A year has passed since Seattle’s minimum wage hike began to take effect. With California moving to increase its minimum wage to $15, it is time to analyze why Seattle’s increase has negatively impacted employment in the city as predicted by a recent study (“Washington State’s Failed Minimum Wage Experiment“).

Here are six reasons why the minimum wage increase will only increase unemployment while doing little to stop poverty.

1. An increase in the minimum wage negatively affects restaurant workers

An increase in the minimum wage dramatically increases the cost to hire low-wage earners, which are normally low-skilled or low-educated. Of these workers, restaurant employees are the most sensitive, with individuals sometimes being hired or fired within an incredibly short period of time. According to the St. Louis Federal Reserve and the Bureau of Labor Statistics, Seattle and Washington State saw a steady increase in restaurant employment figures from 2010 until 2015.

After Seattle established a series of minimum wage increases in 2015, Seattle saw a loss of 700 restaurant jobs. At the same time, Washington State as a whole continued the same rate of increase in restaurant employment, gaining 5,800 jobs.

The only difference was the increase of the minimum wage. No other factor accounts for years of 1000+ increases to such a dramatic drop. Restaurants were forced to cut staff to keep prices stable, or to raise prices, which could result in their failure. That leads to the second problem.

2. An increase in the minimum wage negatively affects restaurants

Restaurants have a low profit margin, and a dramatic increase in the minimum wage forces restaurants to either raise prices or cut jobs.

According to industry statistics, 33% of a restaurant food item’s cost is derived from the salaries of employees, and Seattle’s minimum wage increase results in at least a 10% increase in items if employment is kept stable. Restaurants outside of Seattle’s city limits can sell the same quality item for a lower amount, which results in more sales moving out of the high minimum-wage areas.

At the same time, 60% of restaurants fail within their first few years. Seattle’s minimum wage placed restaurants at a disadvantage, further increasing the failure rate of Seattle’s restaurants.

3. Studies that claimed a minimum wage increase doesn’t result in a loss of jobs were flawed

Most of the claims that a minimum wage increase doesn’t result in a loss of jobs can be traced to articles published during the early 90s. A review of literature prepared by the Cato Institute revealed that those studies had severe problems, including failing to measure those actually affected by the minimum wage increase. Additionally, the attempt to raise the minimum wage to help the poor did not alter the percentage of minimum wage earners who were in poverty.

In the same review, earlier studies showed that employment among minority teenagers suffered a decrease because employers were no longer willing to hire youths under the higher costs. This was verified by later studies that show that the potential for new employment is stifled even when current employment is not decreased by an increase in the minimum wage.

4. Low wage jobs are for young and inexperienced workers

Proponents of raising the minimum wage argue that no one can live on a minimum wage. However, minimum wage jobs are primarily for those who are not trying to live off of them. Teenagers, college students, and other low-skilled workers who are not trying to buy a home and start a family rely on minimum wage jobs. When minimum wages are increased, they are the first to lose those jobs.

Liberals have not always supported a minimum wage increase. A New York Times editorial from 1987 argues, “That gain, it is argued, would justify the sacrifice of the minority who became unemployable. The argument isn’t convincing. Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs.”

This idea was reinforced in a report prepared by the Maryland Public Policy Institute in 2014. The report, created to provide information regarding a proposed increase of the minimum wage in Maryland, stated: “given data on the minimum wage’s effects, it seems to be a poor tool for improving public welfare. Relatively few workers earn the minimum wage and they typically don’t earn it for very long before receiving a raise. Moreover, minimum wage workers generally are not from poor households and raising the wage appears to have no effect on lifting U.S. households out of poverty.”

The report then stated that 55% of minimum wage earners were under 25 and only worked 27 hours a week as they also went to school. An increase in the minimum wage would result in a cut in their hours or a loss of a job.

5. There are better ways to help the poor

Both the New York Times and the Maryland Public Policy Institute stated that a minimum wage increase hurt workers without helping the poor. Instead, they proposed an increase in social programs that are targeted to the poor.

For instance, the Earned Income Tax Credit can specifically target poor families without increasing the cost of hiring employees. Other programs, including Food Stamps, health care benefits, or child tax credits provide funds specifically to negate the costs of poverty and of raising a family without raising wages at the cost of low level employment.

However, union groups are the biggest proponents of a minimum wage increase. Increasing social welfare programs does not benefit unions. Instead, a higher minimum wage is used as a bargaining chip to demand even higher wages. A 20% increase in the minimum wage is used for a much higher increase in union wages. When unions do pay less than what a minimum wage increase would cover, they often seek exemptions for their industry. Once unions are removed from the formula, support for minimum wage increases completely disappears.

6. Minimum wage is inflationary

If no jobs are lost from a minimum wage increase, it still does nothing to help any consumer. One of the arguments that unions use when demanding raises is to meet the “cost of living.” If the price of goods has increased, then unions demand a higher rate of wage increases. However, everyone is affected by an increase in the price of goods.

If no jobs are lost from an increase in the minimum wage, then goods will go up. If you hypothetically make $50,000 a year and spent $10,000 a year on food, then a minimum wage increase could cost you an extra $1,000. If your wage is stable, you lost $1,000 to spend on something else. If you can seek a cost of living increase, then you will make $51,000.

Where does that extra $1,000 come from? Most likely a cost in prices of whatever industry in which you work. Thus, a minimum wage increase creates an inflationary situation where you are getting the same goods but are merely paying more for them.

This is the equivalent of the government suddenly declaring that $1 bills are worth $10, $5 bills are worth $50, etc. Everyone would suddenly be “richer” numerically, but their spending power stays the same. Minimum wage is thus inflationary, with no benefit. However, if there are competing markets near by that do not have a minimum wage increase, then those making the higher wage would quickly spend the increase on the cheaper goods, thus negating the reason for their cost of living increase.

Conclusions

Urban areas are sensitive; the affluent and educated have more opportunities and are more mobile, and they are often the first to abandon a failing urban community. By removing the introductory wages for those who are young and pursuing an education, Seattle makes it difficult for the young to become educated. This creates a cycle of poverty, with the young never able to enter the workforce.

Additionally, the affluent are mobile, and many are willing to travel a few more miles to avoid price increases. This will only increase as restaurants and other small businesses begin to close and blight spreads. Detroit and Baltimore both struggle with blight that came as a result of anti-business proposals justified as a way to help the poor. Ironically, it only spread poverty.