Maine’s Minimum Wage Increase to Cause Rising Prices and Unemployment
By: David Deschesne
Fort Fairfield Journal, November 23, 2016
On November 8, a majority of Maine voters approved a near doubling of Maine’s minimum wage over three years from $7.50 per hour to $12.00 per hour even though the vast majority of them have no background in business or economics and have no idea how a politically motivated, artificial wage increase can disrupt a free market economy. But, none of that matters. The majority approved, so it must be the right choice. Right?
While business owners will ultimately be forced to pay $12.00 per hour for mostly untrained, unskilled workers, some of whom can barely perform simple functions like basic mathematics or forming complete sentences, the law does not require businesses to actually hire those workers. The predictable result will be that sector of society—primarily young high school and college students, as well as unskilled adults—will find jobs they once relied on for extra income will become increasingly scarce.
Gary Wolfram, Professor of Economics at Hillsdale College, explains in his book, A Capitalist Manifesto; “Suppose the equilibrium wage, where demand for labor equals the supply of labor, is at $3 per hour...And suppose that the government determines that the minimum wage anyone can pay is $5 per hour...The quantity of labor demanded will be less than was the case at $3 per hour, and the quantity of labor supplied will be greater than at $3 per hour. This results in unemployment. The number of persons looking for jobs minus the number of workers producers actually want is the amount of unemployment that will result.” (op cit. pp. 37-38)
Simply stated, as the minimum wage artificially rises via government mandate, instead of free market conditions, employers will simply employ less people to offset the increased cost of doing business. This will result in those employees who still have a job being burdened with more work and more responsibility than they had before the wage increase was passed.
But that isn’t the only negative effect. With some businesses, such as convenience stores, grocery stores and restaurants, already working with the bare minimum number of employees required, prices will naturally have to rise in order to offset the increased cost of doing business. At the end of the day it is the consumers who will foot the bill of the wage increase, not businesses, but Maine voters who are not trained in such matters of economics chose to raise the minimum wage anyway, without any understanding of the adverse consequences of their actions.
Mark Kelley, owner of Country Farms Market in Washburn, predicts big changes in his hiring practices.
“I can’t raise the price of hamburger a dollar more per pound to cover this increased expense. The only way to overcome this massive increase in cost is to spread it out over price raising and cutting hours,” said Kelley. “My regular full time employees have families to support, so the hours that will be cut are going to have to be in the part-time work normally filled by high school students.”
Kelley expects to decrease high school labor employment by as much as fifty percent.
He also mentions the increase of the minimum wage is not the only increase businesses will have to bear. “Remember, businesses are required to pay half of a person’s Social Security taxes and pay into Medicare; they also have to pay worker’s compensation and unemployment premiums and all of those are based upon the wages paid. The higher the wage paid, the more those expenses rise,” explained Kelley. “So, the true cost to businesses is actually much greater than the $12.00 per hour minimum wage.”
Kelley predicts that in addition to grocery stores, which employ mostly minimum wage earners, restaurants will also be greatly impacted as all cooks, waiters and waitresses will be elevated to $12.00 per hour over the next three years. “I think you’ll see a lot less people on fixed incomes eating out. Also, restaurants will likely have to do away with tips since the cost of a meal will become so expensive.”
Speaking of fixed incomes, Kelley said while people who earn the increased minimum wage will have the money to pay for the increased cost of food, others who are on fixed incomes, such as Social Security recipients will find their meager incomes will not increase with the pace of rising food prices and will find their monthly check is going to purchase a lot less than it did before.
The minimum wage is going to be elevated to $9.00 per hour starting January 1 and an additional dollar per hour, per year, until it reaches $12.00 in three years. However, Kelley isn’t planning on waiting three years to make adjustments to his business. “I think by this time next year, the final game plan will be in place for me and I will have made the necessary changes to cover these additional expenses.”
Mike Cyr, owner of Bradley's CITGO and Convenience Store, and Bradley's Car Wash, also sees some serious changes to his employment model in the future. “I expect not next year, but possibly in 2018 to go away from full service gas, which will eliminate 77 hours per week of part time employment for high school and college students,” said Cyr. “I will be evaluating possibly putting in a new car wash machine that will be an unattended, ‘touch-less’ wash, which will not have anyone presoaking the vehicles before they go into the wash. That would eliminate several hundred hours per week.”
Cyr says the move to less employees is almost a given because he doesn't believe the market will support the price increases required to keep the employee base he currently has. “We have two levels of car wash that have been at $12.00 and $14.00 per wash respectively for going on 4-5 years now and we can only stand so much on increasing expenses, especially with an older machine that is and will need more repairs. I don’t think the public can stand going to $14.00 and $16.00 per wash so we will have to do something different. I am not excited about possibly going to an unattended wash as we help many handicapped and elderly people put their vehicles through. Plus the touch-less wash is lower and not as wide as the system we currently have, so it will be more restrictive for certain vehicles which will no longer be able to pass though.”
Reducing employment is only part of Cyr's solution. Like Kelley, he also anticipates rising prices. “The cost of items in the store will definitely be going up due to increases in wages and taxes such as matching Social Security, Federal and State unemployment tax, Medicare and of course worker’s compensation tax,” explained Cyr. “General liability insurance premiums will be increased as well due to increased income because in the insurance companies’ eyes, ‘more income’ means ‘more business.’ I truly think the people who voted for this did not realize what they were voting for because someone will have to pay for these increased costs and that will ultimately be them, the consumer.”