U.S. Senator Bernie Sanders is running for president in 2020, and as expected, he is focusing his campaign on his signature $15 minimum wage initiative. However, contrary to what Bernie Bros think, a forced increase in basic wage could lead to a drastic decline in jobs growth, cripple small businesses, and trigger an overall slowdown in the economy.
Just ask South Korea.
According to ABC News, Bernie Sanders will kick off the official start to his presidential campaign by calling for Medicare-for-all, a $15 minimum wage, and an urgent request to deal with climate change.
Democrat congresspeople, most notably Alexandria Ocasio-Cortez, have consistently pitched Medicare and climate change initiatives in the past several months, and – via the Green New Deal – they have become the flagship propositions of many Democrats.
The $15 basic minimum wage as proposed by Bernie Sanders, however, has not been touched on as extensively as the other two initiatives and when enforced, it could cause the U.S. economy to dwindle, similar to the effect it has had on South Korea.
Before his election, South Korean President Moon Jae-in aggressively pushed his initiative of increasing the basic wage of South Korea from around $6 to nearly $9.10, by about 50 percent.
In 2018, the Moon administration compromised and officially enforced a nationwide basic wage of $7.36 in a move that was widely praised by millennials and young adults in the 10 to 30 age group at the time.
The vision of President Moon was to ensure South Korea is ranked as a top country in the OECD rankings for basic wage, and in July 2018, a local publication reported that South Korea is expected to rank third.
Unfortunately, that’s just about the only benefit that South Korea has seen from the minimum wage hike.
The fundamental issue with the Moon administration’s plan to abruptly raise the basic wage is that it did not take into consideration the potential impact it could have on small to medium-size companies.
After the $7.36 per hour basic wage was implemented, businesses simply stopped hiring. Bakeries, cafes, restaurants, and many other companies in a wide range of key industries noticeably cut their workforce sizes.
The consequence has been one of the worst unemployment crisis in the history of South Korea, with over 340,000 college graduates unable to secure jobs.
Seoul Daily, a mainstream media out in South Korea, attributed the rocketing unemployment rates in South Korea to the rising basic wage.
The economy of the country has been slowing down since the impeachment of former President Park Geun-hye, and the high basic wage placed immense pressure on local businesses.
The default and bankruptcy rate of small to medium-size businesses increased, creating a more cautious environment for companies to make new hires and provide long-term jobs.
Minimum wage increases aren’t just a problem for South Korea.
Recent studies have discovered that a 10 percent rise in the local minimum wage is likely to decrease employment by 3 to 6 percent for millennials and young adults.
Citing various academic research, Niels Veldhuis, the president of Fraser Institute, a non-partisan research and educational organization based in Canada, said that minimum wages increase poverty.
“Given that higher minimum wages decrease employment opportunities, benefits, and on-the-job training, it’s not surprising that recent evidence from Canada shows that minimum wages increase, rather than decrease, poverty.”
Free money does not exist. When businesses are forced to increase the wages of their employees by large margins, and they simply cannot deal with the rising expenses, they are left with two choices: find ways to decrease the expenses or risk bankruptcy.
In most cases, businesses are forced to cut jobs, employee hours, or other perks, and at the end of it, it puts pressure on both the employees and the companies.
If the Bernie Sanders campaign pushes forward with a $15 minimum wage, which is more than two-fold from the federally-mandated wage at $7.25, it could become the catalyst that slows down the thriving U.S. economy.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.com.
Last modified: September 23, 2020 12:32 PM