Minimum wage hike does more harm than good: Column

Thirteen states rang in the New Year by raising their mandatory minimum wage in an attempt to help low-income Americans start 2014 on slightly better economic footing. Although hiking the minimum wage often feels like the right thing to do, 85% of the most credible, peer-reviewed studies show that raising the minimum wage does more harm than good to entry-level and other low-wage workers.

Not only can increases in the minimum wage lead to negative consequences for employees, they can put small business owners in a serious financial bind as well. While a state's minimum wage is only one component of its broader attitude toward business, it's no surprise that the majority of the 13 states rank the bottom half of CNBC's business-friendliness rankings.

Rhode Island, New Jersey, Connecticut, Florida, Missouri, New York, Ohio and Vermont each fall into the lower half of the business-friendliness rankings largely because of high state-imposed costs of doing business, and each state recently added to those costs by hiking its minimum wage.

In fact, economists at Cornell and American University found that in the 28 states that have recently hiked minimum wages, there was no discernible associated reduction in poverty. Moreover, studies show that minimum wage increases offer no significant benefit to the economy on the whole.

They can, however, wreak unintended havoc at the microeconomic level. A $2.00 hike in the hourly minimum wage may not appear significant when compared to the salary of a Fortune 500 CEO, but to a small business owner who employs 10 minimum wage-earners, it's an extra $800 per week for which he'll have to compensate by raising prices, cutting hours or laying off workers. With profit margins razor-thin in many industries that employ low-wage workers, these well-intentioned hikes could send thousands of Americans at the bottom of the wage scale to the unemployment line.

Although raising the minimum wage isn't the sole factor in determining whether or not a state is unfriendly to business, it's a strong indicator of other policies and the role state governments think they should play a role in determining how private businesses operate.

Higher minimum wages, along with higher corporate taxes and increased regulation, raise the cost of doing business and force employers to spend more money on overhead costs and less on creating value and growing their business.

Minimum wage hikes are at worst a symptom and at best a poor remedy of macroeconomic problems, and compounded with Obamacare, they've gotten 2014 started on the wrong foot for businesses in 13 states. When decisions that belong to business owners -- including how much to pay employees -- are made by the government instead, a state grows just a little colder to investment and entrepreneurship as its costs of doing business rise. Instead of trying to legislate people out of poverty, states should seek to create a more favorable tax and regulatory climate for businesses -- increased wages and opportunities for low-income workers will follow.

Jason Stverak is president of the Franklin Center for Government and Public Integrity.

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