NOTE: This is the first article in a series of two. You can find the second post here.

There has been a lot of talk lately about raising the minimum wage across the country.  We’ve heard rumblings of this in the past, but never this loudly.  Certain cities and states are looking at raising the minimum wage to anywhere from $15-$20 per hour.  While I know to a lot of people this sounds like a great idea, there are some serious consequences to raising the hourly wage of unskilled workers to that extent.

Labor is a commodity, just like anything else and because it is a commodity, the more it costs the less demand there will be for it.  For most things, the more they cost the less you sell, this is why Toyota sells a lot more Corollas than Porsche sells 911s.  The same is true for the commodity of labor, the more it costs to hire an employee, the less demand there will be.   If you increase the cost of labor it will encourage more companies to automate and discard the employee all together. Restaurants and a lot of other industries already work on a thin profit margin and increasing their cost of doing business will have then doing one of three things. Pass the cost on to the customer, employ less people or close the doors.  The first option usually means less customers and last 2 options obviously equate to less jobs. 

Mike and I have talked on Robot Overlordz about one of the issues with futuristic Sci-Fi movies is that they change one component of the future and everything else stays the same.    For example there may be a movie set in the future and there are self-driving cars, but the movie makes no other changes to the future, just the self-driving cars.  The same can be said of people who are advocating raising the minimum wage, they act as if only the wage will rise and nothing else will change.  Let’s look at it like this:

I’ll break this down and show why this won’t work given the sci-fi movie idea above.  Right now a McDonalds worker makes about $8 an hour and a regular burger at McDonalds costs about $1.  Let’s say we give the McDonalds worker $15 an hour.  We also have to pay the person working at the bakery that makes the burger buns a raise to $15 an hour.  We also have to give the people working at the slaughter house a raise, plus the woman making the pickles, the people at the factory making the ketchup and mustard all get raises too.  All of that cost gets passed down to the consumer, so you are left with a burger that was $1 and is now $2.  This not only affects the fast food industry, but every industry in the country.  That $15 an hour only gets you as far as your current salary of $8 an hour because the cost of literally everything just went up.  What happens to people making a salary that aren’t given cost of living increases?  They are making the same salary, however the prices they pay for everything has just increased across the board.

On Robot Overlordz we have talked to several guests about jobs being lost to automation and robots, increasing the minimum wage will only increase the speed in which that is achieved.  The fast food corporations are already working on ways to make the food using automation.  They are also already using kiosks that allow the customer to place their own order with no human interaction.  Within the next 2 years you will be able to place your order on your phone before you even drive to the restaurant and then just pick up the order, no person at the drive through required.  We’ve seen a restaurant in China that is using robot servers to take your order and deliver your food.  Industries will find a way to survive by eliminating their highest expense, unfortunately that is usually the employee.  An example of this is the Hostess company.  At the time Hostess filed for bankruptcy and closed its doors, it had 9,000 employees.  Today the company that is making those spongy yellow treats employs 500 workers and is making the same amount of tasty cream filled goodness as they were prior to bankruptcy.

While I think that raising the minimum wage will hurt the economy in the long run, I do think that it should be handled at the state and local level and not the federal level.  Let’s face facts, it does cost considerably more to live in a place like New York City or San Francisco than it does say Enid Oklahoma or Minot North Dakota.  If the people in San Francisco want to increase the minimum wage in their city, I have no issue with that, but don’t make it a nationwide increase, let the people at the local level decide.

Unions have been at the front of the charge to increase minimum wage, especially in the fast food industry.  The unions have lobbied hard and helped push through a minimum wage increase in Los Angeles to $15 an hour.  In a move of complete hutzpah, the unions have asked that any union business in L.A. be completely exempt from the $15 minimum wage.

In the past the minimum wage job was always a job reserved mainly for high school students or retirees looking to get out of the house.  A 20 hour a week job making near minimum wage is the perfect job for a high school student or college student.  It’s enough money to allow you to hang out with friends and pay some minor bills.  This was never a job that was intended to pay enough to support an entire family, nor should it be.  Due to the lackluster recovery and Job market has been stagnant and people that normally would not work low wage jobs are being forced to.  Do I think a part time fast food worker deserves $15 an hour to get my order wrong? No.  I also think it will have a far more damaging impact on the economy as a whole.  I know my article uses mainly the restaurant and fast food industries as examples, mainly because it is an easy industry to use as an example.  This is something that will affect all industries across the country, not just the ones I used as examples.

NOTE: For Mike's reply to Matt's post, click here.