Oddly, Supply and Demand Still Count for Something

In the Wall Street Journal economist David Neumark comments on the “fast food minimum wage” going into effect in California:

Advocates claim that a higher fast-food minimum wage (and higher minimum wages generally) will reduce poverty. Again, they are highly selective in citing research, relying on a single study published in 2019 by Arindrajit Dube that contradicts most other work in finding a large poverty reduction effect from higher minimum wages. But Richard Burkhauser and co-authors have evaluated this work and found that its conclusions were highly sensitive to the period studied and the factors controlled for (or not) in the analysis.

The best evidence much more decisively shows that minimum wages don’t reduce poverty. Minimum wages obviously raise wages for some workers. But most minimum-wage workers aren’t poor, and in a very large share of poor families nobody works, so the minimum wage, even under the best of circumstances, can’t help poor families much. And the job-loss effect of minimum wages only makes things worse.

California’s fast-food minimum wage will make a bad policy even worse. It will reduce employment at fast-food restaurants, while failing to lift families out of poverty. Other research shows that it will raise fast-food prices and suggests these price increases are borne disproportionately by low-income families.

It’s unclear to me how you can increase the number of unskilled workers and increase the minimum wage even for a segment of the labor force without it having perverse effects. They’re increasing the supply of labor and simultaneously pushing up the support price.

0 comments… add one

Leave a Comment