When good intentions go bad: The impacts of minimum wage hikes

There’s something business owners, consumers, and politicians need to understand: Basic laws of economics and human nature cannot be ignored or legislated out of existence.

An example of this is playing out in front of us right now. For several years, activists have been clamoring for a higher minimum wage. The push is to make the minimum wage a “living wage.”

Several localities have adopted higher minimum wage rates in recent years. It’s important to know that there are often three levels of government that set minimum wage rates: The federal government, state governments, and city or county governments. The more local governments cannot set a minimum wage lower than the federal rate, but they can set it higher.

As the minimum wage battle has been brewing, opponents have warned that no matter how noble the cause may be, the final impact will be lost jobs for workers entering the job market with few, if any, skills. This is simply due to the unbreakable law of supply and demand, which says that people will buy less of something when the price goes up. Therefore, when the price of unskilled labor goes up, business owners will “buy” less of it.

We’re seeing this happen in the food industry with the introduction of kiosks that replace order takers. I’ve watched Panera install self-order kiosks in many locations over the last year and now Wendy’s has announced that it plans to try kiosks in 1,000 of its restaurants. Further, CaliBurger, a Southern California hamburger chain, is installing burger flipping robots in its restaurants.

To be fair, the handwriting has always been on the wall for repetitive jobs that are typically filled by unskilled labor. They are prime candidates for automation and it doesn’t help that good employees are, in general, hard to find today. That has been small business owners’ biggest complaint in recent years.

Acquiring job skills

There’s another dimension to this situation that is seldom discussed. Let me give you a little background so you understand this view.

I remember when jobs in fast food restaurants were held exclusively by teenagers so they could get their own spending money. It went without saying that these jobs were no more than a very small stepping stone along a career path leading to a job that would support a family. I remember some great television commercials for McDonald’s that featured doctors and other highly skilled professionals who got their first jobs at one of the chain’s restaurants.

Minimum-wage jobs have taught millions of new workers what is required to be a good employee. I might even say that the lessons they teach are, in the long run, as valuable or more valuable than what is often taught in the classroom, because they are the life skills required for success in any job.

By insisting that the minimum wage be a “living wage” we are telling unskilled workers that all they should have to do to get by in life is land a minimum wage job. It’s a demotivating message.

Put yourself in the place of a student who isn’t thrilled with school. Right now, our society is sending this person two conflicting messages:

  1. You need to get a college education, probably in a STEM (science, technology, engineering, math) subject.
  2. We’re passing laws to make the minimum wage a living wage.

If you’ve struggled with school, which of these is the most attractive? It’s a general fact of human nature that we tend to take the path of least resistance, especially when we’re young. There are exceptions, but when we’re looking at society as a whole, the rule applies.

A solution to poverty?

I think one of the unintended consequences of a higher minimum wage is to condemn a large segment of our population to life-long poverty. Let’s be honest with each other: Adults working for minimum wage will never lift themselves out of poverty. Why? Because even if you make it a “living wage,” you are merely earning the minimum amount of money required to eat and keep a roof over your head.

The only way to break the cycle of poverty is to accumulate assets that give you a cushion for tough times and provide a foundation for achieving greater wealth. A minimum/living wage will never put a person in the position to accumulate assets. We’re doing millions of people a disservice by suggesting they’ll be able to live on the minimum wage.

In the short term, pushing for a higher minimum wage may seem like the good-hearted thing to do. But in the longer term, it hastens the pace of job-killing automation, instills the wrong attitude in unskilled workers, and eliminates the “classrooms” where generations of young workers have learned what it takes to be a good employee.