The case against raising the minimum wage

Last month, the state House of Representatives passed a bill to raise the minimum wage in Pennsylvania to $15 per hour by 2029. The governor and House Democrats continue to push for this increase, arguing it is unjust that the Commonwealth’s minimum wage has remained frozen at $7.25 since 2009, while neighboring states have increased their wages since then. While likely dead on arrival once the Republican-led state Senate votes on it, this short-sighted attempt to ease very legitimate cost-of-living challenges deserves opposition. The idea of mandatory payroll increases may sound productive on paper, however, the real damage from this would hurt everyone, especially the entry-level, unskilled labor class that proponents paint as the beneficiaries of these laws.

First and foremost, a doubling of the minimum wage would cause a huge inflation bump. Two unique studies found this ubiquitous and damaging to less-diversified economies. Think of it this way: Philadelphia has a 40.4% higher cost of living than my hometown of Altoona. Local economies build around this and assign wages appropriately. A 2006 study from the University of Leicester determined that a 10% increase in effective minimum pay caused service sector prices to rise by 2.71%. This study said that this increase shellacked southern economies more than northern economies. A bump of the minimum wage from $7.25 to $15 (roughly 106%) would, under this study, increase services by 28.86%. While this tradeoff sounds logical, consider that not every employee in every industry would see a 30% raise, especially not immediately. This would disproportionately hurt people living in rural, less urbanized communities. The Commonwealth Foundation shows that 12,300, or less than 1% of all workers in Pennsylvania, make $7.25 as of 2024. Excluding tipped workers, roughly 698,000 Pennsylvanians make $15 per hour or less in addition to those earning just $7.25. This means that anyone that would see less than a 28.86% wage increase from this wage hike would further tread economic water.

In the nascent AI era, raising the minimum wage would prove detrimental to those seeking secondary, retirement, or pre-graduate income. According to a Federal Reserve Bank of St. Louis report from 2021, higher minimum wages could lead to skyrocketing production costs, which in turn would likely lead to employers implementing more automation to reduce the capital required to fund human labor. The St. Louis Fed also issued caution about the loss of soft skills that high schoolers and college students learn from these jobs should a wage hike eliminate their existence. In a piece I wrote earlier for RealClearPA, “How Rural Pennsylvania Can Advance with AI,” I examined the positive impacts of AI assistants in the modern workforce. This same boon will prove a bane to these workers should they lose their opportunities due to the minimum wage increase.

As the Commonwealth Foundation noted, the market has provided necessary pay raises to workers to match local markets. Large employers in Pennsylvania, such as Wal-Mart, Giant, UPS, and Amazon all far exceed $7.25 per hour. Moreover, most people still making minimum wage (over 70%) in Pennsylvania live in households generating above $75,000 annually. The Minimum Wage Advisory Board shows that a record low amount of workers receive only $7.25

Evidently, the small business sector would feel the brunt of a higher minimum wage more than large businesses. Peter Hansen of the National Federation of Independent Businesses explores the consequences of minimum wage legislation. He identifies the problem that small businesses, in particular, will face. While companies like Wal-Mart, Amazon, and McDonald’s can weather the storm of a $15 per hour minimum wage, local mom-and-pop shops would crack under such pressure. Small businesses would ultimately face a scarcity in the workforce or operate at a significant loss, whereas bigger businesses would either cut their margins or invest heavily in automation (as mentioned before) and crush their smaller competitors, which would in turn reduce competition and innovation for consumers and, in the long term, provide workers with less employers competing over their labor.

A real improvement to the lives of workers would be reduction of their taxes. Using ADP’s Pennsylvania paycheck calculator, one can find that someone making $15 per hour in Pennsylvania really only grosses about $12.69 per hour after taxes (not including any local taxes). Slashing taxes for these employees would help them invest in the ever-rising costs such as childcare, medical bills, credit card debt, and utilities without artificially inflating wages and creating the propensity for government hegemony to step in and strangle competition by providing taxpayer-funded services. Most Americans agree that they can spend their money better than the government, whether federal, state, or local, can. Politicians should adopt this mindset as well and allow those in entry-level jobs to keep more of their hard-earned money.