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The real problems with raising the minimum wage

On July 7th, the Huffington Post posted an article entitled "Millionaire Fast-Food CEO: Higher Minimum Wage Hurts Us All." It was a critical response to a July 1st interview in which I made the point that, while people certainly have the right to raise the minimum wage, significant minimum wage increases will result in the loss of job opportunities for millions of young Americans.

An employee at Hardee's in Pasadena, Maryland.
Sarah L. Voisin | The Washington Post | Getty Images
An employee at Hardee's in Pasadena, Maryland.

I want to respond to that article because there is an underlying reality that everyone, regardless of their political orientation, should at least consider: Finding a job has become very difficult in America — especially for young people. That just isn't right; in fact, it places America's youth at a severe disadvantage.

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As I pointed out in an interview on CNBC's "Squawk on the Street" (watch the clip here or below) young workers are struggling to break into a hostile labor market. Since January of this year, the percentage of 16- to 29-year olds working or actively looking for work has repeatedly hit historic lows. The consequences of government-mandated wage hikes include fewer entry-level jobs, which principally hurt the young people who need those jobs, particularly minorities.

The non-partisan Congressional Budget Office (CBO) has forecast a loss of 500,000 jobs should the president's proposal to increase the federal minimum wage to $10.10 an hour become law. The CBO also forecasts that this increase would lift a number of people who already have jobs above the poverty threshold. But, for 500,000 unemployed people, that's 500,000 entry level opportunities American businesses will never create.

Another problem for young people is that experienced workers, who've had their hours reduced due to Obamacare, are willing to take higher minimum wage entry-level jobs because they need the hours. This reduces the number of entry-level positions for inexperienced young people. The Huffington Post claims that there is "little evidence that companies are cutting worker hours because of Obamacare." As someone who's running a business, I can tell you that this is exactly what's happening. The evidence is hard to ignore (although apparently not impossible).


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For example, in June the unemployment rate decreased from 6.3 percent to 6.1 percent, solely due to a very large increase of 1.1 million part-time jobs. That's a huge number for one month. To put this number in perspective, the total number of people employed (full and part time) increased by only 407,000. That means the economy lost 708,000 full time jobs in June. The Bureau of Labor Statistics seasonally adjusts these numbers to factor out things such as an increase in part time jobs due to school being out for the summer. The economy simply created a very large number of part time jobs in June and lost a very large number of full time jobs. American workers and businesses know this wasn't a coincidence. The way to create more full-time and middle-income jobs is to incentivize businesses to create them. Increasing the cost of hiring people is a disincentive.

Real economic growth would naturally increase the demand for labor-increasing wages without costing jobs. Perhaps the best example of this is Williston, North Dakota where a vibrant economy is creating a strong demand for labor. Crew-level restaurant employees are already making $11 to $15 an hour and Wal-Mart is offering starting jobs at $17 an hour. Even without a government mandate, wages will be higher in any region where economic growth increases the demand for labor. It's really that simple.

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The Huffington Post devoted much of its article to what it believes I earn each year. Like many successful businessmen and women, I wasn't a trust-fund baby. I didn't get a legacy admission to the Ivy League. My first job was scooping ice cream at Baskin-Robbins (for minimum wage), and after that I painted houses, cut lawns and busted concrete with a jack hammer to get through school. Those jobs were the first rungs on a tall ladder that has led to more success than I ever thought possible. While it may make good copy, the real issue isn't how much I earn; it's why millions of young people today are unable to begin their careers and pursue opportunities as other generations — including mine — have. While well-intended, significant minimum-wage increases are a part of the problem.

Finally, the Huffington Post asserted that I have "railed against" policies that could hurt our company's "bottom line." In fact, a minimum-wage increase will have very little impact on our company's bottom line unless it's so large that it puts restaurants out of business. The majority of our restaurants are franchised (75 percent) and our franchisees' labor costs don't impact our company's bottom line. In addition, most American businesses (particularly restaurants) are unable to absorb meaningful cost increases as they operate with very slim margins, often pennies on the dollar. So, when labor costs increase, businesses negate the impact to their bottom lines either by reducing those costs (eliminating hours or positions) or raising prices. Historically, this has occurred every time the government has increased the minimum wage. If the government raises the minimum wage, companies, including ours, will adjust. Rather than our bottom line, my primary concern is the impact minimum wage increases have on the already scarce job opportunities available to America's youth.

In this respect, it would seem to be beneficial to hear from successful businessmen and women. But, they're generally reluctant to speak up on economic issues, despite their experience and expertise, as certain politically motivated media outlets will inevitably portray them as the bad guys. This only serves to stifle legitimate debate. Perhaps that's the goal. I hope not. I hope everyone's true desire is to see businesses create more good-paying jobs for the American people. For our part, American businesses want to grow and create those good paying jobs.

There seems to be some obvious common ground here but reaching it requires both sides listening to each other rather than demonizing each other.


Commentary by Andrew F. Puzder, CEO of CKE Restaurants Holdings. which owns Hardee's and Carl's Jr. He co-authored the book "Job Creation: How it Really Works and Why Government Doesn't Understand It." Follow him on Twitter @AndyPuzder.