Wage Hikes Pose New Challenges for Business in 2018
As Americans look to an exciting new year and politicos start gearing up for mid-term elections, 18 states along with 19 municipal localities will be raising their minimum wage. While the wage increase serves as a short-term win for those organizing the Fight for 15, the long-term consequences of setting price floors will lead to fewer jobs and opportunities for those who need them most.
The federal minimum wage was last increased from $6.55 to $7.25 in July of 2009. Since then, states have decided to take the initiative on the issue with the smallest increase being $.04 in Alaska and the largest $1 per hour in Maine.
The state with the most municipalities to increase the minimum wage in January is California. Both Mountain Dale and Sunnyvale cities will see their wages hit $15 in 2018. The state’s minimum wage is $10.50 per hour and will increase $.50 each year until it hits $15 in 2022. San Francisco, which raised their minimum wage to $14 this summer, should serve as a lesson for the rest. A Harvard Business School study concluded that every $1 per hour increase in wages leads to a 14 percent increase in the likelihood for a restaurant to fail.
In the Midwest, Michigan already has the highest minimum wage at $8.90, and it will still see the largest increase of $.35 to $9.25. The Michigan One Fair Wage Committee is pushing for a 2018 ballot measure to increase wages to $12 per hour and eliminate the tipped wage. The Michigan Restaurant Association is opposed and believes eliminating the tipped minimum wage will harm the state’s second largest private employer. In nearby Ohio, the Restaurant Association conducted a survey with members stating that they would reduce worker hours along with overall staff numbers if the minimum wage were increased to $10 per hour.
This effect can already be seen with Shake Shack, a burger chain with locations on all four corners of the U.S. map, which set out to implement its first automated kiosks which will replace several employees at its new Astor Place location in Manhattan, New York. While the state-wide minimum wage increase to $15 an hour doesn’t go into effect until December 2018, the company is being proactive. Shake Shack states that this project is merely a single experiment but if successful, one can assume that it will be implemented company-wide. At the city level, claims can be made that a minimum wage is needed to offset high rent and taxes; when large state-wide raises are passed like in New York and Oregon, rural areas are hit the hardest. Those areas do less volume in sales so artificially high wages can mean the difference between surviving or going bankrupt. Population shifting becomes tricky when four dozen of America’s largest metropolises cover two or more states.
Roughly about 1.4 percent of Americans actually make the minimum wage and a majority of these people work in the food service or retail industry. Through its own natural evolution, technology has been taking American jobs since the 1970s in big sectors like steel and coal production along with jobs in the manufacturing sector. In some cases though, technology has morphed traditional jobs into tech-oriented roles. As brick and mortar retail continues to slow down, the likes of Amazon and other logistics distribution companies will require a new kind of workforce with computer skills, not just running a cash register or stocking a shelf. Pushing for increased wages for entry level work will not only expedite the use of technology it will permanently put people out of work.
When wages rise arbitrarily for employees but skill sets do not increase proportionately, employers will either reduce their workforces in people or hours, raise prices on customers or just go out of business altogether. Regardless of the option chosen, the entry level worker will feel the negative effects most. Of the 227 industry sectors categorized by the Bureau of Labor Statistics, restaurants have the second youngest median age, coming in behind shoe stores. The purpose of minimum wage jobs is to bring new people into the workforce, whether they are high schoolers or immigrants. This allows them the opportunity to learn work ethic and perform basic tasks which will open new doors as responsibilities are increased. Particularly with fast food, entry level positions were never designed to be careers; that is where initiatives like Fight for 15 are doing most of their organizing.
While the new year is cause for celebration, wage increases across the nation only serve to hurt those who are in most of need. While minimum wage increases are feel-good policies led mostly by ballot initiatives, only time will tell whether businesses respond with solutions of their own to keep their doors open or jump ship to other states.