Imagine that you are an owner of a fast food restaurant, and you are now facing a $15 per hour minimum wage. You have the following choices: (a) cut your number of employees and hope your consumers will tolerate the corresponding reduction in your level of service; (b) reduce your staffing level through automation; (c) raise prices; or (d) accept a significantly lower level of profits. What do you do?
Probably some of all of them. Each individual case will be different. There will be job losses, but we don’t know how many, or how the trade-off will work. In addition, across-the-board price increases will fuel inflation, which could cause the Fed to raise interest rates, which will mean a reduction in growth. Finally, it is the moral obligation of all of society, not just fast food consumers or business owners, to provide workers with a reasonable standard of living.
The minimum wage is a convoluted attempt to redistribute wealth that will fail in many, and possibly most, instances. Compare that to increases in the EITC, which won’t result in higher prices, won’t drive up the cost of labor, and will more effectively redistribute wealth. Doesn’t that approach make more sense?
Let’s face it: minimum wage increases make for good politics, because they create the illusion that what amount to privatized welfare payments have been earned through work. In all other respects, they are bad policy.