By Keely Sharp – Re-Blogged From Eagle Rising
While there are McDonald fry cooks out protesting for $15 an hour to flip burgers and almost always get our orders wrong, some of us can actually see the harm in minimum wage hikes.
When wages are increased, then a business must then charge more for their product in order to cover the costs, due to inflation. For example, you may go from $7.25 an hour to $15 an hour, but now a gallon of milk jumps from $4 to $8. So you aren’t really able to afford anything more than you were in the first place, and it hurts the businesses.
A new Harvard Business School study found that minimum wage hikes lead to closures of small businesses. “We find suggestive evidence that an increase in the minimum wage leads to an overall increase in the rate of exit,” the researchers conclude.
The study, titled Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit, looks at “the impact of the minimum wage on restaurant closures using data from the San Francisco Bay Area” from 2008-2016.
The evidence suggests that higher minimum wages increase overall exit rates for restaurants. However, lower quality restaurants, which are already closer to the margin of exit, are disproportionately impacted by increases to the minimum wage,” says the study. “Our point estimates suggest that a one dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating), but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).”
Stephen McBride with Garret/Galland Research spoke about the “minimum wage massacre,” told Forbes, “Currently, rising labor costs are causing margins in the sector to plummet. Those with the ability to automate like McDonalds are doing so… and those who don’t are closing their doors. In September 2016, one-quarter of restaurant closures in the California Bay Area cited rising labor costs as one of the reasons for closing.”
He continued, “While wage increases put more money in the pocket of some, others are bearing the costs by having their hours reduced and being made part-time.”