The Law of Unintended Consequences

Illinois’ recent minimum wage increase could have undesirable side effects.
by Michael Davis, IWIRC Corp.

Life’s full of unintended consequences. Side effects, if you will. Just watch a commercial for a new medication. It says the pill will improve your health for the first 15 seconds, then spends the next 45 telling you it might cause your hair to fall out or your teeth to rot, you could go blind or you might die while you’re getting better.

To be fair, it’s not always as bad as they say. And just maybe, being hairless or toothless or in the dark for the rest of your time on earth might be the goal. More likely, these side effects and unintended consequences are the uninvited things in life people hate the most.

Let’s apply this idea to the mandatory minimum wage increase recently enacted by the politicians in Springfield. The potential side effects are legion—it’s pretty easy to list at least five that require little explanation.

  1. It can hurt the poor. After all, employers will seek ways to cut costs, which may include eliminating the jobs of the already “underpaid.” Unemployment for these people can increase.
  2. It can lead to calls from higher-paid employees for pay adjustments as well. “I’m only worth this much more than minimum wage?” will be asked time and again. In addition, some employment contracts contain language stating certain jobs are paid based on minimum wage (e.g., an hourly wage twice the minimum).
  3. Many employees will see other benefits wane after the minimum wage increases. Many employers, even in the best of economic times, are pressed to maintain and increase their profit margins. Increased employee costs translate into a lower bottom line, which translates into cost reductions or elimination elsewhere. Reduced health benefits or even retirement contributions could be side effects of paying for increased minimum wages.
  4. Consumer costs will rise. Want to pay more for your Big Mac or veggie sub? When labor costs go up, so do the prices of goods and services. Healthcare won’t be immune to this either—not that there’s ever a reason to increase costs that won’t be employed by the industry. Increased payroll is one legitimate cause of rising healthcare costs, and in many healthcare settings, workers make under $15 an hour. And then we come to number five...
  5. Workers’ compensation costs will rise. Don’t be surprised when your premium rises after the minimum wage increase. Simply put: wage increases are payroll increases, and workers’ compensation premium calculations require payroll inputs, which will jump your mod rate. And not only will your premium increase, so will indemnity and TTD (temporary total disability) costs. Now, if you’re an employer that doesn’t utilize many minimum-wage workers, the effect may only be negligible. However, it’s unlikely that anyone will be completely insulated from this unintended consequence.

The final analysis will come when we’re able to crunch the post-minimum-wage-increase stats. My fear—a fear shared by many—is that not only will these side effects be realized, but the statistics themselves will reflect a smaller dataset as employers continue to set their sights on friendlier states to relocate. States with fewer side effects. PM

Add new comment

This question is used to prevent automated spam submissions.