Obama And The SEIU’s Mandated Wage Hikes Will Stifle Economic Growth

Hector Barreto National Board, U.S. Chamber of Commerce
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Hundreds of restaurant workers across the country and around the world have recently joined in protests to demand a higher minimum wage. In major U.S. cities like New York and Washington, D.C., but also as far away as Tokyo and Zurich, workers – and labor activists – gathered to call for an increase in the minimum wage to $15 an hour. Of course, these protests were hardly the organic expressions of our cherished right to free speech that some would have us believe. USA Today reports that the actions were led by Fast Food Forward, an activist group funded by the massive Service Employees International Union (SEIU), which has reportedly spent some $15 million on these displays since last January.

Unfortunately, Big Labor is once again stirring up American workers to support a policy that may line union bosses’ pockets, but will ultimately end up hurting the workers themselves.  This time, however, they’ve got some serious allies. President Obama himself, along with former Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, among various members of Congress, is calling for an increase in the federal minimum wage. The president isn’t going as far as the union bosses – he’s pushing to raise the wage to $10.10 an hour, not $15.00 as demanded by the SEIU protestors – but his proposal would still mean an increase of a drastic 40 percent.

Recent surveys indicate that an increase to $10.10, not even as high as the SEIU is demanding, would still damage our economy and kill American jobs. One survey of small to medium-sized businesses reported that under this proposal, almost a third would face a negative impact on their future hiring plans. Another survey found that nearly 40 percent would have to lay off workers. The Congressional Budget Office (CBO) has even estimated that such an increase could cost up to one million jobs.

And more research has found that raising the minimum wage to $10.10 would be especially hard to swallow for the restaurant industry. The National Restaurant Association estimates that this wage hike would immediately slap a 22 percent increase in labor costs on the typical restaurant. This would have a ripple effect, leading to a 58 percent drop in the restaurant’s income, before taxes. Many restaurants have narrow profit margins as it is and this would only ramp up the pressure. In addition, food costs are continuing to rise on their own and combining this with increased labor costs brought on by a minimum wage hike could prove devastating. Restaurants would have to find some way to absorb these new costs, and one option involves a five percent across-the-board increase in menu prices, thereby passing the cost of the president’s misguided policy along to the customer. Another option, of course, would be trimming staff – a solution the protesting workers would probably find less than desirable.

The welfare of these workers, however, is not the main concern of the SEIU and other unions when they agitate for a higher minimum wage and pressure their political allies to do the same. Union workers usually make more than the minimum wage to begin with, but often negotiate contracts so that an increase in the minimum wage would mandate an increase in the union wage as well. Higher union wages mean higher union dues, and more money naturally means more political clout for Big Labor bosses and more campaign dollars for their political allies.

A federally-mandated minimum wage increase would only further hinder our economy’s already-anemic growth, and would put more jobs at risk while only serving to enrich union bosses and the politicians they bankroll. American workers deserve better than that – they deserve a policy that’s fair to them.

Hector Barreto served as head of the Small Business Administration from 2001 to 2006 and is currently the Chairman of The Latino Coalition.