As more and more cities push to increase the minimum wage, I wonder how it will affect the type of labor in those cities compared to places that have left the minimum wage at or near the federal level. My first thought was simply that inequality will increase because low-productivity or low-skilled labor will be shut out entirely from the (visible) labor market. This might take a while, but I think in the long run this is true.
Imagine a business owner, let's call her Stella, who relies heavily on low-skilled labor (and remember, unskilled or low-skilled labor doesn't necessarily mean the work is easy, just that it doesn't require extensive training or education). We'll say this person runs a local grocery store in Seattle. The new minimum wage law is passed, but the full increase in minimum wage is spread out over a multiyear phase-in period. Stella essentially has an extended audition for her employees to see who is worth $15/hr. Low-skilled labor has a higher rate of turnover than higher-skilled labor, so Stella will likely turnover the majority of her workforce over the next three years. As the cost of a new employee increases, Stella is likely to increase her requirements and become more selective with each new hire. As anybody who has had to hire for low-skilled positions can tell you, the selection process is extremely inefficient. Before, Stella might have been able to hire riskier employees, ones with spotty work histories or poor educational performance, at a price that reflected that person's level of perceived skill. Maybe Stella offered a starting wage of $8/hr for this type of employee compared to a starting wage of $10/hr for someone who looks much stronger on paper. Now, Stella needs to select high productivity employees at a much higher rate because labor is so much more expensive - she no longer has the option of offering $8/hr to the riskier hire. And surely Stella is investing anything she can into capital improvements that will reduce her reliance on expensive labor wherever it makes sense. By the time the $15/hr minimum wage is in effect, she might only need 6 people on staff instead of 10.
So who gets left out? The people that were already at the bottom will now find it even harder to make ends meet. And even if they would like to improve their lot, they will find a much less receptive audience among hiring managers. Why hire someone at $15/hr if they struggled to show they were worth $9/hr? An argument might be that $9/hr is simply not enough to survive, so we need to lift the floor on wages to make sure every job provides a "livable" income. Certainly a job paying $9/hr, which would equate to a full-time annual salary of $18,720, doesn't sound appealing. I'm sympathetic to the idea that we don't want people who work 40+ hours each week to live in squalor. But by raising the wage floor, you are essentially raising the productivity floor as well. Waving a magical government wand does not suddenly make mopping a floor worth $15/hr.
Another thought I had is that maybe by raising minimum wage, you are effectively forcing labor providers to increase their skill level. I can imagine many of the workers who currently get by working 50-60 hours each week at $9-10/hr going through some sort of job training or going to school. The problem, of course, is that education costs money. For someone making around $20k annually, that likely means debt and possibly leaving the workforce for some number of years. It will be interesting to see if cities with higher minimum wages essentially sort the country geographically according to income. Areas with $15/hr minimum wages have only high productivity, high wage labor with lots of capital and technology replacing human labor wherever possible, and areas with $8/hr minimum wages become the only places where low-skilled labor can find work. The minimum wage acts as a signal - unless you are highly educated and skilled, you are not welcome in our city.
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