Life will soon get even more expensive for the residents of Washington, D.C.
On Tuesday, the D.C. City Council unanimously agreed to increase the District’s minimum wage to $15 an hour. Under the agreement, the minimum wage, which is currently $10.50 per hour, is scheduled to rise to $11.50 by July 1 and $15 by 2020. The minimum wage for tipped workers, currently at $2.77 an hour, will grow to $5 per hour by 2020 as well. In the years following, annual increases will be automatic and will be tied to inflation.
On the surface, this may seem like an enticing way to increase the standard of living for lower-income workers, but in reality, there are innumerable consequences that will hurt workers, employers and consumers in the nation’s capital. The new minimum wage will increase prices, decrease employment and shrink the economy — forcing many business owners to pick up and move across the Potomac, where Virginia workers receive the federal minimum wage of $7.25 an hour. In fact, some retailers have already cited the council’s minimum wage proposal as reasoning for pulling their plans for the construction of new stores in D.C.
Standard economic theory explains that by raising costs of labor, employers react by reducing employment. Arbitrary price floors on labor already manipulate the free market, but a dramatic increase of this magnitude, over such a short period of time, could really damage Washington’s economy.
We can expect to see employers and business owners adapt in ways that impact workers and drive up prices, such as utilizing self-service kiosks instead of check-out clerks — like many CVS’ around the city already do — and finding other ways to reduce the number of full time workers. To offset costs, many businesses will have to raise their prices — action that will effect low-income consumers and those living paycheck to paycheck the most.
A great deal of evidence supports this theory, particularly in D.C. According to a report by the Employment Policies Institute, nearly half of the one hundred Washington, D.C., employers surveyed reported that they have either laid off their employees or reduced the hours of their employees in order to adapt to D.C.’s minimum wage hikes since 2014. And that’s before the District’s move toward $15 an hour. Another half said they planned to raise prices in order to offset the cost of the newest minimum wage hike. Thirty five percent of employers surveyed said they would most likely reduce their staff headcount, 37 percent said they will either reduce their employees’ working hours or reduce their businesses’ operating hours and 31 percent said they are more likely to hire higher-skilled workers, in lieu of low-skilled workers, to justify the higher wage.
What does this mean for the residents of D.C.? We’ve seen time and again that these policies hurt the very people they are intended to help, with low-skilled workers, who typically earn minimum wage, feeling the damaging consequences the most. Some evidence even suggests that short-term job loss from a higher minimum wage will prevent low-skilled workers from holding on to a place in the job market. As a result, more workers will have to rely on government benefits. Employers will face the challenges of having to fiscally adapt to the new wage requirement and consumers across the city are likely to see a rise in the prices of goods and services.
With unemployment rates already high in Washington, D.C., the minimum wage hike is projected to impact the city’s economy, for the worse. If policymakers do not do something to reverse course on this harmful policy, it is just a matter of time before D.C. will see the detrimental effects of an overzealous policy.
Heather Greenaway is a spokesperson for the Workforce Fairness Institute (WFI). Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
