Dear Hillbama, $15 Federal Minimum Wage Equals 7 Million Job Losses

James Sherk, of The Heritage Foundation, recently took a look at what impact a $15 federally-mandated minimum wage might have on employment levels in each of the 50 states. Unsurprisingly, the study concludes that the impact would be substantial with approximately 7mm jobs lost, or roughly 6% of current full-time jobs in this country. As we pointed out before, imposing artificial floors on wages really only serves to improve returns on capital investment by businesses resulting in permanent job losses and higher unemployment in the long-term (see “As Robots Replace Farm Workers, Why Payback Is A Bitch”). A point that Sherk confirms:

Companies hire workers when the additional earnings their labor creates exceeds the cost of employing them. Starting wages of $15.00 per hour mean full-time employees must create at least $38,700 a year in value for their employers (including wages, employer payroll taxes, and Obamacare-mandate penalties).[4] Such a high hurdle would make it much harder for less-experienced and less-skilled workers to find full-time jobs. Many of these workers are not yet productive enough to create that much value for their employers and businesses will not hire them at a loss.

Consequently, many businesses might respond to a $15 mandate by eliminating positions, cutting hours, and looking for new ways to implement labor-saving technology. Some companies might have to face shutting down or leaving America entirely to cope with the additional expenses.

This process has already begun in California. Shortly after Los Angeles raised its city minimum wage to $15 per hour, American Apparel eliminated 500 clothing manufacturing jobs in the city. The Los Angeles Times reports the company planned to relocate those jobs within California. After California raised minimum starting wages statewide, however, American Apparel began examining options to move production outside California.

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