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Extreme Increases to Minimum Wage Could Have Unintended Consequences

Few people would argue that it is a wonderful goal to increase the standard of living for all employees at the lowest income levels. The strategy to achieve this and to increase the standard of living for working poor is where the debate begins.

This is a long-standing and very divisive issue as highlighted in many news stories and magazine articles. The complaint that the rich are getting richer and the poor are getting poorer has brought the discussion of unequal distribution of income and the income gap to the forefront of political agendas all over the country. From Occupy Wall Street protests in New York City to the fast-food worker wage rallies in Los Angeles, Chicago and Baltimore, people have united in the desire for the lowest earners to get a bigger slice of the income pie.

Gov. Andrew Cuomo responded to this political pressure by raising the minimum wage for state workers to $15 per hour. He is using his executive authority to phase in the full $15-per-hour in New York City by 2018, and then statewide by 2021. He also included a minimum wage increase for fast-food workers which phases in at $9.75 per hour this year and increases to $15 per hour by 2021. There was even an increase in the minimum wage for tipped workers from $5 per hour to $7.50.

These increases are likely designed as a way to generate momentum in the quest to give our lowest earners more buying power and a better standard of living, but they could result in an increase in the unemployment rate instead. For those who agree with the laws of supply and demand, the notion of increasing the minimum wage more than 70 percent for fast-food workers and 50 percent for tipped workers might result in more supply of workers but less demand for them. If you happen to be a fast-food or tipped worker, you may believe that these increases are long overdue, but from the perspective of many of those industry employers, they are viewed as way too extreme and potentially devastating.

When speaking to the owner of a local restaurant about this issue, she indicated that she already has cut her wait staff and is now taking on a server role herself, a position for which she used to employ others to fill. When asked why she didn’t just increase her prices to cover the additional costs, she replied that she would lose her customer base if she raised her prices. Her next response was “If they follow the fast-food minimum wage hike to $15, I will have to put the for-sale sign out and close my business.” A very sad outcome and one that I am sure the Governor did not intend. It may seem extreme, but when speaking to three other restaurant owners on this topic, similar responses were given.

If the labor expense for businesses becomes too high, they may choose to contain that expense by cutting back on the number of people that they employ. We already have begun to see McDonald’s installing kiosks for ordering, which replaces the need for human employees. It is only a matter of time before all of the big fast-food chains follow suit. Even Chili’s and Applebee’s are integrating table tablets for customers to use to order and pay their bill, making the need for servers obsolete. One would think that this is not the outcome that Gov. Cuomo and other national leaders were hoping to achieve.

The minimum wage is the lowest wage rate that one can be paid, and a rate that according to Pew Research is earned by less than 5 percent of the nation’s hourly-paid workers and less than 3 percent of all wage and salary workers. Most employees are paid at a rate higher than the minimum, a fact that should not be lost in this discussion. If the market can bear higher wages, unemployment will not be affected, but if not, these increases may do much more harm than good.

About the Author

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As an instructor of various business and management courses, Mrs. Tuttle brings a recognized passion and love of both business and teaching to the classroom. Consistently praised by students and peers for her direct interaction with students and her devotion to their well being, Mrs. Tuttle has a well-deserved reputation for integrating practical necessities of the workplace into the academic environment of college. This led to her being named Keuka College's 2007 Professor of the Year. Mrs. Tuttle brings a rich business background to Keuka College, having managed word processing centers at a Fortune 500 company, and having held sales and marketing positions. In addition to her teaching duties, Mrs. Tuttle has also served in the past as Chair of the Business and Management Division. Her syllabus for her Organizational Behavior course was featured in the April, 2004 issue of the Chronicle of Higher Education. Mrs. Tuttle has held many leadership roles, such as President of Schuyler Nursery School Board of Directors, Chair of the Keuka's Division of Business and Management, and Chair of the International Assembly of Collegiate Business Education (IACBE) Board of Directors. Mrs. Tuttle greatly enjoys the experience of taking what she learns from participating in business operations and bringing it back to the classroom to share with her students.

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