There has been at lot of talk over recent months and years about states raising the minimum wage. On the surface…folks think it is a great thing…but this a conversation on why it may not be all that it is cracked up to be.
Every state has different minimum wage. Locally…the minimum wage is $7.25 an hour (which is the Federal minimum). Several states have discussed raising whatever their state’s wage is to give or take $15.00 a hour. And as I mentioned earlier…the average Joe thinks…great…that is double what I make now. But let’s explore what happens when a wage change occurs.
Generally speaking…anyone getting paid less than $15.00 will now get an increase in wage. So in turn…businesses will need to raise rates, product costs, and labor charges to compensate. So for example, that gallon of milk that local you pay $2.80 a gallon for…will now cost you say $4 or $5 (as a guess). Prices of everything will go up very quickly after the wage goes up.
Employees already $15.00 an hour or above will not likely great an equal rate increase. If say an employee makes $17.50…and another employee makes $11 an hour. The $11 employee will go up to $15.00. But the $17.50 will likely stay at $17.50. May not sound fair, but that is likely what would happen. It actually happened to me in my younger days when the minimum wage was $4.25 and it went up in the 1990’s. I was making more than the minimum wage…my co-workers all got a raise and I did not. Which is the common practice…mainly because the employer can’t afford to do it.
But here is where is will hurt home ownership, that which the Realtor prides themselves in helping accomplish. Employees at entry level jobs (at $7.25 or slightly more) will find themselves unemployed. From the teenager just starting out, to the less skilled worker, to folks trying to start over. Fast food employees, retail clerks, wait staff, dishwashers, mail room clerks, the list goes on and on. Self employed individuals will also struggle. They will not be able to double their costs just because the cost of living has gone up. They will increase their rate some…but their customers (who may also be struggling due to the increase of the cost of living) will not be able to or willing to pay a higher rate.
This will also in turn put a higher need to be qualified and educated in order to be employed. But due to the higher cost of living…college tuition will also go up, and parents and young adults may find it even harder to afford a college education. Thus, putting our society in a lose/lose, rock in a hard place situation.
It is all of these reasons that a wage increase will affect home ownership. Less individuals will be employed in general and unemployment will increase. There will more renting and less buying. Even if we balance out in a few years and adjust…we as a country will be in the same general place we are now. The employee may make more an hour, but since they are paying more for products and services…will be taking home or saving about the same as they are now. So what then??? Raise minimum wage again? $20 an hour? $25 an hour? Where does it stop. In that instance…in theory only…you could reduce the minimum wage and accomplish the same thing. Cost of living would go down and individuals would still have the same take home or savings.
There is no way to predict the future or the impact. And with neighboring states already raising the wage…a state is almost forced to match the increase to not lose residents and employees to nearby states. So this is not a message suggesting that a stop in wage increase is likely…but more of an understand and opinion of how it could have a negative impact on individuals as a whole and ultimately the housing market.
Thanks for reading.