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Minimum Wage Increases Canceled Out by Non-Wage Losses: CEI Report

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Is raising the minimum wage good for workers? A new report from the Competitive Enterprise Institute makes the case that there are serious tradeoffs lawmakers should consider that are not the obvious, most talked about downsides.

“A minimum wage hike may produce an immediate wage hike for many of the 2.2 percent of hourly workers who are impacted, but the higher labor costs force employers to cut non-wage benefits, like free meals, flexible leave arrangements, and health insurance coverage,” said Ryan Young, CEI senior fellow and author of the report. “The negative economic tradeoffs for minimum wage workers, unfortunately, cancel out most of the paycheck gains.”

The CEI report points to three main drawbacks of a minimum wage hike.

  • In an effort to afford higher wage costs and avoid layoffs, employers make cuts in non-wage benefits that effectively cancel out actual wage gains.
  • The minimum wage mandate takes choice away from employees who choose one job over another precisely for some of the untaxed, non-wage benefits offered by an employer, like flexible leave, tips, health insurance coverage, and employee discounts.
  • Minimum wage increases favor labor unions over non-union workers and large corporations over small businesses, because they are less able to absorb the higher costs.

In addition, the report discusses the economics and ethics of minimum wages and offers a section-by-section analysis of the Raise the Wage Act (H.R. 582), passed by the House in July, which seeks to increase the federal minimum wage from $7.25 per hour to $15 per hour over a seven-year time period.

View the report, Minimum Wages Have Tradeoffs: Unintended Consequences of the Fight for 15 by Ryan Young