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Unemployment and the Minimum Wage in New York

eye on the news

Unemployment and the Minimum Wage in New York

They go together. October 13, 2015
The Social Order
Economy, finance, and budgets

In an apparent effort to mimic the damage other states and cities have done to themselves, New York governor Andrew Cuomo recently proposed a hike in the state’s minimum wage to $15 an hour. On the surface, it’s hard to argue with the governor’s desire to give people a “living wage.” But a higher minimum won’t do that. Instead, it will raise the cost of employing people and drive employers to cut back their payrolls. Some employees will collect more income; many will lose their incomes altogether. A higher minimum in New York State will do other damage as well. By effectively encouraging citizens to use politics to take advantage of one another, minimum-wage legislation will further undermine people’s sense of community, as well as their respect for government.

Supporters claim that higher minimum wages benefit everyone. By forcing employers to give those at the bottom of the wage scale higher pay—the logic goes—workers will have more to spend, raising businesses’ sales enough to compensate for any increased costs. It all sounds appealing, so much so that one can’t help but wonder: why stop at $15? A minimum wage of $50 or $500 an hour would, by this logic, do even more good for all. The relative modesty of the minimum-wage advocates’ demands indicates that even they harbor suspicions about the validity of their argument.

In reality, legislated wage hikes, whether small or large, force employers to reassess their hiring policies. Managers identify those workers who can produce enough to warrant the new costs, and fire those who can’t. To compensate for the lost manpower, companies either scale back their operations or find machines to do the jobs of the workers they’ve let go. Smaller employers, who generally have neither option, struggle to survive. Everyone on their staffs soon could be receiving what Milton Friedman called “the true minimum wage”—zero.

Earlier this year, as the push for higher minimum wages gained traction, McDonald’s, Walmart, and other firms that hire low-skilled workers raised wages and benefits for large numbers of their employees, mostly to deflect criticism. Then, almost immediately, McDonald’s ramped up installation of automatic kiosks in its restaurants. By summer, Walmart had announced layoffs. Statistics on individual McDonald’s franchises and Walmart stores are not readily available, so it’s difficult to say whether the net effect has been positive or negative for workers as a group. For those who have lost their jobs, however, there is no ambiguity.

Perhaps of less immediate concern—but no less significant—is the damage that minimum-wage legislation does to the social contract. When politicians decide to help a certain class of people with the minimum wage, they claim that it’s the right thing for society to do. Society, however, doesn’t bear the cost. Rather, the burden falls on particular employers. What politicians like Cuomo are really doing, then, is rallying the majority to impose costs on one minority for the ostensible benefit of another minority. This can’t help but have a deleterious effect on social cohesion.

New York would be better off without the additional unemployment that a higher minimum wage will create. It could also do without further erosion of the social contract. Rather than climb on the minimum-wage bandwagon, Cuomo should defend the state’s relatively low 5.2 percent unemployment rate and find another way to help people—one that doesn’t leave some destitute and the community injured.

Photo by Kevin Moloney/Getty Images

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