That aside, when minimum wage goes up either one of two things will happen. The floor for everything else goes up and it's back to square one, or massive layoffs/slashed hours and benefits. Most companies won't just roll over and eat the loss on those margins, they just won't. Sometimes they can't or lose the business. In many cases both will happen, and it's already happening.
When Seattle officials voted three years ago to incrementally boost the city's minimum wage up to $15 an hour, they'd hoped to improve the lives of low-income workers. Yet according to a major new study that could force economists to reassess past research on the issue, the hike has had the opposite effect.
The city is gradually increasing the hourly minimum to $15 over several years. Already, though, some employers have not been able to afford the increased minimums. They've cut their payrolls, putting off new hiring, reducing hours or letting their workers go, the study found.
The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study, conducted by a group of economists at the University of Washington who were commissioned by the city. The study, published as a working paper Monday by the National Bureau of Economic Research, has not yet been peer reviewed.
On the whole, the study estimates, the average low-wage worker in the city lost $125 a month because of the hike in the minimum.
The paper's conclusions contradict years of research on the minimum wage. Many past studies, by contrast, have found that the benefits of increases for low-wage workers exceed the costs in terms of reduced employment -- often by a factor of four or five to one.
"This strikes me as a study that is likely to influence people," said David Autor, an economist at the Massachusetts Institute of Technology who was not involved in the research. He called the work "very credible" and "sufficiently compelling in its design and statistical power that it can change minds."
But that view is not uniform. Small business advocates such as the National Federation of Independent Business say the mandated labor-cost increases will stunt economic growth and cause job losses.
Often the people that get crowded out of the workforce when you see wage increases are younger and less-skilled workers, said Christopher Carlozzi, NFIBs state director for Massachusetts. He said hes already hearing reports of Boston-area restaurants closing and cutting workers hours since the state passed its wage increase last year.
Youre already seeing almost immediately, even at $12 an hour, some small businesses saying we cant afford this, he said, noting the state enacted new paid leave requirements for employers at the same time. The states minimum wage rose to $12 an hour in January on its way to $15 by 2023.
Restaurants and retailers tend to be hit hard by wage increases, as well as landscaping services, amusement businesses such as skating rinks, and other small businesses, Carlozzi said.
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