The Unintended Consequences Of Raising Minimum Wage


In economics, the ‘first law of demand’ teaches that as the fee of something increases, humans have a tendency to purchase less, and when the price falls, humans tend to purchase more. If wage increases force up the price of dining out, restaurants can assume fewer customers or the sale of less food. This leads to fewer gratuities, fewer hours, and even layoffs for some workers. Within this essay, I will take a look at how the economical increase of minimum wage negatively effects the restaurant and retail business economic system.


Economics also teaches us that when lawmakers strive to manipulate prices, serious unintended consequences frequently follow, such as shortages and surpluses. The labor market is no exception, even though many policymakers insist on ignoring these lessons. Pretax earnings margins for eating places vary, however the enterprise common is razor thin, between 2 percentage and 6 percent. (John Nessel, Restaurant Resource Group, 2019)

Although the purpose of increasing minimum wage is to benefit those that earn minimum wage, it can have a negative impact on the employees who earn more than minimum wage. When a wage increase is set into place, by law, the owners of a restaurant are required to pay minimum wage workers the increased price. However, they are not required to raise all the wages of their employees. For example, an entry level server at a restaurant may be making 12 dollars an hour, and the lead server may be making 14 dollars an hour. The entry level server making 12 dollars an hour is in charge of very basic day to day tasks like taking orders, running food, and cleaning tables. Whereas, the lead server is in charge of overseeing the servers and making sure things run smoothly during their shift, they are also in charge of taking inventory each night and reordering products. When the minimum wage is raised to 14 dollars an hour the entry level server is now making the same amount of money as the lead server, even though the entry level server doesn’t do the same work as the lead server. Now when the lead server asks for a wage increase as well, the owners’ capital for wages has gone to the entry level server and they cannot afford to increase the pay rate of the lead server. The lead server is now faced with a few options. They can continue to work at the same pay rate as the entry level server, they can increase their skill set in order to try and obtain a higher paid position within the business, or they can go search for higher paying work elsewhere. If the lead server leaves the restaurant for a better paying job, the restaurant is now left without their lead server and is also faced with some options. They can either layoff some of the entry level servers in order to pay for a new lead server, or they can divide the task of the lead server up between the entry level servers. Whichever option the restaurant chooses though, there is going to be a shift in their economic standing.

The servers who work in a restaurant have received no new abilities that will generate greater revenue. They certainly are more expensive to employ. So what does a restaurant owner do? Maybe they add a surcharge to recoup some of their losses or raises the menu prices. Another preference is to let go of some personnel and work with a smaller crew of personnel or minimize the personnel even increased and change servers with table-top computers that require purchasers to region their very own orders. It’s no longer due to the fact the proprietor is involved about their own earnings and does now not care about the employees. It’s because, if they do no longer they may additionally no longer be in a commercial organization a whole lot longer.


A recent study conducted by the Congressional Budget Office, entitled “The Effects on Employment and Family Income of Increasing the Federal Minimum Wage,” was performed to decide how growing the federal minimal wage from $7.25 to $10, $12 or $15 per hour by way of 2025 would affect employment and family income. The conclusion was that growing the federal minimal wage would have two major impacts on low-wage workers: profits would expand for many, which would elevate some households out of poverty. However, other low-wage workers would turn out to be jobless, their household profits would drop and it could area them below the poverty threshold. This issue is timely, essential and deserves an open and honest conversation, as there will be an upcoming vote in the House of Representatives on a consignment to raise the federal minimum wage to $15 an hour through 2024.

The thought of elevating the minimal wage is noble and commendable, but many of the arguments matter upon raw emotion and overlook sound financial ramifications that will adversely impact the equal humans it’s attempting to help.

Raising the minimum wage has a wide variety of serious and bad, unintended consequences. Employers, especially small household and midsize businesses, will be disproportionately harm by way of the more costs incurred. The local regional shops and companies with razor-thin profits will be pressured to elevate prices to make up for the additional labor costs. With the stretched prices, customers may opt to take their business elsewhere. Losing customers and potentially losing income, which may result in the commercial enterprise having to lay off workers.

Large firms with huge budgets will weigh the elevated labor prices and decide to invest in technology to displace workers. This style will soon turn out to be established in the food provider industry, hospitality, retail, building and manufacturing. Amazon lately opened up a number of prototype Amazon Go stores that are self-described as a new form of store presenting the world’s most advanced shopping technology. No lines, no checkout—just snatch and go. Fast meals chains and giant department stores will comply with suit and implement self-service checkout to save costs. Corporate executives will recognize that the $15 per hour could be routinely raised. They will weigh the future unknown fees related with additional increases, coupled with the ever-increasing insurance costs, plus the time-consuming mission of discovering employees, training them and dealing with turnover. It’s less complicated and much less high priced to have science take over. The unintended outcome will be that there will be a lot less jobs accessible for those that want them most.


In conclusion, minimum-wage increases will improve the pay of some while sending others to the unemployment office. The intended beneficiaries flip out to be unintended victims. Government mandates do not make bigger dwelling standards. A growing financial system does. Government officials ought to own the unintended, though no longer unexpected, effects of their decisions. A minimal wage determined by way of politics, rather than financial reality, can also help some, but it harms others, consisting of many of the most vulnerable workers among us: these with constrained abilities or job experience.

These types of jobs are no longer designed to supply for a family. They’re both for any person looking to get a foot in the door and be a part of the team of workers or anyone looking for an extra income or a transient port in the storm, if they’ve lost their job. We are misleading human beings to think that these lower-rung jobs will manage to pay for a sustainable lifestyle. It additionally reeks of discrimination. It’s as if we are telling a positive section of the population that they cannot attain larger things. By telling a crew of people that it’s appropriate to spend your existence in a minimal wage job, we’re simply saying that we don’t trust that they’re capable of something more than cleaning toilets, making beds, flipping burgers or mowing lawns. Nothing is worse than telling anybody that they are doomed to a existence of low wages, challenging work and no vivid future ahead. Would you desire that for your very own children? We ought to motivate humans to think of these jobs as a beginning point towards bigger and better things.

We would better serve this segment of the population if we allotted money to train people to enter areas in which there are shortages of workers, such as the trades. We need to provide apprenticeships to study marketable abilities in a precise trade. If a individual ought to learn to end up an electrician, carpenter, plumber, heating and cooling expert or mechanic, they should constructed a long-term financially profitable career. Continuing education, computer training and career teaching would assist people too.