The failed minimum wage Experiment

It is easy and comfortable to think that raising the minimum wage is a good deal for everyone. Proponents of raising the minimum wage to $15 per hour argue that it is a “living” wage and allows people to pay their rent and buy food and clothing. Democratic presidential candidates Hillary Clinton and Bernie Sander recently used the issue of raising the minimum wage as a cornerstone of their economic platforms when they ran for president in 2016. It seems like a popular thing to offer millions of America’s low-wage employees and in theory, raising the minimum wage garnered much support. A political action group was formed called, “Fight for $15” which staged protests and walk-outs on businesses to draw attention to the plight of low-income, minimum wage workers.

Currently, the notion of raising the minimum wage to $15 on a national scale has all but been put to rest, not only because of Donald Trump’s election and pro-business economic positions, but moreover because of the demonstrably failed minimum wage experiment in the city of Seattle in 2014, and in the state of California in 2016. Many businesses in California that were required to raise the minimum wage have closed up, left the state, or at least laid off workers or cut back on employee hours. Studies show that for every 10% increase in the minimum wage, there is a correspondent 5% reduction in employment in those targeted industries. Forbes magazine’s assessment of the California minimum wage test has concluded that raising the minimum wage to $15 will result in the loss of almost half a million jobs by 2022, the year that the new, higher minimum wage will be fully phased in. Even the San Francisco Federal Reserve Bank has conceded that raising the minimum wage is a bad idea and will cost jobs stating, “Recent research using a wider variety of methods to address the problem of comparison states tends to confirm earlier findings of job loss. Coupled with critiques of the methods that generate little evidence of job loss, the overall body of recent evidence suggests that the most credible conclusion is a higher minimum wage results in some job loss for the least-skilled workers with possibly larger adverse effects than earlier research suggested.”

Despite the recent finding in the California experiment, the state of New Jersey is determined to increase the minimum wage and make it work. Their new governor points out that low wage jobs are projected to grow by over 3 million new jobs, nearly 6% over the next five years and is being fuelled by advances in automation and a more centralized, global economy. Experiments like the one in California had been previously tried on a smaller scale in Seattle Washington and it was determined that when the minimum wage was raised 3%, employers responded by cutting back employee hours by 9% resulting in a decrease in net pay by 6%. The conclusion is that raising the minimum wage simply results in minimizing employee hours.