$15 minimum wage will hurt people you’re trying to help

Taken from Tuesday’s edition of The David Boze Show.

There has been a growing movement in our region to raise the minimum wage to $15. And it’s one of those things where I always want to ask the follow-up: Why $15 an hour?

It’s one of those things that if you think you can just say, “Pay everybody $15 an hour,” then why not say $17 or $20 an hour so that people would have a “living wage.”

Nick Hanauer, a very successful founder of a Seattle venture capital company, is quoted in Northwest Cable News as saying, “The fundamental law of capitalism is if workers have no money, businesses have no customers.”

I’m not convinced that is the fundamental law of capitalism. Nor can government just step in and say “This is what the worker is worth.” Because if you have a job that you need done, but it’s not a difficult job, it’s not a highly productive job – for example, let’s use floor sweeping, a low-skill kind of job. You want it done from time to time. If you hire somebody at $7, it might be worth it to you to keep the floors extra clean, to make it look nice in your restaurant.

If suddenly the city comes along and says, “We love the fact that you’re hiring people. We love the fact that you have this business, but from now on your floor sweeper has to make $15 an hour.” Now, suddenly the cost of having the floor swept on a regular basis has more than doubled.

Instead of hiring that floor sweeper, you might have somebody else already on staff do it, double up on their work. You let the floor sweeper go because you can’t afford to pay them $15 for floor sweeping. You’re only making so much money, and that floor sweeper is now cutting a lot more out of your bottom line.

A lot of people forget, for many businesses out there, it’s not like there is a Mitt Romney venture capitalist, or a Nick Hanauer venture capitalist out there that helps everybody start their small businesses. Most small businesses are started with savings. You save your money. You open your small business. You’re taking all that risk. Their margins are not high. They’re risking a whole lot.

For the government to step in and say, “Well, we know what these workers are worth,” what will end up happening is there will be fewer jobs out there. The floor sweeper job will be gone in our fictional business.

For new people starting into the workforce with low skills, employers will be less interested in hiring them because they don’t want to have to train them on the job at $15 an hour when the job they’re doing is only worth $7 or $8 an hour.

The higher you make the minimum wage, the higher you’re making the barrier to entry. If you create that higher barrier to entry, people who are struggling to find a foothold in the workforce and start building their skills and start building their connections that can lead to other opportunities and jobs, if you build that barrier to entry high enough, say at $15 an hour, you’re just limiting the number of opportunities that people would have to enter it. You end up punishing the very people you’re supposedly trying to help.

We’ve got a huge unemployment rate among the young, and instead of trying to find a way to make it more likely that they would be hired for any given job, we discourage it through policies. We send them off into their mid-20s and wonder why they’re struggling to get by for a lifetime.

Taken from Tuesday’s edition of The David Boze Show.

JS

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