A hike in the nation's minimum wage would wind up hurting unskilled workers because companies would be less likely to hire those whose labor costs are 22 percent higher, say two Auburn University economists. Only those lucky individuals among the least skilled workers who do not get fired will be better off than before, because they'll get a 22 percent pay hike over two years. To pick a simplistic example, suppose wages at all levels increase by 90 cents per hour. It doesn't take a genius to understand that conscientious firm managers have every incentive to disemploy the low-end labor and rely increasingly on more highly skilled labor.
Employers reduce hiring on the low end and concentrate on high skilled, capital intensive jobs.
So while wage rates go up, hours worked and number of full time employees hired goes down. Fast food restaurant chains tend to get hurt more than, say, aerospace engineering companies. Highly skilled workers will be helped, since demand for skilled labor will increase. Others, of course, will not be able to find a critical first job, as a prelude to developing job skills that will enable them to find their second job, etc. Thornton says businesses make many adjustments to increases in labor costs, such as reducing fringe benefits and health insurance, and reducing amenities and safety-related expenses.