TALKING POINTS
WHAT YOU NEED TO KNOW ABOUT: WAGES
MINIMUM WAGE: By Peter Haapaniemi
THIS PAGE: FREDERIC J. BROWN/AFP/GETTY IMAGES
POINTING OUT THE RED FLAGS Recently, the onoing debate about the minimum wage has heated up: In the November election, four more states voted for increases—Arizona, Colorado, Maine and Washington. Altogether, 19 states, the District of Columbia and a number of cities have increases taking effect in 2017. The interest in a higher wage stems from the growing perception of income inequality. Regardless of the actual extent of such inequality, this is a very real political issue with very real business consequences. The question is, are minimum wage increases the right way to tackle the issue? There are no simple answers to that question because there is no hard-and-fast conclusive evidence about the economic benefits and costs involved. However, many CEOs are not only doubtful about the real value of raising the minimum wage but they also see dangerous business consequences from its imposition. While economists argue about the data, top executives can weigh in on the debate. 40 / CHIEFEXECUTIVE.NET / MARCH/APRIL 2017
In discussing the issue, CEOs can offer up several points in order to bring a practical perspective to what can sometimes be an emotional or purely ideological debate: A HIGHER MINIMUM WAGE COULD MEAN FEWER JOBS. While the data on this is not clear, simple logic says that higher labor costs are likely to lead to cutbacks in hiring, increased layoffs or reductions in workers’ hours. Or, companies might turn to automation—which is becoming less expensive—to handle more entry-level work. For its part, the nonpartisan Congressional Budget Office (CBO) estimates that raising the federal minimum wage from today’s $7.25 to $10.10 would reduce employment by about 500,000 workers. Other research suggests that that figure could be much higher. And in addition to direct job losses, a higher minimum wage in one geographical area could encourage companies to move work
to other locations that offer lower labor costs. THE DOLLARS FOR INCREASED WAGES HAVE TO COME FROM SOMEWHERE. A higher minimum wage would have a real cost for businesses. In response, some companies are likely to reduce the benefits and workplace amenities that they offer to employees. Others may increase prices on products and services. According to the Cato Institute, a review of 20 studies showed that a 10 percent increase in minimum wages would increase food prices by up to 4 percent. Such price hikes could have a ripple effect on employment as higher prices lead to declining sales—and a reduced need for workers. MINIMUM WAGE INCREASES ARE POORLY TARGETED. A significant percentage of individuals who would be affected by an increase actually come from higher-earning