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BOHANON & CUROTT: Higher minimum wage hurts those it’s meant to help

March 8, 2019

Economic Analysis by Cecil Bohanon & Nick CurottThe U.S. Bureau of Labor Statistics reported that full-service restaurants in New York City employed 3,000 fewer workers in December 2018 than in December 2017. This is curious. Most other economic trends were positive in 2018 as the economy expanded. What happened? A 2018 survey of 300 full-service NYC restaurants reveals the cause: New York City increased the minimum wage from $11 an hour to $13 in 2018. (The minimum wage was further increased to $15 an hour on Dec. 31, 2018.)

Ninety percent of the restaurants surveyed indicated they had increased prices because of minimum-wage hikes, 76 percent had reduced employee hours, and 36 percent had eliminated jobs. Only 4 percent said the increase had no effect.

Back in 1971, a 16-year old Cecil Bohanon began his first job—as a door-to-door salesman for the Fuller Brush Co. He learned firsthand what his grandfather, a local savings and loan executive, had always told him: An employee must generate additional revenue for his employer sufficient to cover the employee’s wages and then some. Marxists call this “exploitation”—most of the rest of us call it common sense.

The kid selling door-to-door got 25 percent of his sales revenue. This came from the boss’s 40 percent mark-up, leaving the boss with 15 percent to cover delivery cost and give the boss a gain. However, youngsters had to sell an average of at least $6.40 of merchandise an hour to make the then-prevailing minimum wage of $1.60 an hour. If not, they got fired. On his first four-hour shift, Bohanon barely made it, selling just $27 of product. On his second day, Bohanon and his boss’s anxieties were assuaged as he brought in $39.

Bohanon was privileged: He was middle-class, and he had been doing public speaking since the seventh grade. But what about the kids who did not have Bohanon’s privilege? There were numerous neighborhoods where no Fuller Brush man ever set foot. Had the minimum wage been lower, many kids not as lucky as Bohanon might have had the chance to do the job. A kid who could consistently sell $20 per four-hour shift would have been profitable to employers at a $1-an-hour minimum wage, but not at $1.60.

Which takes us back to New York. Who is losing out on earning opportunities as NYC restaurants shed employees and hours? The restaurant survey doesn’t say, but we suspect it is not children of Manhattan’s elites.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.

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