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The surprising consequences of a $15 dollar minimum wage

By Grace Cifuentes
web posted November 12, 2018

My sister and I have many petty fights.  One of the most frequent times they happen is when I ask her to do or get something for me.  It goes something like this,Me: “Can you get me some water?”My sister: “Seriously! Fine as long if you play soccer with me later”  I think to myself, when am I going to have the time to play with her? I have a essay to finish!  In the end I end up not using her help and getting it myself, wasting precious minutes! The price of her low skilled help keeps going up.

The article, “A ‘very credible’ new study on Seattle’s $15 minimum wage has bad news for liberals” posted by the Washington Post discussed Seattle's minimum wage law and its effects on the worker and the companies. The author examined multiple studies and their conclusions.  At first glance we all would agree that higher pay is better for lower income workers.  Unfortunately this is not always the case. 

The $15 minimum wage will cause low demand for low skilled workers and low experienced workers. In this essay I will show two causes for this, the substitution effect and the law of demand.  I will also give some examples as to how it is already hurting Seattle’s low skilled and low experience workers. 

The first reason the $15 minimum wage will harm the workers is the substitution effect.  The substitution effect says, when the price of a product increases, people will switch to another product.  In the case of the minimum wage, the “product” is labor, and the “people” are the companies.  Since the cost of the product, which is labor, will be going up, people, who are the companies will switch to another product.  One substitute for human labor is technology.  The former CEO of McDonald's USA, Ed Rensi, confirmed that this is already happening.  Self service kiosks have replaced full time workers at some McDonald’s. 

The second way in which the $15 dollar minimum wage will harm workers and companies is the law of demand. The law of demand states, when the price of a product goes up the quantity demanded falls.  When looking at the problem of a $15 dollar minimum wage the product is the hour worked. The workers are supplying the hours.  Those demanding, in this case, are the companies.  They are demanding the labor.  Since the price of labor is increasing, inevitably, the demand for the hours of the workers will go down.  Companies will hire less workers, or decrease the hours worked.

The article from the Post and Mr. Rensi gave some examples of how the higher minimum wages are already hurting businesses and workers.  The harms to workers are less hours and jobs, which means less income.  One study stated, on average, low income workers in Seattle are losing $125 a month.  This might seem small, but when you already have a low income, any decrease can hurt you.  Losing $125 could mean one less grocery trip per month.  The study also showed that businesses are not seeing the benefit anymore in hiring human labor.  This means that more low income or low skilled workers are out of jobs or only have part time jobs. Equally, the hourly wage increase harms businesses,  especially small businesses. Small businesses don’t have extra cash to test the different substitutes.  California is also raising their minimum wage to $15. It is reported that small book stores, grocery stores and cafes are going out of business. The reason is, the cost of labor is a much larger percentage of a small business’ budget.  

In conclusion, the $15 minimum wage will cause low demand for low skilled and inexperienced workers because of the substitution effect and and the law of demand.  All of this creates a surplus of people who are willing to work. Likewise in my personal life, my sister's high prices, will cause her to be out  “work.” I will have to use up “precious resources” to get my water. ESR

Grace Cifuentes is a a high school student taking AP Macroeconomics. (c) 2018 Grace Cifuentes

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