OBAMA administration officials and congressional Democrats have renewed their call to increase the federal minimum wage, visiting businesses that pay above the wage floor for entry-level work. Yet those examples don’t prove the need for a higher federal minimum wage. They actually prove that such laws are unnecessary.
Labor Secretary Thomas E. Perez and U.S. Rep. George Miller, D-Calif., recently met with kitchen workers at Sweetgreen, a District of Columbia restaurant that offers a starting salary of $8.50 an hour.
Perez said Sweetgreen shows that, “You don’t have to make a profit on the backs of your workers.” But the fact that Sweetgreen already pays a starting wage above the federal minimum shows that market forces alone can drive up wages. Federal intervention is unnecessary.
Left unsaid was the fact that Sweetgreen’s higher wage is still less than the $10.10 hourly minimum Democrats want. This suggests the proposed rate is financially unfeasible.
A minimum wage increase can have only two outcomes. One is to raise the official minimum wage to a level still below the informal rate already imposed by market forces. In that case, a wage law has no real effect; it merely provides opportunity for political grandstanding. But in cases where the law raises the minimum wage above market levels, it leads to fewer jobs, harming entry-level workers the most.
The Manzella Report, which provides business and economic analysis, notes that seven countries in the European Union have no mandatory minimum wage while 21 EU countries have one. In 2012, the mandatory minimum wage countries had an average unemployment rate of 11.8 percent. In the seven countries without a mandated minimum wage, the unemployment rate was 7.9 percent.
In a recent column, Diana Furchtgott-Roth, former chief economist of the Department of Labor and director of Economics21, noted that liberal groups ignore the trade-offs created by excessive minimum wage policies. When the Restaurant Opportunities Center, a union-funded organization, conducted an event to highlight New York City restaurants paying workers more than minimum wage, the intent was to show businesses could pay workers far more. But Furchtgott-Roth said the average price of a burger and fries at the profiled restaurants was $20.50. This means a family of four would pay $82 for burgers at those establishments, compared with perhaps $15 at McDonald’s. Most customers can’t afford $20 burgers; therefore, most restaurants can’t duplicate that business plan and survive.