Minimum wage workers in 19 states are bringing in 2015 with expectations that they’ll make more money this year than last. While the recent pay bump will no doubt lead to higher income, what many who supported wage hikes like Seattle’s $15 per hour minimum fail to consider is where that money comes from. And no, it’s not going to be printed and distributed by the government (at least not at first). It turns out that when you mandate wage increases for employees, said increase in compensation is actually paid for by the employer. As we noted in Stupidity Has a Price, that means one of three options: Businesses in the area just saw a massive increase in their labor costs (and let’s not even mention new Obamacare health insurance requirements and taxes). There are really just three possible solutions here:
1) Businesses will be forced to raise prices, which will essentially wipe out the benefit of any wage increase because while employees may make more money they’re now paying more for the same goods.
2) Businesses will have to cut back hours. If you force a business to pay 50% more per hour per employee and consider how much money that is, many will have no choice but to cut back hours, which effectively leaves the employee making the same amount of money.
3) Businesses will have to let people go. It’s simple. If their revenue stays the same but their labor costs go up a business has no choice but to consolidate its work force. More