If the title of this post is opaque, I’m mocking the title of E. J. Dionne’s Washington Post column in which he predictably praises President Obama’s proposal for increasing the minimum wage.
I honestly don’t know what effect increasing the minimum wage would have but here’s my guess:
- In minimum wage jobs in sectors with low demand elasticity it will raise the wages of the workers and that will be passed along to consumers. That’s probably the case at Seattle’s airport where the minimum wage was recently raise to $15 per hour.
- In sectors with high demand elasticity or very low margins it will probably result in fewer minimum wage jobs.
- It will give an automatic wage increase to anyone with a minimum wage multiple union contract with unknown economic results.
- It will put wage pressure on wages that are above the old minimum but at or near the new minimum with complex economic results.
- It will further incentivize a black market in labor.
I doubt that raising the minimum wage will increase the total number of jobs on offer which seems to me to be the most urgent task at hand. I guess if you don’t want to take the steps that will increase hiring increasing the minimum wage will have to do.
And it makes such a nice cudgel to beat your political opponents with.
Update
The Wall Street Journal chimes in, much in the vein that you’d expect:
Our readers are familiar with the mountains of evidence that minimum wages lead to fewer workers hired. Small minimum-wage hikes have small negative employment effects, but raising a worker’s cost by 50% or more risks pricing many low-skilled workers out of the job market.
Economist David Neumark, an expert on minimum-wage economic studies, says that an economic rule-of-thumb is that every 10% increase in the minimum wage reduces teen employment by about 1% to 3%. In October the U.S. teen jobless rate was 22.2% and for black teens it was 36%. The Obama minimum wage combined with the health mandate could mean up to a 10% reduction in jobs for the poor and young. Liberals must care deeply about inequality because their policies do so much to increase it.
Not that this matters to desperate Democrats, who are looking for any alternative to debating ObamaCare and see that a higher minimum wage polls well. Steve Israel, who runs the Democratic Congressional Campaign Committee, is telling donors that the minimum-wage issue will lift liberal voter turnout in 2014, help Americans forget about losing their health insurance, and save the jobs of imperiled Democrats. If that means fewer jobs for the young and least skilled, so be it.
You know I think there’s room for a new meme: the War Against the Young. Or maybe it’s an old one that I’ve just noticed.
People are innovative and will seek ways around fiscal obstacles. For instance if worker’s wages become too oppressive, in the eyes of a fast-food employer, there’s always trendy options of robots flipping hamburgers in the wings of an updated economic model possibility.
Jan, you mean that CAPITAL and people WITH Capital will find means around fiscal obstacles. The workers are largely fucked. The surprising thing is that so many people are happy about that.
Ice,
I denoted that remedies sought to get around higher wages were “in the eyes of the employer,” which implies not necessarily looking out for the need of or beneficial for the workers. However, IMO, forcing people into a corner has never worked well in raising cooperation or productivity. It just increases antagonism between factions, where you eventually end up not caring about the bottom line of the other person. That kind of break-down between employer-worker is a negative course of action, something that can possibly be avoided by consensus-building and meeting-in-the-middle solutions.
The workers are not that bad off. They can work for very low wages and then get health care through Medicaid. Well, at least in some states they can.
The WSJ somehow forgot to mention the body of literature showing that minimum wage increases do not decrease employment. I am shocked. I dont think we know what a small increase will do, but it seems pretty clear that if there is an effect it is very small.
Steve
As I wrote in my update, the WSJ’s take is much what one would expect. However, as the Washington Post’s Fact-Checker noted, you’re exaggerating or, at least, expressing unwarranted confidence in the effects. IMO the fairest thing to say is that it’s controversial which is what I tried to do in my post.
However, that a large increase in the federal minimum wage would be likely to have adverse effects on employment is not particularly controversial. The only thing that’s at all controversial is how large the effect would be.