The minimum wage and living wage warriors seem reluctant to accept the economic realities: price and wage controls almost never work. There are extremely rare cases where they can work (or do minimal damage) in one small location for short amounts of time, but there’s no magic wage that’s right for everywhere and everywhen at once. Thus wage controls start out bad and get worse over time.
A few discredited studies (like Card & Krueger) show that raising minimum wage doesn’t have large impacts, in a few situations for short periods. But each of those studies has dozens of rebuttals and refutations that show the flaws in their methodology, and counter studies that it does impact employment (and wages), in the wrong way, over time. (Many listed below).
I like to use thought experiments and the socratic method to try to get min-wage supporters to think. Not that you’ll ever get good answers, but it shows the absurdity of their positions:
- What’s a fair wage for both NYC and B.F. Idaho?
- If $15/hr is good, why not $150/hr?
(Whatever answer you give for why not $150, applies to $15 as well)
- If I raised your salary by 5%, but the cost of everything you buy by 10%, would you come out ahead?
(The overhead costs of labor are added, with margins, at many stages in a supply chain)
- If price and wage controls worked, why didn’t they work in Cuba, North Korea, Russia, China, or the U.S. and U.K. during WWII and in the 70’s? (They only succeeded in blossoming black markets).
- If only 9% of minimum wage workers are below the poverty line (and 91% are not), wouldn’t giving money directly to that 9% be at least 11x as effective as raising minimum wage? Why don’t we do that instead?
- If minimum wage is a starting salary, why should it have an ending value (be a livable wage)?
- If I’m willing to pay someone $10 to do something, and they’re willing to take $10 to do it, what business is it of the government or voters? Where in the Constitution does it say that anyone else gets a say in that transaction?
- Who knows more what’s a fair labor value for a job in every market in the U.S.: the employer and employee involved, or a bureaucrat in D.C. or voter in Barstow? Why?
And so on. To understand minimum wage arguments, read on.
The first thing to understand is that money is derived from the product of work (productivity/results), and the value someone places on that, not based on what you paid for it. Thus wages aren’t based on “need” or “want”, but on value (output/returns). Raising the costs for something by paying more, slows the economy. Lowering the costs, means you can afford more and improves the economy. If you don’t understand this, please go read about the broken window fallacy. There are many more consumers than producers, so drops in labor costs help more people than it hurts (net win), and raising labor costs raises the cost of goods by at least as much (plus margins at many levels of manufacture and distribution), hurting far more people than it helps. Thus “needs based” economics, isn’t economics, it’s long disproven socialist rhetoric that helps the few by hurting the many.
Goldilocks and the three wages
Minimum wage is like Goldilocks, there are three ways you can set minimum wage: too low, too high, and just right.
- “Just right” is a delusion. Even assuming a politicians could figure out the magic number that’s fair for any one worker (based on all the variables like location, situation, competition, etc.), it’s not going to apply to all the other businesses and workers in the area, let alone other areas, and it is not going to change over time so it would have an expiration date of weeks.
- Too low means it’s below the current labor costs, so it does nothing but remove flexibility. If the value of labor needs to drop, and it can’t because of legislation/regulation, unemployment goes up. So it has no negative impacts on employment (in the short term), but no positive impacts on salaries either: thus you did nothing good, but did a bad thing by injecting inflexibility (which makes downturns worse).
- Too high means you’re taking money out of the business (increasing their cost basis for labor) and that money comes from somewhere. So if you raised the costs to the business, they must either:
- (a) pass that on to consumers
- (b) pass that on to investors (thus get less investment/growth/future jobs)
- (c) take it out of workers benefits or get more work (to balance it out)
- (d) cut back on profitability/health of the business (which slows growth and future jobs, and puts the whole endeavor at risk, and makes foreign investments more attractive).
- Or some combination of “all of the above”. But money doesn’t grow on trees, it comes from somewhere — and all the alternatives are bad (costs): so do you want to be beaten with a stick, or with a belt? I opt for none-of-the-above.
There’s no single number that can be optimum for two different states, cities, neighborhoods or people; there’s too many variables to ever get it right. Thus the only other choices are too low (political ploy), or too high (and hurt opportunities), or more often both at the same time (since minimum wage laws can impact high cost/high growth areas, and low growth depressed areas at the same time). The broader the minimum wage impact area (city, county, state, federal), the worse the minimum wage law will be (one-size-fits-all works worse, the more diverse the data set). To be efficient, the price of labor must be able to float based on demand/value in each area and situation — if it can’t, all the buttinsky’s are doing is injecting inefficiency (waste) into the system.
## Does minimum wage impact employment?
Logically and historically, “yes”, raising the minimum wage hurts employment. There are lots of studies or politicians that will tell you the opposite, and they have some weak data to support their point. But the real economists can poke holes in their studies and reasoning.
Some of the common mistakes in the bad studies include:
- Bad studies cherry pick and look at a hot economy and look at growth instead of growth rate. If the majority of the market was already paying more than the new base rate, and in a growth market (labor demand is high), then you might lose a few jobs, but there’s enough growth to bury those losses in noise. So what they often find is “labor grew at 4%/year after the minimum wage increase”, and claim “no impact". Sure, but it was growing at 8% before the minimum wage and in competing areas that didn’t have the that burden. Thus the politicos will claim “4% growth” despite the minimum wage, the economists see a 4% loss compared to competitive markets. And when that market cools later (as all markets do), how many jobs are shed, and how quickly? Studies show that burdened economies drop faster/further than non-burdened ones.
- Bad studies only look at trailing impact — but people react in advance. So imagine it’s June and a law passes that says, “minimum wage will go up to $100/hour next January” — junk studies only track job losses from January on — but businesses and businessmen aren’t dumb. Some people layoff in advance, even more just stop hiring in advance. Those are losses in advance. Once the debate about raising minimum wage first starts, there are losses (assuming businessmen are paying attention to their business). The flawed studies compare a few months before enactment (after the job hiring has cooled) to afterwards, and see little difference. But if you start counting from before the debate to after, you see a completely different story (the truth).
- Your total work package is not just your hourly wage but your benefits, work rules, and so on — so if you get a $1/hour increase, that’s worth $160/month, but if you lose a benefit worth $320/month (time off, training, etc), that can easily offset the wage increase (and more). Good studies looked at total benefits and proved minimum wage increases were often offset (and then some). Bad studies ignore this factor, proving they’re either not very smart/good, or they’re intentionally deceptive.
- A new gimmick is to start phasing in minimum wage over years: cook the frog slowly, so it doesn’t jump out of the pot. This proves that even the left knows that minimum wage hurts. Why would you phase a benefit in over time and delay all that help? Why stop at $15/hour? Why not $150/hour, tomorrow (all at once), and make everyone rich? The fact that they phase it is, in proof that they know it hurts an economy. The reason they phase it in, is to hide the impact they know they’ll have. If they did it quickly, the impact would be more obvious and remove plausible deniability.
- Minimum wage doesn’t hit all groups equally — it hits the bottom, starting out, or restarting the hardest. Think about it. You’re an employer and you’re making a choice — you can hire person-A for $10/hour, they have 10 years of experience in a fast food restaurant making minimum wage, or you have person-B who is either a teenager, immigrant (with limited communication skills), new college graduate with no job experience, or an ex-convict. It’s a risk to hire B over A — so you’ll always pick A if they’re at the same price. On the other hand, if you can save 20% on person B (hire them at $8/hour), then you might give them a chance. Removing that price flexibility makes it harder to start out, restart, or relocate — hurting the people at the bottom the most. And remember, delaying getting a job and getting work-experience by 5 or 10 years, has a ripple in lifetime earning potential. Minimum wage ruins lives.
Studies that looked at subgroups most likely to be hurt by raising minimum wage, show exactly what you expect: it hits some people more than others. Downward moves (or hiring suppression) often happened in advance of enactment (labor markets scare easily). And any logic shows that if you raise all the workers pay by an amount, then the goods/services they produce will have to go up by at least as much — and then everything the worker buys goes up by at least that much, meaning a best case net zero effect for that worker (and a negative effect for everyone else that had savings that wasn’t inflation protected) — and more realistically, since there are margins to cover at multiple stages, things will go up by more than just the cost of labor (they go up by the cost of labor + margin), meaning a net loss for even the workers that think they benefited.
- 98% of economists say that raising the minimum wage doesn’t help GDP (the economy)
- Minimum wage has more consensus than global warming (here’s a few in an open letter claiming “do not raise the minimum wage”):
- Prager University Video on Minimum Wage
- Studies show that while sometimes only a few jobs are lost, benefits are lost to offset the difference:
- Many more at the end of this article.
Poverty gets even more complex — If you understand poverty, 75% of it is due to underemployment. Most poverty is short term (more unemployment that effects people in one year). Most of the rest is due to under-education, immigration, fatherless families, and finally bad social program programs (which holds more people down than they helps people up). Explain to me how raising minimum wage helps with any of those things? I can explain how fewer teenage jobs means more teenagers doing other things, like getting pregnant. Fewer opportunities for the less educated and immigrants doesn’t help them out. And so on. So target the right people, instead of offering blanket subsidies to the wrong ones. Instead of raising the minimum wage, Congress should look at other ways to aid the working poor that actually focus on providing help to those who need it.
I hear all the time, that McDonald’s can afford to pay a “livable wage” without raising costs, or it’s just a few cents a burger, by people that don’t understand basic economics, or business. Here’s some notables from an average McDonald’s balance sheet:
- The average McDonald’s generate about $2.5 million in gross revenue, but then they have a lot of expenses like rent/mortgage, taxes, utilities, food, taxes, and labor (and their taxes).
- The average McD’s Employs 61 people in operations and restaurant management positions, and spend nearly $507,595 on wages (about $800K or 32% of gross revenue, when you factor in benefits, tax liability, and other costs around employment).
- A McDonald’s ends up with an average net profit after those expenses of 6%. Or about $150K/year in net revenue (for about $2M in initial investment/risk).
- Now, figure a jump from $7.25->$15/hour means $264K in increase wage costs, on profits of about $150K…. so they’re now losing $114,000.00 on each store per year. How many McDonald’s will open with that as their forecast (or how many will close because of it)?
The store (and chain) must respond, or the average store will go out of business. They have to raise prices, trim staff, automate (or some balance of these), or shut down. The last two cost jobs, but so did the first one. If they raise prices, they passed the costs on to customers and if that has any impact on demand (as it usually does), that will hurt future growth (cost jobs) — lost future jobs are a hidden cost, but it’s still a lost opportunity. Either way, those claiming it will have nominal impacts on the business, don’t know business.
When places try raising the minimum wage, they get exactly what economists predict, a lowering of benefits, fewer jobs, higher costs, and more outsourcing and automation to replace higher costs of labor.
- Europe tried, and got expected results (automation): http://www.neowin.net/news/mcdonalds-orders-7000-touchscreen-kiosks-to-replace-cashiers
- Automation replaces workers: http://www.aei.org/publication/picture-alarm-minimum-wage-proponents/
This isn’t just McDonald’s, this is most companies (especially restaurants). The public thinks companies are running on profit margins of about 36%, in truth, most businesses are running more like 6%. (McDonalds turns out to be average). If you raise their labor costs by nearly 30% or more, there goes those profits. They’re either out of business, or raising their costs to consumers — which hurts far more people than it helps.
- Companies that use more labor/automation (like Amazon) likely to win via high minimum wages (unemploying more people):
Starbucks is in the same situation, if pay goes up, then automation becomes more affordable. Do I really need an army of idiots getting my orders and name wrong, when I can replace 8 people with one person whose job is to keep the robot loaded, and call if anything breaks? Do you really want all the barista’s turned into panhandlers?
NOTE: There are other options to defer the costs, but they’re all bad as well. You could lower quality to get costs down — but that impacts sales and isn’t good thing. You could cut back on profits — but that means less return to investors, which means less investment/reinvestment, and stores grow less, less jobs are made, and the more attractive OTHER investments are (ones that create fewer jobs or create jobs out of country). And so on. The balance sheet must balance, and when you raise the cost of labor, it’s going to come from somewhere.
## Walmart and a livable wage
The left tries to sell the gullible that setting a salary minimum will set a salary minimum, but it doesn’t. Progressives often see the choice as: (a) A livable minimum wage (b) A lower minimum wage. But that’s a fantasy. The real choice is: (a) What the market will bear (b) Unemployment ($0/hour). So it doesn’t matter what progressives WANT people to get paid, or what they call a "livable wage", it matters what companies are willing to pay before they move, automate, or shut down.
The truly uninformed will argue that Walmart having employees on welfare is corporate subsidies, that the public is subsidizing Walmart’s employees. But if there was no Walmart, what would happen? They wouldn’t be magically paid more. Odds are, most of those people wouldn’t be working at all: paying no taxes, and getting even MORE in government social benefits and being a burden on society. Thus, government isn’t subsidizing Walmart, Walmart is helping to reduce the burden on government social benefits, and progressives are too clueless to get it. Raise the cost of labor to Walmart and they need to offset those costs, keep raising them, and they offset those jobs — and those newly unemployed people take a lot more in government benefits than they did as a Walmart employee. So there’s no winning this one. There’s a little elasticity where you can reduce the profits of a company from say 8% margins to 4% by forcing them to raise their labor costs. But that 4% came out of what? Growth, security, margin…. that means they’re that much close to putting everyone into the unemployment line, which will cost a lot more than the social programs we choose to pay (and have nothing to do with the going rate of labor).
The determined to stay stupid will argue, “But Costco pays more than Walmart!?!?”. They do, but they have fewer employees per dollar sold (different volumes in different markets). If you replaced all Walmart’s with Costo’s (ignoring that’s implausible, or the loss of choice/selection), you’d end up with far fewer people employed per store (and fewer stores) — but the few with jobs would be better off. And we’re back to the broken window fallacy: people looking at visible benefits while ignoring much bigger losses that came with them.
Who makes minimum wage?
The myth that minimum wage needs to be a sustenance income is perpetuated by those ignorant of the facts, or those who are willing to deceive the public for political rewards. In 2011 and 2012 (according to Bureau of Labor Statistics and the Census Bureau), the average family income for minimum wage workers is over $53,000 a year. This is part of the “livable wage myth”. Some facts:
- Most people on minimum wage aren’t living off that wage.
- Of the 286,000 that worked full time and earned exactly the minimum wage, only 9 percent (25K people) live below the poverty line and work full time. (there are 1.9M that make below the minimum wage — but since they’re excluded from a minimum wage hike, it’s irrelevant to what we’re discussing).
- The average minimum wage contributions account for 35% of total family income. So increases to minimum wage, don’t benefit the working poor much, but they benefit teens, students and the elderly a lot.
- 53% of minimum wage-earners are teenagers (up to age 24). Over 63% are enrolled in either high school or college.
- A large group of minimum wage workers is retired people using minimum wage to supplement their retirement income (or save their marriages by getting out of the house); but they don’t want to earn too much money or they lose their Social Security benefits. Ignoring the stupidity of punishing people for working (or the immorality of saying you pay into a system, but can only get your money back if you aren’t contributing to society), this means raising minimum wage, lowers what Seniors can choose to do.
- Racial breakdown is mostly white (or hispanic), with Asians and Blacks under-represented
- Over 57% of all minimum wage workers work part-time (year round), 25% work full-time year-round, while 28% work part-time for only part of the year. Full time workers (in higher paying jobs) often take a second part-time minimum wage job (short term); think teachers doing a summer job, or someone taking a job at christmas (to buy a few extra gifts). Another large group is spouses of a full time worker, working part or full time, just to augment their income or to get out of the house
- Only one in five (20%) minimum wage-earners lives in a family that earns less than the poverty line (which is about 17% of the population) — so there’s very little over-representation of poverty in the minimum wage earners. And most minimum wage earners are not sole-providers but supplementary incomes.
- 6.1% of adult minimum wage earners are single parents working full time, as compared to 6.3% of all adult hourly workers. Single parenthood is under-represented in minimum wage jobs — so all the claims that it’ll help Single Mom’s is bullshit: raising minimum wage doesn’t help that problem. Raising the minimum wage helps 10 teenagers or 19 other people before it helps one single parent trying to make ends meet on minimum wage.
- Minimum wage is a starting salary: nearly two-thirds of minimum wage workers move above the minimum wage within one year. The median raise for those workers is >10%, and 14% for full-time minimum wage earners. Entry-level jobs are not lifelong dead-end jobs, but they allow workers to establish a work-record so they create opportunities for better paying jobs. Raising minimum wage makes that harder.
So that means a national minimum wage hike to say $15 (from current $7.25) would increase the costs to 91% of employers, to help 9% of the people (the poor). In dollars figure it’s a $4.433B hit to the economy, for a $387M gain in saved benefits/social programs. (Both are calculated by number_of_hours x hourly_rate_increase x total_fulltime_hours). Only in a Democrats mind can that be a net win. Since Democrats see the theoretical benefits ($387M), and ignore the hidden costs ($4.4B) they think they’re getting ahead. But they’re just proving the broken window fallacy. If you want to help those 25K people that are full time minimum wage (and poor), you could hand them each $15,500 each year (on top of their wages), and it would cost 8% of what it would cost to raise the minimum wage.
Minimum wage hasn’t kept up with inflation
There is a popular falsehood among the uninformed and gullible that minimum wage hasn’t kept up with inflation. This is based on the fallacy that it should keep up with inflation (or that minimum wage is a good thing at all). Since many on our left and their media allies seem culturally incapable of checking a fact, this serves a great political purpose at getting them worked up on the injustice of their ignorance. But that doesn’t make it any more true, or worse, a more valid an argument that it should. But the facts are that minimum wage was about $4.00/hr originally (adjusted to 2102 dollars), if it’s over that now, then you know their claim is false.
Removing minimum wage
Quite often, I hear the argument, "I suppose you think minimum wage should be $0". It’s not me, it’s the NYT, many economists and so on, that think that. The uninformed think that means that people would work for $0/hr. But of course they would not. In many places the least you can pay is $15, in others it’s $5. That’s not counting that many people can get paid more for not working than working (social programs). This is why when unemployment benefits expire, the number of employed goes up. The point is again, Goldilocks and the three wages, too low, does nothing. Too high hurts jobs. And just right doesn’t exist. So if you let the market decide, everything fixes itself, far more than politicians and voters know what the right wage is for everyone, everywhere, for every time.
In the free market, everyone works for what they’re willing to work for, you get full employment, then demand exceeds supply of labor, and wages go up. It’s self balancing. When you raise the minimum wages, jobs disappear, then supply exceeds demand, and wages and conditions go down to meet the floor you set legislatively. The market bears more than the minimum wage in most cities, which is why minimum wage raises don’t matter or hurt/help. If the average wage is already higher, then raising it does nothing for most people. But if you apply that same rate to a poorer area, where the wages are much lower, you don’t help people out — you make it unaffordable to hire.
- Before the NYT became the DNC’s pamphlet, they agreed that minimum wage hurts jobs:
Politics behind minimum wage
Politicians are professionals, who have large staffs of people to inform them on policies. They either know this stuff below, or they have no smart people on their staff — thus I think most likely their support of minimum wage is a calculated decision to put politics (and their needs) over other people. All you have to do is follow the money, and who supports it the most, and think, "why?".
The real genius in the campaign to increase the minimum wage is that it provides the left with a platform to once again proclaim solidarity with the downtrodden (funded of course with other peoples’ money), and they get to vilify anyone that defends the economy, which they know the right will do. This is a win politically for the left, because to their base, they sound like they care. When the inevitable reduction in entry-level jobs occurs because of minimum wage hikes, the result will be many more citizens (voters) who become dependent on the largess of the government (democrats). As they say, "Before they raised minimum wage, I was living paycheck to paycheck. Now I’m living welfare check to welfare check." Two positive results from one initiative (vilifying the other side, and creating more dependent voters), if you ignore the consequences to people.
Most of all, the Federal Minimum Wage is a way for larger/richer States (blue states) to attack/tax labor in smaller developing states and rural areas (red states) by artificially driving up the rural areas costs of labor to more closely match their own. This is why blue politicians (California, Massachusetts, etc) fight for increases in minimum wage (blue politicians), especially nationally — where it’s none of their business. While the Red states know that it is their lower costs of labor that is attracting jobs and growth away from the red states, and helping their areas to grow. Thus there’s no egalitarianism in the min-wage supporters campaigns (at least not the politicians), they’re trying to hurt other states/areas, or they’d just raise their own minimum wages and not worry about what other areas or states are doing.
So whenever you hear a Sanders or Warren talking about raising the minimum wage, remember it’s not to help poor appalachians or working poor in steel towns, they’re out to harm them. Reducing the differential labor costs, and respective costs of living, hurts the red states and helps the blue states. Thus, the minimum wage is a proxy fight to disguise blue politicians harming other states, as "help for the poor". Thus supporting the minimum wage is just a vote to let the most populous and rich states bully and bureaucratize the more agile, competitive and smaller states, all in the name of the greater good.
- It hurts poor states (areas) more than rich ones
The universe, math and economics doesn’t care about your situation, it cares about net value to the economy. So you have an ailing Mom, or 19 kids and counting, in the real world your value to the employer is based on your output/productivity: what you do, and how much it costs to do it. If you cost more than the returns, you’re unemployed (and that will make your situation much worse). If you cost more than a worker in China, or a robot that can do half your job, you’re unemployed. It’s nothing personal. If you care about those people, then you want to help them get jobs and stay employed, and raising the costs to hire them does the opposite.
Economics is the science of incentives. Yet the anti-economists that support minimum wage think that if a price is too high (think housing rents), the government can push it down and nothing bad will happen, or if a price is too low (think wages), government can push it up and nothing bad will happened. This defies science of economics and logic, and that people adapt to incentives, not mandates.
Why would they do this (support programs that make the problem worse)? Well, there’s the truly ignorant that don’t know better and have ignored all the research (e.g. they really are that uninformed). But worse is those that know better; if you’re the party that get votes by the people on the bottom, nothing will build your base faster than making sure there’s more people on the bottom… especially if the least educated they think you’re helping (when you’re just making more of them). If democrats fixed the problems with, they’d lose their base — thus there’s incentives for them to only make the problems worse. Thus the science of incentives says that there’s an incentive for democrats (minimum wage supporters) to be liars, and the only thing resisting that is those that oppose the people harming policies of the left.
- CBO charts the impact of minimum wage increases on unemployment:
- Meer & West Study: Effects of the Minimum Wage on Employment Dynamics
- Clemens & Wither Paper : The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers
- Sabia, Burkhauser, and Hansen (2012)
- Hoffman and Trace (2009)
- Singell and Terborg (2007)
- Neumark, Salas, and Wascher (2013)
- Minimum wage and job growth:
- When the minimum wage was increased in 1967, economist Masanori Hashimoto found that workers gained 32 cents in money income but lost 41 cents per hour in training — a net loss of 9 cents an hour in full-income compensation.
- Linda Leighton and Jacob Mincer in one study, and Belton Fleisher in another, concluded that increases in the minimum wage reduce on-the-job training and, as a result, dampen long-run growth in the real incomes of covered workers.
- Additionally, North Carolina State University economist Walter Wessels determined that a wage increase caused New York retailers to increase work demands. In most stores, fewer workers were given fewer hours to do the same work as before.
- Mindy Marks found that the $0.90 per hour increase in the federal minimum-wage rate in 1990 reduced the probability of workers receiving employer-provided health insurance from 66.2 percent to 63.1 percent, and increased the likelihood that covered workers would be reduced to part-time work by 26 percent.
- Wessels also found that for every 10 percent increase in the minimum wage, workers lose 2 percent of nonmonetary compensation per hour. Extrapolating from Wessels’ estimates, an increase in the federal minimum wage from $7.25 to only $9.00 an hour would make covered workers worse off by 35 cents an hour.
- Writing in the Wall Street Journal, economist Thomas MaCurdy explained: “Overall, the extra costs attributable to higher prices equaled 0.63% of the nondurable goods purchased by the poorest fifth of families and 0.52% of the goods purchased by the top fifth—with the percentage falling as the income level rose. The higher prices, in other words, resembled a regressive value-added, or sales, tax, with rates rising the lower a family’s income…”… “My analysis concludes that more poor families were losers than winners from the 1996 hike in the minimum wage. Nearly one in five low-income families benefited, but all low-income families paid for the increase through higher prices.”
- Even Paul Krugman was against minimum wage, before he was for it:
- Bill Gates opines on automation replacing people (and that happens faster as wages go up):
- It hurts poor states more than rich states
- Minimum Wages Surged In 6 Cities Last Year: jobs down in those 6 cities:
- Sure it eliminates jobs, but they’re lousy jobs:
- FEE: Truth about minimum wage (youtube):
Minorities, Poverty and Minimum Wage
Youth Unemployment and the Minimum Wage
- France’s young would leave if they could (especially the rich):
- Minimum Wages, Starter Jobs and U.S. Employment
- The Lost Wages of Youth – How minimum wage kills youth employment
- The Minority Youth Unemployment Act
- End of teenage employment:
- Businesses stung by $15/hour
- Minimum wage and job growth:
- Minimum wage and job growth:
- The new ‘restaurant math’ of Seattle’s $15 an hour minimum wage is starting to ‘break the system’
- New evidence suggests that Seattle’s ‘radical experiment’ might be a model for the rest of the nation not to follow
- Minimum wage effect? Seattle area restaurant jobs have fallen -900 this year vs. +6,200 food jobs in rest of state
- E21: http://economics21.org/html/minimum-wage-laws-are-barriers-employment-1776.html
- The Far-Flung Casualties of California’s $15 Minimum
- Even left-leaning economists say it’s a gamble
- L.A. Garment Manufacturing starting their exodus out of state:
- Jerry Brown: Sure it doesn’t make sense economically (meaning it will hurt people), but it’s good politics:
- In a proactive response to $15 minimum wage, Berkeley cuts jobs — proving not only does min-wage impact employment, it does so before the law has even taken effect (smart people react to what’s coming):
- First states to raise minimum wage, ones to see retail job contraction: http://hotair.com/archives/2016/04/09/guess-which-states-lost-retail-jobs-while-hiring-overall-increased/
- New York and White Castle’s concerns:
- Minimu wage increase are not the ONLY factor in the decision for Sports Authority to close all 464 of it’s stores, but it’s named as a key one, “With the minimum wage going up to $15… [that] money has to come from somewhere.”… And now we discover what the real minimum wage is $0/hour (unemployment). Econ101: when the cost of workers exceeds the benefits/returns they provide, the solution is the unemployment line — now instead of work experience and a salary, they learn what supporting minimum wage means. And amongst the minimum wage supporters, not a fuck was given for the lives harmed in the making of their political utopia: http://www.pasadenastarnews.com/business/20160427/why-sports-authority-is-throwing-in-the-towel-and-closing-all-of-its-stores
- CBO says a slight increase in minimum wage, will only have a slight increase in unemployment. But it will magically raise 1M out of poverty, even though there’s only 25K (1/40th that number) in poverty who are full time minimum wage workers. That math/logic escapes me (for each employed person, it’ll help 39 unemployed ones?).
- Hyper partisan American Progress, wasn’t able to find evidence that minimum wage costs jobs, by citing long discredited studies (where even the authors disagree with them):
- Katz and Krueger (1992) – The Effect of the Minimum Wage on the Fast-Food Industry
Doing a fast food survey (poll) in Texas, they found that during 1990-1991 minimum wage increases, that meal prices increased, but they don’t think it was related to minimum wage increases. And employment increased anyways, though there was salary compression (new workers were paid more, but senior workers got paid less), and they’re not sure if that was related to minimum wage or not. In the end, two surveys and comparing differences in reporting, doesn’t tell us much, since regulations had required compliance, so of course they’re going to change what they say over the phone. It’s not often cited because it’s so bad in methodolody.
- Card and Kruger : Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania
- (1994) http://davidcard.berkeley.edu/papers/min-wage-ff-nj.pdf
A telephone survey (poll) compared New Jersey and neighboring Pennsylvania (in 1992) after New Jersey raised their minimum wage. Flaws: It looked at a single franchise (Burger King), didn’t look at before/after growth rates, did head count (but not hours worked), didn’t look at total compensation per worker, didn’t try to factor in how many stores were opened/closed or not opened because of the policy, and so on. It just said that burger prices didn’t change and headcount stayed about the same, after a modest increase in minimum wage.
- (1998) – http://davidcard.berkeley.edu/papers/reanal-ff-nj.pdf
The first paper was criticized, so they revisited the same study, using the same flawed methodology (and blind spots), but they used BLS data instead of a survey (broadened the sample, slightly), to try to cover a moldy donut in powdered sugar. They came to the same conclusions (and ignored the same flaws). In that one area, and time, with a modest increase, compared to a declining economy, they saw a negligible impact.
- Card said in interviews that "It doesn’t mean that if we raised the minimum wage to $20 an hour we wouldn’t have massive problems… economists who objected to our work were upset by the thought that we were giving free rein to people who wanted to set wages everywhere at any possible level. And that wasn’t at all the spirit of what we actually said. In fact, nowhere in the book or in other writing did I ever propose raising the minimum wage”. And,“Realistically, of course, the U.S. is never going to enforce a draconian minimum wage.”
- Krueger defended the study by saying that a small increase in the minimum wage would not affect employment adversely, but of course a large increase would.
- So even the most cited studies by the left, has both authors admitting that large increases in minimum wages are a bad idea.
- (1994) http://davidcard.berkeley.edu/papers/min-wage-ff-nj.pdf
- Refutation of Card and Kruger
- J. Angrist and J. Piscke, Mostly Harmless Econometrics observed that Philadelphia-area fast-food industry was trending downward (relative to New Jersey) before the minimum wage increase. Thus by comparing the two, the continuing downward trend in Philly masked New Jersey’s decline.
- David Neumark and William Wascher examined written records of the number of hours worked in New Jersey and Pennsylvania restaurants and found that the New Jersey minimum wage increase reduced labor demand by 4 percent (a very significant decline)
- Saul Hoffman and Diane Trace examined the employment of low-productivity workers in New Jersey and Pennsylvania when the 1996 federal minimum wage increase eliminated the difference between the two states’ minimum wages. The Hoffman-Trace study examined more evidence over broader areas than Krueger-Card, and over more time and concluded: it reduced the employment of low-productivity workers in Pennsylvania.
- Dube, Lester and Reich
- (2010) – Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties
- (2011) – Do Frictions Matter in the Labor Market? Accessions, Separations and Minimum Wage Effects.
- (2013) – Minimum Wage Shocks, Employment Flows and Labor Market Frictions
This paper starts by saying "We find that minimum wages have a sizeable negative effect on employment flows but not on stocks”. In english that means that job mobility stagnated, but head counts remained loosely the same.
- Allegretto, Dube and Reich (2011) – Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data
- Basically, the raw data in all these shows that there was a depression of labor in places that raised minimum wages. So they put the data through a complex statistical model that first pairs, “like counties”, and does corrections based on many factors. The post corrected data shows no significant decline (that they can’t attribute to something else). Criticisms are that over-parameterizing (i.e., adding too many controls to) just stifles the true employment-discouraging effects of minimum-wage increases.
- (2010) – Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties
It’s a bit of a distraction, but it does imply that inflation is a bigger problem than minimum wage, and minimum wage drives up inflation. (E.g. minimum wage fixes the minor issue, by making the bigger issue, even bigger).
Why be half-assed about it? If a little is good, more is better.
Here’s timing of minimum wage increases and drops in labor participation among teens. (Source St. Louis Fed Reserve / BLS): https://research.stlouisfed.org/fred2/series/LNS11300012