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A Post-Labor Day, Minimum-Wage Hangover The evidence is already coming in: Mandatory increases in Los Angeles, San Francisco and Seattle have cost thousands of jobs.


! Los Angeles Mayor Eric Garcetti celebrates with City Council members on June 13 after signing an ordinance gradually raising the minimum wage to $15 an hour. PHOTO: RINGO H.W. CHIU/ASSOCIATED PRESS By ANDY PUZDER Sept. 7, 2015 WSJ For years there has been a sense among many Americans that the working class is getting left behind as the rich grow richer. As the presidential contest warms up, candidates are talking about how they’d address the income divide. Democrats, invariably, propose increasing the minimum wage. Hillary Clinton has voiced her support for fast-food demonstrators backed by labor unions that have demanded $15 an hour. She’s also in favor of raising the federal minimum wage of $7.25 an hour, though she has been vague about how large an increase she’d support. Either way: If you’re young, unemployed and eager to get a job, this policy won’t help you. The city councils in Seattle, San Francisco and Los Angeles have already voted to increase their minimum wage to $15 an hour over several years. For large employers in Seattle, the first increase to $11 from $9.47 took effect in April. In San Francisco a hike to $12.25 from $10.74 began in May. Los

Angeles rolled out a minimum wage for hotel workers of $15.37 in July. It’s still early to know how the hikes are affecting the job market, but the preliminary data aren’t good. Mark Perry of the American Enterprise Institute, Adam Qzimek of Moody’s Analytics and Stephen Bronar s of Edgewood Economics reported last month that the restaurant and hotel industries have lost jobs in all three cities. Mr. Bronars crunched the numbers and discovered that the “first wave of minimum wage increases appears to have led to the loss of over 1,100 food service jobs in the Seattle metro division and over 2,500 restaurant jobs in the San Francisco metro division.” That is a conservative estimate, he notes, as the data include areas outside city limits, where the minimum wage didn’t increase. This comes as no surprise. In 2014 the Congressional Budget Office found that increasing the minimum wage to $10.10 an hour would result in employment falling by 500,000 jobs nationally. By the way, less than 20% of the earning benefits would flow to people living below the poverty line, as University of California-Irvine economist David Neumark has pointed out. That such laws help people who have jobs and manage to keep them but hurt those without a job helps explain San Francisco’s wealth disparity. Before the spate of recent increases, San Francisco’s minimum wage— $10.74 an hour—was the highest in the country. It has been among the top for a long time. If minimum wages helped alleviate income inequality, you’d expect San Francisco to show it.

Not so. San Francisco ranks second in income inequality among the top 50 cities in the U.S., behind only by Atlanta, according to a 2014 Brookings Institution report. The number of households in the area earning less than $25,000 a year is growing while the middle class shrinks, according to a 2014 report from the city’s Human Services Agency. San Francisco’s income distribution is roughly on par with Rwanda’s, though it edges out Guatemala’s. It’s understandable that people who have jobs would like a raise. But what about the people who don’t have jobs? The national labor- participation rate is 62.6%—the lowest since the Carter administration—and a wage increase means little to the 5.9 million Americans who aren’t in the labor force but want a job now. The same goes for the 6.5 million Americans working part time because they’re unable to find full-time opportunities. If government makes something more expensive, businesses will use less of it. Hourly wage mandates continue to drift higher than what consumers can absorb through increased prices. Entry-level jobs will become increasingly scarce as businesses use labor more efficiently and, in some cases, turn to automation. In particular distress is the youth population. In July, labor-force participation for those ages 16 to 19 stood at 33.5%, the fifth-lowest level since the Bureau of Labor Statistics began compiling the data in 1948. Four of these lows have occurred in the past 18 months. So what’s the solution? The first step is realizing that income inequality is a symptom of a larger problem. Raising the minimum wage to reduce inequality is like giving an aspirin to someone who has a brain tumor. It may appear sympathetic and for a moment

alleviate the headache, but it won’t cure what is ailing the patient. The real problem is that more than six years of progressive economic policies—higher taxes, more regulation, ObamaCare, Dodd- Frank and more—have eliminated opportunities. The poverty rate remains at levels generally observed during recessions. Child poverty is at its highest point in 20 years. The U.S. Census Bureau reports that for the first time since it began compiling the data, business closures each year have been exceeding new business startups. This is the result of an economy limping along at a 2.2% growth rate. When Republican candidates such as Jeb Bush and Marco Rubio talk about spurring economic growth to 4% by reducing regulation, reforming the tax code, passing pro-growth immigration reform and improving education, they are addressing the underlying problem that drives income inequality. If you want to reduce income inequality and help the working class, grow the economy. There is only one thing that will decrease poverty and increase opportunity: economic growth. And history has clearly shown that there is only one system that can produce economic growth sufficient to meaningfully reduce poverty and increase opportunity: free enterprise. The best development for workers would be a thriving economy in which growing companies have to compete for their services. Mr. Puzder is the chief executive officer of CKE Restaurants