In response to COVID-19, state and local governments have shut down non-essential businesses in order to keep most Americans at home. Essential businesses, including grocery stores, remain open. These jobs which were commonly referred to as low-skilled labor are placed on their rightful pedestal, now considered essential to the livelihood for Americans. Left-leaning activists and politicians are using this time to re-circulate the narrative of increasing minimum wage or providing these workers a “living wage.” Certainly, these employees are working very hard in their jobs, but by increasing their wages, we risk losing small businesses in which many more are employed.
Anyone who has taken a basic economic class learns about input costs. As input costs increase when producing a good, the price of the good must go up to pay the input costs or other input costs must be cut. For example, if we raise the wage of an employee, the business must now find money to pay for this employee’s salary. The business can do two things: cut other input costs or raise the price of their goods/services. By cutting input costs, a business can either provide lower quality goods or layoff excess employees. By increasing prices, the business makes the same good/service available for a much higher price. Either way, by increasing wages, people suffer either through higher unemployment, lower quality goods/services, or higher costs at the store.
The idea of a “living wage” is different depending on the region of the country. Different states and regions within the state have higher costs of living. The cost of living factors in the average cost of homes/rent, income, taxes, and other goods and services in this area. In some areas of the country a basic two-bedroom home costs $100k and in other areas of the country this kind of home costs $400k. Cost of living is a function of supply and demand. In cities, there is more demand for housing in these areas, making the costs higher in order to reduce the overall supply. When supply is high, like in rural and dying areas of the country, lower prices are used to attract people to these regions. Thus, depending on where we are getting the idea of a “living wage” will determine what wage this would be. By forcing an area which has a high supply, and thus lower population, to adopt a higher hourly wage, businesses in these areas will not be able to afford to pay their employees the same as those in the city. For example, if the government decides to raise the minimum wage to $15, urban/corporate businesses which have countless customers can raise their prices since their profit exceeds their input costs. In a rural town, however, businesses do not have as many customers. They will need to either, as discussed earlier, cut employees, offer lower quality product, or raise prices. Each of these processes affects the surrounding community, either providing less jobs or making the good no longer desirable, so the community decides to buy from a large corporation or online.
Grocery clerks and other traditionally low-skilled labor jobs are deemed essential, and I do not believe this was ever in question. Despite their crucial nature to the nation, we cannot afford to pay them more without consequences. Small businesses cannot afford a rise in wages without sacrificing quality or low, competitive prices to large corporations. This is basic economic theory, but often politicians and activists decide to ignore fact for feeling or only consider business to be large corporations who are corrupt. Raising wages will put serious strains on small business, local restaurants, and other community organizations. In the short term, if a business can afford it, I would recommend offering a week or two of paid vacation that these employees can use later, or perhaps a large bonus to compensate for the crisis, but only if the business can afford it.
- Jacky Anderson