by Christina Sandefur
May 24, 2018
The New York Post recently reported that actress and designer Sarah Jessica Parker moved her fundraiser to promote a mandatory minimum wage hike in New York City to an undisclosed private home after news of a potential protest by a coalition of restaurant workers and owners—the very people the proposal purports to help. Restaurant Workers of America railed against the “$50,000-per-table fund-raiser to harm our industry, attended by people who don’t work in our industry.”
Some may find it strange that restaurant workers would so strongly oppose efforts to raise the minimum wage – after all, wouldn’t the measure give them a bigger paycheck? But restaurant workers fear such a law would put them out of a job, and restaurant owners fear it would put them out of business.
Mandatory minimum wage laws forbid an employer from paying a worker less than a certain amount (in the case of the New York proposal, $15 per hour). That means a prospective employee who produces less than that will be at risk of losing her job. Under the status quo, such a person might persuade an employer to hire her at a lower wage and to provide on-the-job training and experience. But a law forbidding employment at less than $15 per hour makes that practice illegal—closing this avenue of opportunity.
One cannot argue that employers can simply raise prices or take fewer profits to make up the difference. In an industry like the restaurant business, demand is highly elastic—if a meal out gets more expensive, fewer people will eat out. Every time a restaurant charges more for a meal, it loses customers at the margin.
The line between “just right” and “too high” pricing is not dictated by the “greed” of business-owners—it is a complex calculation based on the cost of capital and other inputs, competition among restaurants, and alternative consumer spending options. If the profitability of restaurants declines because wage mandates make labor more expensive, investors will devote their funds to more profitable industries.
While minimum wage laws increase the wealth of workers who are able to keep their jobs, they impose costs in the form of lost opportunities—the jobs and the wealth that might have been created in the absence of this mandate. Servers who might have been employable at $8 per hour are deprived of the opportunity to work, and individuals who might have been able to sustain a restaurant by offering those wages are deprived of the opportunity to own a small business.
That’s precisely why one Harlem server worried that under the New York City proposal, she would “earn less money and work more hours” because her “boss will be forced to cut employees.” And a coalition of female and minority restaurateurs echoed these concerns, warning that costs would be passed on to customers and hardships imposed on employees.
These New Yorkers understand what the politicians and celebrities behind the measure do not: Mandatory minimum wage laws are laws against jobs. Arizonans are learning a similar (and unfortunate) lesson. Last year, Arizona enacted Proposition 206, the Fair Wages and Healthy Families Act, a mandatory $12-per-hour minimum wage law. As a Goldwater Institute study released earlier this year revealed, this law not only slows economic growth, increases consumer costs, and stifles job creation—it also harms taxpayers by forcing them to bear a greater financial burden or accept fewer or lower-quality government services for their tax dollars.
Well-intentioned as proponents of mandatory minimum wage laws may be, these policies harm the people they are supposed to help. Laws cannot help workers or employers by eliminating their job prospects or business opportunities.
Christina Sandefur is the executive vice president of the Goldwater Institute.