobs available as possible. If entry level workers are not able to find jobs, they will become a drain on society later. Look at Greece, where the youth unemployment rate is over 50%! Or other cities/states that have high unemployment among the young adult population like Detroit/Michigan. We also lament over the fact that many recent college graduates are unable to afford to afford an apartment in the cities they live in or even have a hard time finding work.  This is due, in no small part, to the fact that they have little to no experience before and/or during their university years.

We unfortunately love immediate gratification in this country. As a negative, when the reverse happens....we do not notice.  That is, when we implement a plan if we do not see negatives right away, we consider it to be a positive plan. The effect of raising wages to $15 an hour will be that while some have a better paying job; in 2-3 years many will be out of work all together.  Think we pay a lot for Welfare benefits now? Just wait and see what happens.