The Seattle minimum wage rises to $18.69/hour in January. Cui bono?

Cui Bono is a Latin phrase that means “Who benefits”?  Seattle’s far-leftist city council believes that, if they raise the minimum wage, then low-income, low-skill people will be able to earn enough at their jobs to live on.  The State of Washington, which is also run by the Seattle Leftists, believes the same thing, so in January the state minimum wage will rise to $15.74 per hour.  Those rates apply to any business with 500 employees or more.  The linked article has the information.

First, let’s discuss the actual effects on the economy of high minimum wages.  The minimum wage, at a business that does not already pay its employees the higher amount, results in an automatic increase in the firm’s costs of doing business, without any accompanying increase in employee productivity, so the increased wages they must pay are “all cost”.  The company gets zero benefit from the increased costs the government requires them to incur.  Small and medium-sized businesses with under 500 employees live a lot closer to the bone than large ones, with few economies of scale.  What usually happens is that they need to reduce their costs elsewhere in the business if they want to survive.

Businesses usually increase the prices charged to customers, shorten employee shifts, let employees go, or automate the tasks that used to be done by lower-wage employees.  So in the medium term, some employees will earn more, but many employees will earn zero, as they are laid off or replaced with machines.  Also, there will be fewer low-wage jobs for young people just starting out in the world of work, so fewer kids will get those summer jobs that many of us used to start the climb to our careers.  One group of potential employees which will be heavily affected by the higher minimum wage is young black men.  Here is a quote from a Ricochet friend, which perfectly describes their predicament.

Either Thomas Sowell or Walter E. Williams used to point out that rises in the minimum wage tended to disproportionately push young black men into unemployment. Young black men statistically have a hard time getting on the first rung of the employment ladder. Statistically they are less familiar with the expectations of employment because they have less association with employed people and in particular have probably not lived with an employed father who would demonstrate work habits, they have a poorer school record, they are more likely to have a criminal record, so they are a high risk hire. Those are all demographic statistical conditions that mean at a high minimum wage fewer young black men will be employed than if the minimum wage were lower (or non-existent). Since “disparate impact” is a legal tool to create a presumption of racism, perhaps it’s fair to conclude that the Seattle City Council is using minimum wage hikes for the racist motive to drive young black men out of the labor force, just as unions did in the early 20th century.

Here’s an excellent chart.

Chart-minimum-wage

And the final sentence in that quote is the answer to my question of who benefits.  Unionized shops are exempt from the new minimum wage levels, because they “collectively bargain” for wages and working conditions in companies with unionized workforces.  The biggest supporter of the high State and Seattle minimum wages is…wait for it…the Service Employees International Union.  That union has been slavering over the possibility of unionizing businesses like Starbucks, McDonalds, and Amazon warehouses for years.  This past summer, they have made some headway in unionizing Starbucks and Amazon, however it is an uphill slog for them, as all three companies have very high turnover, so employees who might have been agitating for a union election might have left the company by the time it is held.  Also, it is extremely expensive for a company with many lower-paid employees and lots of turnover to process all the paperwork for a union, and then have the employee leave.  All three companies have strenuously resisted unionizing efforts.

So, while the Seattle City Council is celebrating the higher minimum wage that will supposedly raise take-home pay for employees, many of those employees will be laid off or work fewer hours.  The law will result not in happier low-wage-earners, but more laid-off employees and higher youth unemployment.  Not quite what they asked for.  Also, some businesses will decide to move out of Seattle, thus denying the city any benefit at all.

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