The following originally appeared in the Orange County Register on October 3, 2013.
As we approach the 2014 election cycle, many politicians are advocating a minimum-wage increase. Gov. Jerry Brown just signed a law raising California’s minimum wage to $10 an hour by 2016. One has to wonder how it makes economic sense to mandate what could be the nation’s highest minimum wage in a state consistently rated the most unfriendly to business, with the nation’s fifth-highest unemployment rate (8.9 percent), and with 34 percent of the nation’s welfare recipients but only 12 percent of its population. There is also talk of raising the federal minimum wage from $7.25 to $10, or even $15 an hour, despite the fact that economic growth is anemic, unemployment is lingering at high levels, and one in seven Americans is on food stamps.
Like countless other businessmen and businesswomen, I follow these minimum-wage bills closely because of the negative impact they will have on our collective ability to create jobs for the very individuals they are purported to help.
The real impact of a minimum wage increase is twofold: It prices out of a job many inexperienced or low-skilled workers, including young workers who desperately need employment; and, it increases the economic feasibility of automation. With labor costs rising, how often do we see ATMs at banks, scanners at grocery store checkout lanes, kiosks at airports ticket counters and ordering kiosks or tablets at restaurants – all instead of real people earning real wages?
It is axiomatic: If you increase the cost of something, businesses will use less of it. If the government increases the cost of labor, businesses will reduce those costs by hiring fewer workers or reducing their hours. This is particularly true in a business environment burdened by increased regulation, increased health care costs, increased fuel costs, increased commodity costs and increased taxes. While employers historically have increased prices to cover increased wages, businesses can only offset so many cost increases with price increases. Consumers can only absorb so many price increases. At some point, economic models no longer work, and job creation evaporates.
I’m speaking not only as a CEO. I’m also speaking as someone from a working-class family. I started work scooping ice cream for minimum wage at a Baskin-Robbins. To put myself through college and law school while supporting my family, I cut other people’s lawns, painted other people’s houses and busted concrete with a jackhammer. I know well what it means to work a minimum-wage or low-paying job. For one thing, those jobs taught me – as no lectures from my parents could have – that I needed to get a good education so I wouldn’t have to settle for low-paying jobs the rest of my life.
I also know how such jobs can give you the experience, resources, flexibility and skills necessary to elevate yourself and your family. But, that can only occur if such jobs are available. The quick-service restaurant industry has been providing entry-level jobs to our youth for decades. It would be a challenge to find a major corporation without high-level executives who got their start or helped support themselves through college working at restaurants such as Carl’s Jr., Hardee’s, McDonald’s, or Burger King. The top executives at our company responsible for restaurant operations and overseeing more than 20,000 employees across the country started as crew-level minimum wage employees. Many of our franchisees who now own restaurants started as minimum-wage crew-level employees. Absent entry-level jobs, what opportunities will be open to our youth?
It’s certainly preferable to provide entry-level positions rather than forcing our youth onto street corners. Increasing the minimum wage only ensures that fewer people will make more money while many unfortunate young and unskilled workers are left unemployed and dependent on their parents or government benefits. Instead of pushing businesses and individuals to the economic fringes, we should implement policies that encourage economic growth and job creation.
If we want higher wages, the answer is to create an environment where businesses can thrive. For example, North Dakota is consistently ranked one of the nation’s most business-friendly states, and it is driving an American energy boom resulting in the nation’s lowest unemployment rate (3 percent). We have a restaurant in North Dakota where students already make $10 an hour and other crew-level employees make $12 to $15 an hour because the state’s dynamic economy is driving business revenue and creating a high demand for labor, not because the government is compelling a wage increase unsupported by economic growth. It simply makes more sense in poor economic times to encourage businesses to create a larger economic pie from which everyone can take a bigger piece than to discourage growth and job creation by mandatorily increasing costs.
I’ve written and spoken often about the effect of government regulations on job creation. In fact, I co-authored a book on the subject. I’m not saying that all regulations are bad, or that government shouldn’t regulate business. I’m saying that, if a new regulation increases costs, the government should try to reduce the costs it imposes on business in other areas. When was the last time our government did that?
The real issue is whether the next generation will ever have access to higher-paying jobs under the current oppressive regulatory and political environment. Fair and living wages are possible, but our elected leaders must recognize that it is impossible for job creators to produce those wages out of thin air. If we want economic growth, we must have workers with the requisite skill set, experience and opportunities to compete in the marketplace. If employees are unable to compete because the entry-level jobs they need are unavailable, no legislation will be able to guarantee a fair and living wage. The employees our government intends to help through minimum wage increases will lose and that, ultimately, will hurt us all.