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Fair Minimum Wage Act Fails in Practice

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Fair Minimum Wage Act Fails in Practice

May 1, 2014

Even after yesterday’s failure to reach the 60 vote threshold necessary to move forward the Fair Minimum Wage Act, which would raise the hourly minimum wage from $7.25 to $10.10, the Act’s sponsor Senator Tom Harkin (D-IA) promised it will be back “again and again.” 

New evidence is emerging of the unintended consequences of raising the hourly minimum wage. The real-life experience on military bases shows the true employment effects of raising the minimum wage. 

Labor Department regulations that went into effect in June 2013 substantially raised the cost of employment on military bases. The rules required the payment of “health and welfare” benefits at a cost of an additional $3.81 an hour (raised from $2.56 an hour last year). 

This increase came from a determination by the Labor Department that fast food workers on government contracts were being underpaid and were entitled to benefits required by the Service Contract Act

Combined with President Obama’s executive order to raise pay to $10.10 an hour for federal contractors starting in 2015 (announced just before his State of the Union address), this raises the cost of employment on military bases by up to 76 percent.

Last month, likely because of the actual and impending increases in employment costs, three McDonald’s restaurants closed on Navy bases, and another is set to close on a Marine base. Other restaurants have asked to be released from their service contracts. After seeing the drastic, immediate effect on fast food services, the Labor Department removed fast food workers from the requirements. 

It was estimated that unless the requirements were removed, nearly 5,750 jobs would be lost and 390 restaurants would close. These estimates came from Russell Beland, deputy assistant secretary of the Navy for military manpower and personnel, in an April 8 letter he sent to the Department of Labor. Including Army closures and layoffs, these numbers would likely be even higher.

With yesterday’s dismal first quarter GDP growth figure of only one tenth of one percent, Congress should not be passing additional laws that make employing people and owning a business even more difficult.

The job losses and closures on military bases are more pronounced than potential effects on other fast food restaurants. Restaurants on military bases cannot increase prices because they are usually bound by contracts to not charge more than neighboring, privately-operated establishments. If minimum wage increases did not lead to unemployment, they would increase costs for consumers. 

Yesterday High Road Restaurant Week ended in New York City. Twenty-seven Manhattan restaurants that paid high wages and provided benefits were recognized by the Restaurants Opportunities Center—a worker center that claims to be representing the interest of low-wage workers and advocates for a $15 an hour minimum wage. However, the common denominator of “High Road” restaurants is high prices. The average cost for a burger and fries at these restaurants is $20.50, and the average cost of a soup and salad is $24.00. 

While there is nothing wrong with charging high prices and catering to an affluent crowd, many people, including military families, simply cannot afford $80 for hamburgers to feed a family of four. Across-the-board wage requirements not only make it more difficult for young workers to gain experience, they also remove the option of affordable meals for families. 

Even though clamoring for an increase in the minimum wage may earn easy political points, actually raising the wage has harmful real-world consequences. Congress should keep that in mind and shelve the Fair Minimum Wage Act. 


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