Who Does a $15 Minimum Wage Help?

1,838,297 Views
Aug 21, 2017

Would a nationwide $15 minimum wage help or hurt American workers? Andy Puzder, former CEO of the parent company of Hardee's and Carl's Jr., explains.

A $15 minimum wage will make many employees simply too expensive to employ, or will force employers to cut their hours. 

  • Minimum wage increases reduce the profit margin that all employees contribute to a business. Increasing the minimum wage will make many employees too expensive to employ or will reduce the hours they are employed, which is also a pay reduction.View Source
  • A 2015 study by the Manhattan Institute estimated that a $15 minimum wage would kill over 6 million jobs.View Source
  • WATCH: CEO Andy Puzder on the minimum wage.View Source
  • Related Reading: “The Negative Effects of the Minimum Wage” – Mark WilsonView Source

Should we “Fight for $15”? A 2015 study found that increasing the minimum wage to $15 would kill 6.6 million jobs.

  • In 2015, the Manhattan Institute estimated that raising the minimum wage to $12 would reduce employment by 3.8 million, while an increase to $15 would kill 6.6 million jobs.View Source
  • WATCH: Scholar James Sherk on the minimum wage.View Source
  • Related Reading: “Minimum Wage, Maximum Politics” – Andy PuzderView Source

Increasing the minimum wage to $15 would force some businesses to close their doors—as San Francisco is learning the hard way. 

  • AQ, a rising star among restaurants in San Francisco, saw profits reduced from 8.5% in 2012 to 1.5% in 2015, after the city increased the minimum wage to $15. The largest factor contributing to the closing of this well-known restaurant was “paying health care and labor costs for its employees.”View Source
  • Minimum wage increases in New York City have already resulted in closed businesses. “It’s going up too fast,” said Jeremy Merrin, proprietor of the Havana Central chain of Cuban restaurants, which has closed two of its New York City locations during the past several years, and raised prices at others. “We can’t catch our breath.”View Source
  • Kevin McNamee, a chiropractor in Los Angeles, plans to move his business to another city because of the minimum wage hikes.View Source
  • Related reading: “Survival of the Fit test: The Impact of the Minimum Wage on Firm Exit” – Harvard Business SchoolView Source

A $15 minimum wage would hurt low-skilled and young workers the most by making entry-level and part-time jobs harder to come by.

  • Entry-level jobs provide work experiences that form the basis for future employment opportunities.View Source
  • Entry-level and part-time jobs provide a valuable opportunity to learn new skills that form a foundation for future entrepreneurs.View Source
  • Half of all people earning minimum wage are under the age of 24.View Source
  • James Sherk on minimum wage jobs: “Two-thirds of minimum-wage workers make above the minimum wage a year later. This happens because most minimum-wage jobs are entry-level positions. They teach unskilled and inexperienced workers basic employment skills. Without these skills, they cannot qualify for higher-paying jobs. As they acquire these skills, they become more productive and can command higher pay.”View Source
  • WATCH: John Stossel on the minimum wageView Source
  • Related Reading: “The Negative Effects of the Minimum Wage” – Mark WilsonView Source

Two-thirds of minimum-wage workers make a higher wage a year later. Why? Most minimum-wage jobs are entry-level positions.

  • James Sherk on minimum wage jobs: “Two-thirds of minimum-wage workers make above the minimum wage a year later. This happens because most minimum-wage jobs are entry-level positions. They teach unskilled and inexperienced workers basic employment skills. Without these skills, they cannot qualify for higher-paying jobs. As they acquire these skills, they become more productive and can command higher pay.”View Source
  • WATCH: CEO Andy Puzder on the minimum wage.View Source
  • Related Reading: “Economics in One Lesson” – Henry HazlittView Source

Increasing the minimum wage to $15 will increase the cost of all workers, not just the lowest paid—massively increasing costs for employers.

  • In the average fast food business, a minimum wage worker is responsible for $3,125 of store profit. Increasing the minimum wage to $15 would increase earnings for that employee by $3,705, making the employee more expensive than the profit they bring to the store. Increasing the cost of workers will force business owners to cut jobs and increase the use of technology in the workplace.View Source
  • WATCH: Scholar James Sherk on the minimum wage.View Source
  • Related Reading: “The Negative Effects of the Minimum Wage” – Mark WilsonView Source

Increasing the minimum wage to $15 will increase prices for consumers and force some businesses to shutter their doors. 

  • Most businesses that pay minimum wage are small “mom and pop” firms with low profit margins. The typical fast food restaurant only earns 3-6 cents of profit per dollar of sales. These firms can only afford to pay higher wages by raising prices for consumers.View Source
  • WATCH: John Stossel on the minimum wageView Source
  • Related Reading: “Minimum Wage, Maximum Politics” – Andy PuzderView Source
  • Related reading: “Survival of the Fit test: The Impact of the Minimum Wage on Firm Exit” – Harvard Business SchoolView Source

The non-partisan CBO said in 2014 that increasing the minimum wage to $10.10 would kill 500,000 jobs. A $15 wage would eliminate millions. 

  • In 2014, the Congressional Budget Office estimated that increasing the minimum wage to $9 would likely kill 100,000 jobs nationally, while an increase to $10.10 would kill 500,000 jobs.View Source
  • A 2015 Manhattan Institute study estimated that an increase to $12 would reduce employment by 3.8 million, while an increase to $15 would kill 6.6 million jobs.View Source
  • WATCH: CEO Andy Puzder on the minimum wage.View Source
  • Related Reading: “The Negative Effects of the Minimum Wage” – Mark WilsonView Source

A Harvard Business School study found that a $1 increase in the minimum wage increased the likelihood of a restaurant closing by 4-10%.

  • A study by the Harvard Business School found that a $1 increase in the minimum wage increased the likelihood of a restaurant closing by 4-10%.View Source
  • WATCH: Scholar James Sherk on the minimum wage.View Source
  • Related Reading: “Minimum Wage, Maximum Politics” – Andy PuzderView Source

Progressive politicians love to talk about raising the minimum wage. 

It makes them sound caring, compassionate, concerned. They’re on the side of the worker, standing against the greedy employer. 

The current call is for a national $15-an-hour minimum wage – more than double the current federal rate of $7.25.

A number of cities and states are already there – including New York, California, Washington D.C. and Seattle. Others are considering it. 

The left casts the minimum wage debate as a war between employee and employer. But most business owners pay their workers as much as they can. Finding and keeping good people is the hardest part of any employer’s job.  

I know. For 17 years, I ran CKE restaurants, the parent company for Carl’s Jr. and Hardees. Our company and franchised restaurants employed over 75,000 people, but, as with most retail businesses, our profit margins were razor thin.   

Based on my experience, if we adopt a national minimum wage of $15, here’s what will happen:

1. A lot of people will lose their jobs or have their hours reduced. According to a 2014 Congressional Budget Office study, just a $10 minimum wage would cost half a million jobs as businesses terminate employees.  Obviously, far more jobs would be lost at $15 an hour.  To survive, employers would have to reduce hours even for workers who manage to keep their jobs. That’s a pay cut.

2. Businesses will close, and the jobs they created will disappear.  A recent report from researchers at the Harvard Business School found that each $1 increase in the minimum wage results in a 4-10% increase in the likelihood of restaurants closing.  An over $7 an hour increase, to $15, would be devastating not only for restaurants, but for small businesses and their employees.

3. Young people will lose that entry-level job opportunity.  My first job was scooping ice cream at a Baskin-Robbins in Cleveland, Ohio in the 1960s. I was paid just $1 an hour. But it taught me valuable lessons – like the importance of showing up on time, teamwork, and presenting a happy demeanor to customers. No one can get that better job until they have their first job.

4. The cost of all workers will have to go up.  If you hire a dishwasher at $15 an hour, your cooks will be unhappy with their wages. You’re going to have to pay everybody more, which increases labor costs across the board. That’s more pressure on profits. Too much pressure and you’re out of business.

5. Fewer people will open businesses. $15 an hour is a very steep hill to climb.  Would-be entrepreneurs will do the math on labor costs and realize it’s just not worth the risk. This is a real cost to the economy that we can’t measure. A company that never exists never employs anyone. 

6. Prices for everything will go up as businesses pass higher labor costs along to consumers. One of two things will happen: Either consumers won’t pay the higher prices and businesses will lay off workers or close, or consumers will pay higher prices and have less money to spend elsewhere. Either way, the higher minimum wage will represent a drag on the overall economy. 

Now, this may sound like doom and gloom. But it’s already a reality for many business owners and workers in the cities and states that are raising the minimum wage.

In San Francisco, AQ, a 2012 James Beard Award finalist for the best new restaurant in America, saw rising labor costs drive its profit margins down from 8.5% in 2012 to 1.5% by 2015.  So, it shut the doors.  

Jeremy Merrin’s chain of Cuban restaurants in New York closed two locations because of minimum wage increases and has raised prices at the restaurants he’s still operating. The minimum wage, he said, “is going up too fast… We can’t catch our breath.”

Kevin McNamee is a chiropractor in California. “I’ll be moving my two companies out of Los Angeles,” he wrote in a letter to the New York Times. “When the city compels me to pay employees $15 an hour, it comes out my pocket. Last year, my employees made more than I did.”

These stories are already all too common.  Expect them to become more so as cities and states pile on the $15 minimum wage bandwagon.

So…if a $15 minimum wage doesn’t help workers, and doesn’t help employers, who exactly does it help?  Well, maybe just the progressive politicians who manage to mislead voters into believing that it’s the right thing to do. Sounding caring, compassionate and concerned is all well and good. But having a job is better.

I’m Andy Puzder for Prager University.

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