Minimum Wage Hikes Mean Major Job Losses

a katz / Shutterstock

Michael J. Webert Virginia Delegate
Font Size:

California, New York, Seattle and Washington D.C. are some of the jurisdictions where the minimum wage has been increased to $15 an hour. Recently, activists from the labor union-backed “Fight for $15” movement held their first national convention in Virginia. Advocates of increasing the minimum wage claim that this proposal is the best means for lifting workers in low skilled positions out of poverty. However, mandating employers increase wages will likely have the opposite effect — decreased economic opportunity.

Increasing the minimum hourly wage here in Virginia would adversely impact small businesses.

Some of these job creators would likely consider decreasing employee hours, automating positions, reducing other benefits, increasing consumer costs, reducing employment opportunities, firing employees, relocating, or closing down. How am I so sure these would be the likely responses from businesses to a wage hike in the Commonwealth of Virginia? Well, this has been the typical outcome in other states and localities that have implemented significant minimum wage hikes.

Just north of the Potomac River, in Washington D.C. the city will gradually increase the minimum wage until it reaches $15 by 2020. After that it will be indexed based on inflation, likely raising it a little each year. This decision will have a detrimental effect on job creation in the city. A 2016 survey of Washington D.C. small businesses conducted by the Employment Policies Institute found that more than half of employers stated that reducing employee hours and cutting staff levels is how they would offset the increased labor costs from the minimum wage hike. In addition, almost twenty percent of surveyed businesses indicated they would likely move from Washington, D.C. to Virginia. Wal-Mart decided not to open any more stores in the District due to the wage hike. As a result, low income consumers are missing out on the significant savings that Wal-Mart would have undoubtedly provided. Unfortunately, these issues aren’t limited to Washington, D.C.

Seattle’s weather is no longer the only defining feature with a dreary outlook in the city—small businesses increasing have a similar view. Businesses are examining how they can continue to operate in a city that has instituted a $15 minimum wage. Some businesses in Seattle, such as local seafood restaurant chain Ivar’s, are raising their prices to help offset the costs. Other employers are cutting benefits for employees such as meals for staff, free parking, 401Ks, health insurance. Others are taking more drastic approaches to cope with the change. One of the Z Pizza franchises had to shut their doors permanently as a result of the new mandate. The owner, Rita Shah Burnham directly attributed the closure to the minimum wage increase, a decision that left 12 employees without jobs.

Job losses shouldn’t come as a surprise to advocates with “Fight for $15” crusade. According to a study conducted by the non-partisan Congressional Budget Office (CBO), if the minimum wage was increased to $10.10 an hour nationally, it would result in the elimination of 500,000 jobs. Another study, conducted in 2015 by David Neumark of the Federal Reserve Bank of San Francisco, found that minimum wage hikes across the country have led to a decline in employment opportunities. If the government required a wage hike to $15 an hour, as the activists in Richmond this past weekend have proposed, the impact on job losses would be even worse.

Minimum wage increases have already led to automation in some sectors of the economy. Restaurant chains, including Wendy’s and Hardees, are increasingly automating their operations by installing self-serving kiosks at their locations. So, even if proponents of government mandated wage hikes are successful in securing an increase to $15 an hour, their new pay will likely be short lived, as they would be replaced by a computer.

Reducing employment opportunities likely isn’t a concern of the labor union supported “Fight for $15” campaign. While labor groups ostensibly advocate for the $15 minimum wage as a means to reduce poverty, in reality they are waging this campaign to inflate their membership rolls. Labor groups use this approach to drive businesses into unionizing their workforces. This has occurred in California and other jurisdictions that have passed wage increases.

Rather than pushing new government regulations onto small businesses, a better solution to grow our economy and provide new opportunities for Virginians is to reform our occupational licensing laws. Occupational licensure is regulatory scheme that mandates an individual secure a license to engage in a particular profession. In order to obtain a license for a certain vocation, one must pay certain fees, and have a specific number of days of education or experience in the trade.

Regrettably, Virginia has onerous professional regulations for a variety of occupations, such as a massage therapist, barber, and cosmetologist, yet the licensure laws to become an emergency medical technician are far less convoluted than any of the previously mentioned fields of employment. Many of these costs are passed along to consumers in the form of higher prices.

The complex requirements for many professions is the reason that, according to a study conducted by the Institute for Justice, Virginia is ranked 8th in the country for most burdensome licensing laws. Even the White House supports reforming professional licensing rules. Rather than pushing policies like increasing the minimum wage that kill jobs, drive up costs for customers, and cause businesses to relocate, let’s focus on reining in regulations. By reforming our occupational licensing requirements, we will remove many of these barriers to entry in the job market. This will allow us to grow our economy, expand opportunities, and lower costs for consumers.

Delegate Michael J. Webert resides in Fauquier County, Virginia where he manages his family farming operation, which covers 2400 acres, and deals mostly with cattle and grain. He was first elected to the Virginia House of Delegates in 2011, and co-founded the Business Development Caucus, a group of legislators whom are small business owners that shepherd legislation that promotes entrepreneurship and job growth in the Commonwealth.