Raising minimum wage doesn’t solve the income gap; it aggravates the income gap.
Supposedly, a higher minimum wage is needed to deal with the income gap. But Seattle is showing us not only does a higher minimum wage not address the problem. It additionally makes the problem worse. Seattle, by imposing a fifteen-dollar-an-hour minimum wage is going to widen the income gap.
Think about it. In order for people of modest means to be able to afford to eat out, they need to be able to go to a place where prices are relatively low. Because they would like to eat out, there is a whole industry aimed at meeting that demand. These are not places that sell “atmosphere” of the kind that wealthier people prefer. These aren’t necessarily going to be places with the highest quality ingredients. If you want and can afford to pay for such things, you can go to different restaurants.
So what happens when you suddenly make restaurants double the cost of their labor? Notice the perverse results. Restaurants catering to wealthier clientele are more likely to survive. Their customers can probably adapt to the higher prices that are necessary for such an adjustment. But the lower- and middle-classes are more likely to stop going to restaurants, or at least to stop going as often. Restaurants cannot afford to raise prices enough to cover the extra money going to pay the new wage. So they close down.
So the results of a higher minimum wage mean that the wealthy continue to enjoy their privileges and the rest are told they need to eat at home more. Additionally, as these restaurants close, we find a growing group of people who used to make the lower minimum wage but now make nothing. They are unemployed.
To recap then: If you raise the minimum wage you leave the wealthy to enjoy their prosperity but you take away purchasing power from everyone else and force a number of people making minimum wage into unemployment.
The income gap widens.
That’s the economic theory. What about reality?
The SHIFT blog reports, “More Seattle restaurants close doors as $15 minimum wage approaches.”
Seattle’s $15 minimum wage law goes into effect on April 1, 2015. As that date approaches, restaurant across the city are making the financial decision to close shop. The Washington Policy Center writes that “closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.”
Of course, restaurants close for a variety of reasons. But, according to Seattle Magazine, the “impending minimum wage hike to $15 per hour” is playing a “major factor.” That’s not surprising, considering “about 36% of restaurant earnings go to paying labor costs.” Seattle Magazine,
“Washington Restaurant Association’s Anthony Anton puts it this way: “It’s not a political problem; it’s a math problem.”
That’s exactly right. We can accurately characterize these restaurant closings as the collateral damage inflicted by Seattle’s war against math.
And that war against math is being waged on a national level. Remember that Barack Obama is threatening to “give America a raise.” If you want to see the poor get even poorer, just demand a higher Federal minimum wage. That will create an even more vicious income gap that the next Democrat candidate can blame on Republicans.