Saturday, June 19, 2021

How an increase in the minimum wage can mean a pay-cut for employees

by Rod Williams- Evidence suggests that raising the minimum wage has negative consequences.  One is, that it is inflationary. When the minimum wage requires that a company began paying the lowest-paid employee $15 an hour and that employee had been earning $10 an hour, that employee not only gets a boost in pay but so does the employee who supervises that employee.  If the supervisor had been earning $15 and now the people he supervises make $15, he must be given a raise, also. And so on up the line.

In some instances, the extra cost of production can be absorbed by the company, or partially absorbed, but in most cases, and especially in the case of businesses with low-profit margins such as fast food, the cost of the good or service must be increased. Increased wages and the increased cost of goods and services is inflationary. 

Another result of increases in the minimum wage is an increase in unemployment.  In a time when employers are having a hard time finding employees, this may not be noticeable, but when the economy shifts and work is again harder to find, the unemployed will have a harder time finding a job.  

One way companies respond to minimum wage laws is by increasing automation.  Automation occurs anyway, but some automation that may never have occurred, or may have occurred much slower will accelerate with an increase in the minimum wage.  Some entry-level jobs will simply disappear.

We know that minimum wage laws make it harder for people to climb out of poverty.  Working in fast food or many other minimum wage jobs may not be a desirable career, but it is those entry-level jobs that teach one how to work, assume responsibility, and gain skills for the next, hopefully, better-paying job.  Minimum wage laws have the effect of cutting the bottom rung off of the latter. 

Now, researchers from the Harvard Business School have found that the minimum wage, in some instances, maybe many instances, may not even actually increase an employee's total compensation.  The below article explains how this is so. 

Research: When a Higher Minimum Wage Leads to Lower Compensation 

by Qiuping Yu, Shawn Mankad, and Masha Shunko, Harvard Business Review, June 10, 2021-
... Part of what makes it so tricky to quantify the impact of minimum wage policies is that they can influence firms’ behavior in a variety of complex, interrelated ways. In addition to changing employment rates, studies suggest that firms may strategically respond to minimum wage increases by changing their approaches in other areas, ... 

Based on this analysis, we found that increasing the minimum wage had no statistically significant impact on the total number of labor hours employed at a given store. In other words, stores hired workers to work for the same overall number of hours regardless of whether minimum wage increased.

However, our data suggests that the way in which those hours were allocated among workers did change. For every $1 increase in the minimum wage, we found that the total number of workers scheduled to work each week increased by 27.7%, while the average number of hours each worker worked per week decrease by 20.8%. For an average store in California, these changes translated into four extra workers per week and five fewer hours per worker per week — which meant that the total wage compensation of an average minimum wage worker in a California store actually fell by 13.6%.

This decrease in the average number of hours worked not only reduced total wages, but also impacted eligibility for benefits.

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