New York City’s Minimum Wage Hike Idea Is Maximum Stupidity

New York City comptroller Scott Stringer issued a report in support of a minimum wage hike. From Yahoo!:

According the comptroller’s analysis, raising the minimum wage would impact 1.5 million New Yorkers and add a collective $10 billion to their salaries.

Gee, sounds like a no-brainer! It begs the question though: if hiking the minimum wage leads to revenue increases for companies, why don’t said companies just simply pay their employees more?

Simple: wages should be a function of the level of productivity (i.e., the revenue said labor brings to the business). Simply raising the costs of labor does not bring about an increase in revenue or productivity. Would paying a burger flipper $15 instead of the ~$9 he or she earns in NYC bring in more customers?

An increase in the minimum wage would also save the city between $200 and $500 million annually in Food Stamps and Medicaid, and add $250 million annually in tax revenue, according to Stringer.

There’s the rub. NYC wants to save money in food stamps and Medicaid, so the increase of wages will disqualify folks who are on these programs from receiving them. Then, on top of that, the City wants these higher paid workers to pay more of their “fair share” in income tax!

Of course, this pipe dream of de Blasio’s and Stringer’s assumes that businesses don’t cut costs by laying off employees or cutting costs because of the new mandates. This article kind of suggests that, in a buried lede:

Still, there’s no such thing as a free lunch and the extra money businesses dole out could hurt their bottom line. “We have fast food restaurants that are making in the billions; they get maximum salaries and they build their business on the backs of people who get a very low wage so we have to equalize that wage so people can put food on the table and pay their rent,” Stringer tells Yahoo Finance.

Yes, exactly. Fast food companies make billions in revenue. However, they do so because their businesses have grown because of economic goodwill, brand recognition, and smart capital allocation (among other reasons)–not “on the backs of laborers,” Karl Marx.

Stringer also concedes that small businesses are not as positioned as large businesses against a minimum wage hike:

Not every business is a giant corporation, and small business owners are split on the idea of raising the minimum wage. “The issue of small businesses is certainly legitimate,” says Stringer. “But when you look at places like Seattle that have raised the wage to $15 an hour you see small businesses expanding.” Stringer believes that it’s not a minimum wage increase that hurts small businesses, it’s government fines and taxes. “I wouldn’t take the small business person and pit that person against their worker,” he says.

Well, Seattle is actually seeing more restaurants closing faster than before, due to the increased costs of doing business. As I wrote about before, the Wal-Marts of the world can shoulder increased costs (i.e., passing them onto the consumers) better than mom and pop stores.

The irony of the #FightFor15 folks is that they are seeking to punish the people they are purporting to support. The minimum wage is not meant to support a family. Raising the minimum wage prices people out of the labor force by forcing businesses to choose to cut labor or increase costs. If businesses choose the latter, will their minimum wage workers be able to afford those $20 hamburgers? New York City is expensive enough without drastic cost increases such as the ones Springer’s plan will bring about.

I’ll concede that Stringer has a point about government fines and taxes hurting businesses. While Stringer is wrong in thinking that increased labor costs doesn’t hurt business, I hope that NYC cuts back on its aggressive fining and taxing of all people and entities in its jurisdiction. Less government, more freedom. What a concept!

As always, free markets are better markets.