While everyone wants to reward hard work, recent news headlines show that minimum wage increases have not proven to be the best way to increase paychecks. They confirm what basic economics has told us for years: Minimum wage increases often decrease job opportunities for entry-level employees.
Take Los Angeles, which increased the minimum wage for hotel workers to $15.37 an hour in July. Fast forward to October and hotel employment in L.A. has fallen by roughly 1,000 jobs since the beginning of the year, while hotel employment outside of the city has jumped by 2,700 jobs in the same time frame.
Seattle, which passed $15 minimum wage legislation in June 2014, is experiencing a similar drop-off in the restaurant industry. Between January and September, restaurant employment in the Seattle area declined by about 700 jobs, while the rest of the state saw an increase of 5,800 jobs (a 6.6 percent jump). Some restaurants have even tacked on a 15 percent order surcharge to compensate for higher wages. And others, faced with more red ink, are closing their doors altogether.
The newswire also shows that restaurants in San Francisco, which followed in Seattle’s $15 footsteps, are facing similar issues. Restaurant industry job growth has slowed to a near standstill, while limited service restaurants have experienced a net job loss of 1.33 percent in the past year. To save money, some restaurants are using more computer tablets in place of waiters.
Each loss of a job opportunity as a result of a higher minimum wage is one less job for an entry-level employee. These people miss out on the valuable training provided by these jobs, which allow them to quickly earn more than the minimum wage. In two-thirds of cases, this happens within the first year of employment.
While a higher minimum wage is well-intended, a better way to lift people out of poverty is the Working Americans Credit or, as it’s known in Washington, the Earned Income Tax Credit (EITC). It rewards people who are trying to raise a family on an entry-level paycheck by giving them a tax credit boost resulting in real dollars.
To find out who the nation’s main minimum wage earners are, check out our infographic here.
And to learn more about the impact of minimum wage increases on entry-level jobs, watch our video, “What Gets Lost When You Raise the Minimum Wage.”