We reported last week that New York City plans to raise minimum wages for fast food workers.

Fast food workers in the Big Apple are cheering, but all of the other minimum wage workers are looking at their paychecks asking, “Where’s mine?” which sets up a nice scenario for a resentment.   

A different angle on the minimum wage rise is what will happen when wages rise each year in the city until hitting $15 per hour by 2018 and then the rest of the state within three years. City life and suburban life and rural life can vary as the costs of living vary widely.

We can make predications on what may happen given economic principle and experience from other cities like Seattle, but nothing is certain. That uncertainty makes even supporters of raising the minimum wage nervous.

In expensive cities, wages are a smaller share of a business’s overall costs – rent tends to be highest. So, increasing minimum wage may have a smaller effect on their bottom line than in areas with cheaper rent such as suburban areas and rural areas.

Expensive cities also have transient populations (such as tourists and higher paid dwellers) that are willing to pay higher prices. Businesses can then offset some of the higher wage costs with higher prices and stay in businesses. That’s not guaranteed but conjecture.

Again, businesses outside of high-cost cities do not benefit from customers who are willing to pay higher prices–some because they are tourists and know they will go home to more affordable prices. That’s not to say that even in urban areas, customers won’t take their dollars elsewhere.

Some progressive economists who might otherwise look with unmitigated favor on the minimum wage hike are worried about disparate impact.

The New York Times explains:


“Some of these cities are tourist destinations,” said David Cooper of the Economic Policy Institute. “Folks go and spend the money anyway.” Businesses in less-frequently visited places do not have the same luxury.

Wanda Austin-Peters, who owned a Subway franchise in Albany for 10 years until she sold it in May, said labor normally accounted for 50 percent or more of her costs in a given year — relatively high compared with an industry average of around one-third. She added that she had little ability to raise prices.

“It would be stupid to charge $7 for a footlong sandwich that everyone else has for $5,” Ms. Austin-Peters said. “There’s a Subway cropping up in every corner.”

Even when they don’t lead to job losses over all, minimum wage increases can be disruptive, driving a number of operations out of business even as they give rise to a largely offsetting increase in new businesses and jobs.

A number of studies co-written by the Berkeley economist Michael Reich show that mandated wage increases for low-income workers do significantly reduce turnover. Other studies show that the cost savings can be substantial.

Still, the uncertainty of the new $15-per-hour world is why even economists relatively sympathetic to minimum wage increases, like Arindrajit Dube, Mr. Reich’s frequent collaborator, argue that it makes the most sense to treat cities like New York and San Francisco differently from other parts of their states, to say nothing of less populous states where wages are much lower.

Others, like David Neumark, an economist at the University of California, Irvine who has long emphasized the costs of minimum wage increases, argue that it would be far more efficient to help lift people out of poverty using wage subsidies like the earned-income tax credit than to rely on the minimum wage, which frequently helps workers in families whose incomes are already above the poverty level.

Recent research suggests that the earned-income tax credit is highly effective at reducing poverty, although far fewer people claim it than are eligible, often because the working poor have little experience claiming tax benefits.

At the end of the day, activists behind the fast food worker protests don’t care about the impact on business or whether businesses which can’t afford to absorb the higher labor costs move to replace workers with automated services or close up shop. They want public displays that dramatize their point of view.

Other solutions such as the earned income tax credit might be a more efficient solution –despite its own opportunity for abuse and fraud, which require monitoring – but that’s too non-partisan and dependent on an individual action rather than partisan spectacle of mandated minimum wage protests that build supporter bases and win loyalty.

Where are the broader solutions that truly help all workers and employers by expanding economic activity and our economy? Why are we accepting that 30 percent of 25 to 39 year olds are earning minimum wage and that there are workers who have been earning this wage for years. Why are those workers not progressing onto higher-wage jobs or management positions? If there’s a lack of education or a mismatch between the skills that are needed for better-paying jobs and the skills that chronic minimum wage earners hold, arbitrarily boosting the minimum does not address these long-term, systemic issues. Boosting minimum wages are a crutch that retards progress not encourages it.