It's not easy to explain viable alternatives to sharply raising the minimum wage. Anything to the contrary makes a person sound like a scrooge. Who doesn't want to see people earn a higher wage, right?
But what if you knew, with absolute certainty that a minimum wage increase from the New York state minimum of $8.75 (prior to December 31, 2015) to the new $15 per hour wage -- which represents a 71.5 per cent jump -- would hurt the working class because small business owners and large companies would create fewer opportunities than they do now? And, who has the most to benefit?
Some politicians are big winners because they acquiesce to big labor in exchange for votes and financial support for campaign bids for re-election or higher seats. This undermines public service because it only benefits certain people, while others are left outside in the cold.
The politicians that support the increase know that by unilaterally raising the minimum wage to $15 per hour for New York fast food workers, four things will happen:
1. The price of food at those restaurants will go up;
2. Hours will be cut, with fewer employees on each shift;
3. Job automation will rapidly accelerate above the norm because it will be more cost effective to invest in machines than people at the substantially higher wage level for low-skilled workers without any expectation of increased productivity; and
4. Politicians will proclaim they care about the working poor.
Elected officials also know that skilled workers soon will begin competing with entry level restaurant employees -- including teenage kids looking for their first jobs -- because those positions will be more financially attractive. And other businesses on tight margins will have to cut back, too, as they are forced to compete for workers with higher wages.
As an alternative to a $15 minimum wage, Warren Buffet recommended, expanding the earned income tax credit which is clearer and put more money into the pockets of people working for low wages without adversely impacting the already fragile small business economic environment.
An earned income tax credit combined with a modest minimum wage increase to $10 would be a better compromise that market conditions can bear (e.g., non-profit organizations and small businesses) without severely impacting jobs or spurring an inflationary market prompted by a huge wage hike. In tandem with this alternative increase, transform the educational system to equip students and adults with real life skills, so that they can aspire to be something greater than a cashier or burger flipper at fast food restaurants.
Hardworking people in the urban community and rural areas of our society are the precious stones and building blocks of our economy and yearn for better opportunities in life, as their skills are honed. The sharp rise in the minimum wage may increase salaries for a few but steeply decrease opportunities for many others.
While employees that are not in a labor union and taxpayers suffer the brunt of the financial burden when fewer jobs are available, New Yorkers that are out of work will become more dependent on politicians that repeatedly do not deliver material and sustainable results. All of which, will disproportionately impact the urban community, negatively.
We are dangerously flirting with market dynamics. How? The Federal Reserve is in a financial quagmire as it contemplates when and how frequently it should raise interest rates to keep a balanced economy coupled with a 2% inflation target. However, a 71.5% wage hike in New York and other similarly situated cities will enter a wage-price spiral that will drive inflation sharply higher, leaving the unskilled laborer with very little net benefit.
One stark reality is that there are no quick fixes to the complexity of interconnected socio-economic issues that have evolved over time and its affects are compounded by inadequate policies prescribed as an urban panacea.
Whether you are fresh out of college seeking a job in your field, an upwardly mobile hipster poised for a bigger break or a seasoned worker raising a family, we all need a vibrant job market that provides opportunities ranging from apprentice to expert level to employ skilled blue and white collar workers seeking gainful employment.