A Minimum Wage Increase and the Unintended Consequences for Kansas City
Members of the City Council are at odds over how to increase the minimum wage—through city ordinance or statewide petition. Kansas City Mayor James calls the ordinance path a waste of time and says that it should be done through statewide petition effort. Lost in the argument over process is the huge and destructive impact such a dramatic increase in the minimum wage will have in Kansas City, especially for low-skill workers at the bottom of the socio-economic ladder.
Moving from a $7.65 minimum wage to a $15 wage by 2020 is a huge increase, and something that is not even supported by all the usual liberal pundits. Matt Yglesias wrote in Vox of the effort in St. Louis,
In St. Louis, people are much more likely to adjust to a higher cost of employing people by employing fewer people. The most relevant precedent for a big hike in a relatively poor jurisdiction may be Puerto Rico, where an effort to match the US federal minimum wage led to a rise in unemployment and increased migration to the mainland United States. St. Louis is richer than Puerto Rico, but moving a person or a job across the St. Louis city line into the suburbs is a lot easier than migrating from Puerto Rico to the US mainland.
Here is what will happen in Kansas City if the wage is increased: Employers who rely on minimum wage employees will seek to avoid the higher labor costs by hiring fewer people and investing in technology. We’re already seeing the latter in fast food restaurants that rely on kiosks for ordering. With fewer jobs available, the competition for them will grow, and those with the fewest job skills—who are also those with the greatest need for that first job—will be harmed the most. There just won’t be enough work for them. This is true is most places that require an increase in wages.
The second item is particular to Kansas City and will further diminish job opportunities for poor and low-skill workers. Middle class kids from Overland Park, where the minimum wage is $7.25, will suddenly have an incentive to cross State Line Road to earn $12, $13, and perhaps even $15 an hour. (Remember, 44.6% of those earning minimum wage or less come from households that earn three times the poverty level.) Many of these kids will have work experience and skills that make them more appealing to employers. If you’re going to pay a higher wage, you will want a better employee.
There will be pressure on Overland Park employers to raise wages to keep workers on their side of state line. And Kansas City workers may then have to commute to Kansas to get the lower wage jobs that are suddenly available, but they may not have the access to transportation that their wealthier suburban job-seekers have. Kansas City’s urban poor will find themselves with fewer job opportunities locally and no good way to get to the jobs that are available to them outside of Kansas City.
There is no shortcut to creating an environment for more jobs and higher salaries—government cannot create wealth and success by fiat. Instead, local governments need to focus on delivering basic services efficiently and cost-effectively and on limiting taxes and business regulation.