Carpe Diem

Even if an increase in the minimum wage to $10.10 per hour doesn’t cost jobs, it’ll still make unskilled workers worse off

minwage11Given the lively discussion on yesterday’s minimum wage post and President Obama’s comments last week on the minimum wage, I thought it would be a good time to re-post an updated version of this CD post from last February. And for any discussion on the minimum wage, I can’t resist re-posting Henry Payne’s excellent minimum wage cartoon above, as a bonus.

As a thought experiment, let’s assume that there is no significant negative relationship between: a) an increase in the minimum wage to $10.10 per hour as proposed, and b) the number of entry-level jobs for unskilled workers (especially teenagers) working at the minimum wage. Further, let’s assume that an increase in the minimum wage to $10.10 per hour has no significant adverse effect on the teenage unemployment rate. In other words, let’s buy into President Obama’s recent claim that “There’s no solid evidence that a higher minimum wage costs jobs” (which got a “Two Pinocchio rating” by the Washington Post, indicating “Significant omissions and/or exaggerations.”)

Even if we accept those questionable and unrealistic assumptions above that contradict economic theory and most of the empirical evidence on the minimum wage, we cannot therefore conclude that increases in the minimum wage have no negative effects on unskilled workers.” Here’s why:

Even if we assume that the same number of unskilled teenage workers will be employed after a hike in the minimum wage to $10.10 per hour, and assume that there is NO change in the teenage jobless rate, there are many OTHER adjustments that employers would make to offset the monetary increase in labor costs, which would make many unskilled workers worse off following an increase in the minimum wage to $10.10 per hour:

1. Fewer hours – Unskilled and low-skilled workers might still be employed following an increase in the minimum wage to $10.10 per hour, but at a reduced number of hours. Full-time workers now might become part-time workers, e.g. restaurant workers are  now forced to work a split-shift (11 a.m. – 2 p.m. and 5 p.m. – 8 p.m.). Therefore, we would expect a negative relationship between: a) increases in the minimum wage to $10.10 per hour and b) the number of hours worked, which wouldn’t be reflected in teenage employment levels (the BLS counts workers as “employed” whether they work 1 hour or 50 hours per week) or the teenage jobless rates.

As an example, suppose an unskilled, entry-level teenage worker is earning the current hourly minimum wage of $7.25, works 40 hours per week and earns $290 per week. After the proposed increase to $10.10 per hour, the employer reduces the worker’s hours to 26 per week, and he or she earns $262.60 per week, less than before the minimum wage increased.

2. Reduced benefits – Following minimum wage hikes, employers can adjust “total employee compensation” and offset higher monetary wages by reducing fringe benefits such as: a) no longer providing free or discounted uniforms and shifting the cost of uniforms to employees, b) no longer providing free food or food discounts for restaurant employees, c) reducing or eliminating “employee discounts” on the employer’s merchandise, d) eliminating paid holidays, e) eliminating scholarship programs or tuition reimbursement, f) eliminating group discounts available through large companies like McDonald’s, g) eliminating employer sponsored or subsidized health care benefits, h) reducing or eliminating company holiday parties and picnics, i) eliminating or reducing any profit sharing or bonus programs, etc.

As an example, see the list of benefits here for McDonald’s workers in Canada (I couldn’t find a comparable list for the U.S., but I assume it would be similar), and you’ll see that there are many non-monetary fringe benefits offered to even unskilled, entry-level workers (scholarships, free uniforms, food discounts, profit-sharing, stock purchase plan, insurance, etc.), and those benefits could be reduced following mandated minimum wage increases.

MP: You can make it illegal for an employer to pay an unskilled worker less than $7.25 or $10.10 per hour, but you can’t legally force private employers to hire entry-level workers at those artificially-high, government-mandated wages, and you can’t prevent employers from reacting to higher minimum wages in ways that hurt unskilled workers like: a) cutting existing workers’ hours or laying them off, b) reducing non-monetary forms of compensation, and c) investing in labor-saving equipment that substitute automation for unskilled workers. Demand curves slope downward, and the market for unskilled workers is no exception. Employers will respond to increases in the minimum wage in many ways that may not show up as an increase in the teenage unemployment rate or a reduction in the number of unskilled workers employed, but those responses will make unskilled entry-level workers significantly worse off.

Bottom line: Much of the discussion and debate on the minimum wage focuses almost exclusively on whether or not (and how much) government-mandated wage increases for unskilled and low-skilled workers affect employment levels. The economic reality is that there are many potentially negative effects on low and unskilled labor following hikes in the minimum wage by government fiat that won’t be reflected in employment levels, and those economic realities seem to be largely ignored by proponents of government price controls.

One more point: We have all heard the phrase “minimum wage law” so many times, and I’m sure to most Americans the phrase has a positive and compassionate connotation (who could object to helping unskilled workers with no experience make a little more money?). But I think there is a danger here because the ubiquity of the phrase has numbed us to the reality that the compassionate-sounding “minimum wage law” is in reality a government-mandated price control, which prevents private citizens from engaging in mutually beneficial exchanges, with the threat of fines or jail time. Let’s not forget that the pleasant sounding “minimum wage law” gives politicians and government bureaucrats control over the lives of ordinary citizens, and we’re all a little bit less free because of price controls declared by government fiat. If you’re willing to allow and accept government control over the wages for unskilled workers, what other powers are you willing to grant the government, and what other freedoms are you willing to sacrifice?

113 thoughts on “Even if an increase in the minimum wage to $10.10 per hour doesn’t cost jobs, it’ll still make unskilled workers worse off

    • The real question is, can the Democrats use this subject to gain popularity, by getting us to forget about Obamacare.

      Democrats created a rage
      To increase the minimum wage
      They thought it would wear
      Better than Obamacare
      And keep the population assuaged.

    • Unless you think the tooth fairy is involved, the additional money these employees would receive is going to result in someone else having less money to spend. Most probably the purchasers of the products they sell. I’m not sure how that results in any net economic benefit. If it does, then why raise the MW to only $10?

      • It may well.. but people making “rational choices” will allocate their spending in ways that suit their priorities.

        Some will continue to want to have fast food even if it goes up and they may instead reduce their purchase of steak or lottery tickets or big gulps or start buying TP in bulk, etc.

        the point here is that consumers make buying decisions when prices go up but also when they want something and are willing to give something else up to get it.

        the theory with minimum wage assumes a closed system where there is one kind of worker and one commodity being sold and one set of consumers who all make decisions the same exact way and that is price.

        the real world does not work that way.

        • the point here is that consumers make buying decisions when prices go up but also when they want something and are willing to give something else up to get it.

          That’s Seattle Sam’s whole point. That all of our’s point. That’s the point of this post. That’s exactly what economic theory tells us. That’s why there is deadweight loss. That’s why minimum wage is bad.

          In one sentence, you single-handedly torpedoed your entire argument.

          • By the way, Seattle Sam, I hope you don’t think me being condescending right now, but you win the Bastiat Award for today!

            I need a picture of Bastiat giving a thumbs up for situations like this. Anybody good with photoshop?

          • Jon, use this until someone talented comes along.

            I find the subtlety of it amusing, enough to make up for the poor quality.

      • Unless you think the tooth fairy is involved, the additional money these employees would receive is going to result in someone else having less money to spend.

        Absolutely, 100% correct.

        The main populist argument is that the wage hike will come out of “idle” profits of the firms. Of course, we all know profits are not idle. They are reinvested or saved or lent out or given back to owners, or even back to employees. So, whomever bares the cost of the hike, their economic activity will drop, creating deadweight loss.

        • By the way, Seattle Sam, I hope you don’t think me being condescending right now, but you win the Bastiat Award for today!

          I need a picture of Bastiat giving a thumbs up for situations like this. Anybody good with photoshop?

      • it’s the same sort of concentrated benefits diffuse harm sleight of hand that protectionist use to try to impose tariffs, which also have a deadweight loss.

        they point to the “jobs saved” and ignore the loss of real buying power and the fact that it results in a net loss of jobs and consumption.

        this is why the policy driven guys who wish to mislead about min wage try to do one industry studies (often mistimed to miss the adjustment).

        it lets them ignore the knock on effects of price hikes and to provide a misleading partial picture of overall effects.

        • Morg,

          Min. wage is exactly the same as tarriffs. It is protecting the people who have jobs at the minimum wage from people who would accept those jobs at lower wages. No different than the sugar industry protections, or any other industry protections. In this case the “industry” they are protecting is the industry of people empoyed at the minimum wage.

      • The problem is you are arguing with facts. This issue didn’t just suddenly appear because the Democrats really think the minimum wage is that important. They obviously researched the topic and found it popular from an EMOTIONAL standpoint and are now using it as a cynical ploy to gain political traction after the Obamacare disaster.

        And since they have been able to convince the press to no longer report about Obamacare (its all fixed now is the line – though my experience indicates it is not) this may get them back in good graces, with a the “Do you really hate the poor – if not then you should increase the miniumum wage” campaign.

    • I disagree, Peter. For me, the real question is whether or not government can really allow liberty. Why does government at any level need to get in the middle of the free choice by employers to pay the wage they wish to pay and the free choice by a potential employee to accept that wage being offered?

      It’s really about liberty, Peter.

    • John Dewey said it perfectly.

      I’ll ask the Statists on this thread, too:

      Who are you to tell someone who is capable of only producing $8/hr of productivity that he is too useless as a human being to deserve a job?

  1. I promised I’d repost this, so I am (ignore if you saw it from earlier):

    I just want to counter an argument I have seen made over and over and over again (mostly by economically illiterate people, but in some cases by really smart people). This argument bugs me so much because 1) it is illogical and 2) the conclusion does not follow from the presented facts.

    Peak Trader made this argument earlier when he talked about the one business he advised. Others have made similar arguments pointing to Henry Ford. Both of them are wrong.

    Real quick, before I get into the meat of my post: relying on one observation and drawing a conclusion from it is illogical. It’s anecdotal evidence and anecdotal evidence, in a formal logical argument, has no place, unless you can show it is systemic and not an anomaly (“One’s an anomaly, two’s a trend, three’s a rule.” Rule 89 of Murphy’s Guide to Logical Arguments, soon to be self-published on Amazon).

    Ok, let’s get down to business.

    Let’s take at face value Peak’s corollary of the Henry Ford story. This may surprise some of you, but Peak offered good advice in this situation. If I were in a similar situation, it certainly would be in the list of recommendations I would make. Furthermore, it is perfectly in line with standard economic theory and labor economic theory. Here’s why:

    Peak said: “There was a fast growing firm that was also very disorganized, because it was so busy.” (emphasis mine). In other words, the productivity of the workers was increasing! Wages, standard theory tells us, move in concert with productivity. As productivity increased, but wages stayed stagnant, workers left to find better uses of their time (opportunity cost, y’all). Raising wages made sense in this situation. The story is the same for Ford (just move it back about a century).

    The conclusion that some draw from this is that you raise wages, productivity increases. But that is the incorrect conclusion! It puts the cart before the horse. In reality, what was happening is that productivity was already rising, and wages followed.

    I can see why a lot of economically illiterate people would come to that conclusion (by the way, I am not using “economically illiterate” as a pejorative here. I merely mean they do not understand. Just like I am musically illiterate or astrophysically illiterate). But it is irresponsible for those who are economically trained to promote such an obvious fallacy!

    Employment (and thus wages) lag productivity. Here is a chart showing this relationship. You’ll notice Employment (EMPLOY, the green line) lags US Industrial Production (USIP, the blue line) by about a quarter through business cycle highs and lows.

    Given the relationship between productivity and employment and wages, as well as the anecdotal evidence provided to us by Peak and others, and the massive amounts of literature on the subject showing the same thing, it would be incorrect to conclude minimum wage has increases productivity. Even Peak’s own story disproves this conclusion. After all, he said the firm was already busy. If the increase in activity came after, then I could believe his conclusion, but it proceeded the hikes.

    This was a very long post, and I suspect many will not read it.

    So, the tl;dr version: productivity gains lead wages, not the other way around. This is consistent with economic theory and suggests, in order for minimum wage to increase, one must first see productivity gains.

    • Jon Murphy – I agree with you that wage increases will follow productivity increases but I think that the data will also show that productivity increases follow wage increases. Here’s my reasoning for the latter:

      If the gov’t raises the minimum wage then businesses will need to get more productivity out of their work force. Those workers that can raise their productivity to the new minimum can keep their jobs and those who can’t will be replaced with new workers with higher productivity. So a measurement of the productivity of the business’ labor force before and after the increase in the minimum wage is going to show an increase.

      So, some may argue, if both scenarios result in both increased wages and increased productivity then what’s the difference between the two, they should be viewed as equal. The difference is that if productivity increases first the result is that the EXACT SAME set of workers have an increase in their wages. But if a gov’t imposed minimum wage is increased then both the wage increases and productivity increases are for a DIFFERENT set of workers.

      • JamesD, I see it differently. An increase in minimum wage might force the firm to get more productive. But it might not. If all firms in the fast food industry suddenly have an increase in costs, they may simply all raise prices. So, the price which must be paid for all fast food goes up, and the loss is absorbed by all the consumers of fast food. Except that it is not all absorbed. Demand for fast food will decline. Some consumers of fast food will consume less fast food, and may choose to bring their lunch to work. What happens to overall productivity of the fast food workforce then? For those who keep their jobs, no change in productivity. For those who are laid off, productivity drops to zero.

        The other thing that can happen when minimum wage is increased is that jobs can be shifted to other nations. Domestic firms go out of business. No change in productivity.

        • an increase in fast food prices MIGHT reduce demand for fast food but an increase in gas prices might also reduce demand for fast food also.

          but both of those conditions are “might” because people are not automatons and some will buy fast food no matter what while others might not.

          Some might go to a lower priced cell phone plan or get a more fuel efficient care or get a new high efficiency furnace, etc.

          to say that increases in the cost of fast food – for ANY reason is harmful to the economy is a lot like saying bad weather sucks…

          there is no easy way to isolate the things.

          the theories all assume one commodity where price is the only determinant for consumers but the real world is much, much more complex and while some might think the govt is immoral/wrong for increasing the min wage – how many think it ‘s wrong/immoral for Verizon to increase the cost of data plans after buying up the competition?

          the theories are ILLUSTRATIVE – because most of the theories simply do not take into account the myriad real world influences that do affect markets but the theories assume are static or not present.

          you cannot begin to truly understand markets if you disregard all the things that theories disregard.

          it’s just inappropriate to try to use theory to predict markets when the theory does not even account for much of what influences markets.

          • You have a knack for stringing together a bunch of words that mean nothing, Lartard. Your life must be simple. And by “simple,” I mean retarded. Idiot.

        • Don’t forget a minimum wage hike may force businesses to close or prevent new entries into the market.

          Big companies (and Wal-Mart is notorious for doing this) will often use minimum wage legislation to force competitors out of business.

        • John Dewey – First I want to make sure that you realize I’m not arguing at all that there is a benefit in having, or increasing, the minimum wage. I’m just trying to figure out ways in which the productivity metric might go up but for reasons that don’t signal an economic benefit.

          I believe that your examples are of the overall productivity of all workers (those with jobs and those without) or all workers in an entire industry (fast food workers) and my examples were meant to be for just the workers in a limited number of firms, say those is a specific area of a state. I believe that those were the type of examples Jon Murphy was using but I could be wrong.

          Nevertheless, I do agree with you that raising the minimum wage is negative for society as a whole even if it might be beneficial for some.

    • Jon

      Your comments are never tl;dr. I read the whole thing. In my view you are right on the money.

      productivity gains lead wages, not the other way around. This is consistent with economic theory and suggests, in order for minimum wage to increase, one must first see productivity gains.

      In which there is no reason for an arbitrary, mandated minimum wage.

  2. The minimum wage in Ontario is already $10.25 relative to the point about benefits. There are currently calls for a $14 an hour minimum wage here. The number of hours worked seems to be the most affected by full time benefits as all employers of easily transferable jobs limit hours to marginally below full time.

    • The minimum wage in Ontario
      Was much higher than in the Bario
      And though businesses left
      Leaving them all bereft
      The liberals still didn’t feel sorryo

  3. Another thing that hasn’t really been discussed is minimum wage’s effect on future employment. After all, the good economist is not only concerned with the immediate and seen effects, but the future and unseen effects.

    If I may quote Bryan Caplan:

    If the minimum wage unexpectedly jumped to $12 today, the effect on employment, though relatively small, would be blatant. Employers would wake up with a bunch of unprofitable workers on their hands. Over the next month or two, we would blame virtually all low-skilled lay-offs on the minimum wage hike – and we’d probably be right to do so.

    If everyone knew the minimum wage was going to be $12 in 2015, however, even a large effect on employment could be virtually invisible. Employers wouldn’t need to lay any workers off. They could get to their new optimum via reduced hiring and attrition. When the law finally kicked in, you might find zero extra layoffs, because employers saw the writing on the wall and quietly downsize their workforce in advance.

    This is absolutely correct. And we have seen this as well. Most recently, you had the fiasco in DC, where Wal-Mart cut back their future hiring by half in response to the looming minimum wage hike. But, this is just one cast and, as such, is anecdotal. Fortunately, we do also have empirical evidence with which to work:

    Using three separate state panels of administrative employment data, we find that the minimum wage reduces net job growth, primarily through its effect on job creation by expanding establishments. These effects are most pronounced for younger workers and in industries with a higher proportion of low-wage workers.

  4. Unskilled and low-skilled workers might still be employed following an increase in the minimum wage to $10.10 per hour, but at a reduced number of hours

    Well, it didn’t happen in the 2007-2009 era minimum wage increase, did it?

    The 2 lowest paying industry sectors (where the most minimum wage workers would be employed) are retail trade and leisure and hospitality.

    Squint real hard to find a statistically significant reduction in the number of hours, independent of the Great Recession.

    FRED graph

    • Of course average hours per week would be stable, or evern increase if it weren’t for the second worst recession since 1980.

      If you lay off a bunch of unproductive people, the ones who remain behind should be working more. And your chart does seem to indicate this happened – before the recession, and then during the recession hours dropped rather than letting folks go.

      I am not sure what your “counterpoint really is”

    • Marmico’s point was obscure
      and marginally on topic for sure
      It was not well thought out
      Which is what I am complaining about
      But that will just make it easier to skewer.

    • given that what, 5% of such workers are actually minimum wage, it’s essentially impossible to get a SS result even if the result on those with min wages is strong.

      your argument seems like obfuscation.

      • also:

        the basis for your argument is flawed anyhow.

        jobs were increasing in 2007.

        there was a boom on.

        thus, negative effects from a min wage could be swamped by positive effects from the rest of the economy.

        your argument basically boils down to claiming that pressing the brakes in your car while going downhill did not slow you down because you kept moving forward.

        • we can see this effect in the numbers.

          hours were rising in 2006 and the prior couple years then flattened in 2007.

          while this does not prove that min wage was the cause, it does demonstrate that your “no effect” narrative is inaccurate.

          that which was going up stopped going up.

          that sure seems like a change to me.

          and look, here’s more evidence.

          http://research.stlouisfed.org/fred2/series/N4238C0A173NBEA

          in 2007, the new wages hit and employment started to drop.

          thus, we see job losses and a cessation in the growth of hours, both before the recession began.

          the data here is not on your side marmico.

          • Do you know that the difference between 26.1 and 26.0 hours per hour week is noise, not signal?

            What the fuck are you writing about?

            For purposes of argument, Perry admits that if there is zero employment or unemployment elasticity with a moderate minimum wage increase, then there may be negative elasticity through reduced hours and/or benefits.

            Fair enough.

            However, there is no empirical evidence of same through the channel of reduced hours in the 2007-2009 minimum wage increase. In other words, it was a possible channel for firms to “offset” increased hourly wages via reduction in hours but it didn’t happen. So the “offset” channels for firms happened elsewhere.

            Write up about all the empirical reductions in the fantastic benefits available to minimum wage workers so you can rest easy.

          • i’m writing about a guy who is misusing stats to babble nonsense.

            you are using a very truncated data set.

            2007 was an inflection point in both hours worked and in workers employed.

            the 2007 economy was not in recession, yet the retail space saw a flattening of hours and a drop in workers.

            this coincided with a min wage hike.

            this does not prove causality, but it certainly disproves the “nothing happened” argument.

            to see such an effect on employment levels when only a small % of such workers earn min wage and some of those who do were in states with min wages that were already higher than federal and thus unaffected is actually quite remarkable.

            so the real question, is “what the fuck are YOU writing about”.

            it’s just obfuscation and misrepresentation of data.

            the real drop began in hours back in 2005.

            http://research.stlouisfed.org/fred2/series/CES4200000007

            the wages went into effect in 2007, but the law was passed much earlier and companies had time to adapt.

            a drop from 31 to 30 is not noise.

            hours were flat in a range from 1990 to 2005-6.

            then, the min wage law passed, and they dropped.

            http://research.stlouisfed.org/fred2/series/CES4200000007

            as the old adage says, you are entitled to your own opinion, but not your own facts.

            and this

            “However, there is no empirical evidence of same through the channel of reduced hours in the 2007-2009 minimum wage increase. In other words, it was a possible channel for firms to “offset” increased hourly wages via reduction in hours but it didn’t happen. So the “offset” channels for firms happened elsewhere.”

            either means you are a fool or you are dishonest.

            so, mark speaks of a hypothetical.

            you then grab a real world case (and misrepresent it) but ignore the assumption in mark’s comment that job level stay constant, which it didn’t while making inaccurate claims about hours worked (which dropped).

            either you have no idea how ceteris paribus assumptions work or you are simply lying to push an agenda.

            it is also worth noting that mark said that fewer hours was once possible response and you are misrepresenting his position.

            it could also lead to lower benefits or higher prices.

            so, you are basically making up facts to go after your own straw man.

            it’s like watching a dog chase its tail.

            i suspect your response will tell us which.

          • ’m writing about a guy who is misusing stats to babble nonsense.

            you are using a very truncated data set.

            2007 was an inflection point in both hours worked and in workers employed.

            the 2007 economy was not in recession, yet the retail space saw a flattening of hours and a drop in workers.

            this coincided with a min wage hike.

            this does not prove causality, but it certainly disproves the “nothing happened” argument.

            to see such an effect on employment levels when only a small % of such workers earn min wage and some of those who do were in states with min wages that were already higher than federal and thus unaffected is actually quite remarkable.

            so the real question, is “what the fuck are YOU writing about”.

            it’s just obfuscation and misrepresentation of data.

            the real drop began in hours back in 2005.

            http://research.stlouisfed.org/fred2/series/CES4200000007

            the wages went into effect in 2007, but the law was passed much earlier and companies had time to adapt.

            a drop from 31 to 30 is not noise.

            hours were flat in a range from 1990 to 2005-6.

            then, the min wage law passed, and they dropped.

            http://research.stlouisfed.org/fred2/series/CES4200000007

            as the old adage says, you are entitled to your own opinion, but not your own facts.

          • and this

            “However, there is no empirical evidence of same through the channel of reduced hours in the 2007-2009 minimum wage increase. In other words, it was a possible channel for firms to “offset” increased hourly wages via reduction in hours but it didn’t happen. So the “offset” channels for firms happened elsewhere.”

            either means you are a fool or you are dishonest.

            so, mark speaks of a hypothetical.

            you then grab a real world case (and misrepresent it) but ignore the assumption in mark’s comment that job level stay constant, which it didn’t while making inaccurate claims about hours worked (which dropped).

            either you have no idea how ceteris paribus assumptions work or you are simply lying to push an agenda.

            it is also worth noting that mark said that fewer hours was once possible response and you are misrepresenting his position.

            it could also lead to lower benefits or higher prices.

            so, you are basically making up facts to go after your own straw man.

            it’s like watching a dog chase its tail.

          • m writing about a guy who is misusing stats to babble nonsense.

            you are using a very truncated data set.

            2007 was an inflection point in both hours worked and in workers employed.

            the 2007 economy was not in recession, yet the retail space saw a flattening of hours and a drop in workers.

            this coincided with a min wage hike.

            this does not prove causality, but it certainly disproves the “nothing happened” argument.

            to see such an effect on employment levels when only a small % of such workers earn min wage and some of those who do were in states with min wages that were already higher than federal and thus unaffected is actually quite remarkable.

            so the real question, is “what the fuck are YOU writing about”.

            it’s just obfuscation and misrepresentation of data.

            the real drop began in hours back in 2006.

            http://research.stlouisfed.org/fred2/series/CES4200000007

            the wages went into effect in 2007, but the law was passed earlier and companies had time to adapt.

            a drop from 31 to 30 is not noise.

            hours were flat in a range from 1990 to 2005-6.

            then, the min wage law passed, and they dropped.

            as the old adage says, you are entitled to your own opinion, but not your own facts.

          • One other thing to keep in mind is this:

            These numbers include everybody who works for leisure & hospitality firms or retail firms. So, it’s not just the minimum wage workers. It’s everyone from the bellhop to the CEO and everyone in between.

      • And you don’t have to squint to see during that period hours went down. It is a delusional argument.

        Yeah, look at my as my chart as proof except for the part of the chart that really matters, because it is inconvenient to my hypothesis. Followed by – see I slammed ya!.

        Ummm?

  5. Ask any business person this simple question, What do you do when one of your company’s costs of producing your good or service increases? You do not have to be specific about which cost is it, just that is increases. If you think that all of them will answer nothing, or it will have little or no effect on our usage of this item then you have not idea about how a business needs to operate in order to survive.

    Businesses react to changes in the prices of their respective costs of goods/services. To not do so would spell their demise. An increase in min. wage will cause business to react. Some may not decrease their usage of min. wage workers, others will, but none will increase their usage simply because the cost went up. So on net, going forward, businesses will use less min wage workers at a higher min. wage price. That is the only conclusion that makes any sense whatsoever.

    • another way to put it is this:

      faced with an arbitrary increase in labor costs a business has several options:

      1. do nothing. this leads to lower profits, less investment, and lower future growth. it destroys future jobs.

      2. cut costs by cutting hours, cutting benefits, etc. does not harm job level, but it does prevent wage hikes from resulting in more worker income and likely has a negative effect on quality or quantity of output.

      3. increasing prices (which includes making the product lower quality but keeping the price the same). this reduces real income for all who buy from them and reduces real consumption for those who buy and or reduces the number of units sold, which then cuts into profits etc. somewhere, the reduction in real income causes jobs to be lost. it may be the theater next to the mcdonalds, but it’s still jobs losses.

      4. substitute with capital. you replace counter staff with self check out. this hurts jobs.

      there are really not any other choices (apart from various combinations of the above)

      all these cost jobs.

        • re: ” faced with an arbitrary increase in labor costs a business has several options:”

          it don’t matter if the increase is arbitrary or not – only that it is real.

          real increased costs in labor result in impacts – no matter the reason why.

          • actually, it does matter.

            if the rise is due to increased demand for compensation by workers that have become more productive, then you have the option of paying them more and still making higher profits.

            this option does not exist when the wage hike is arbitrary and productivity is unchanged.

          • re: ” … the wage hike is arbitrary and productivity is unchanged.”

            productivity is basically unchanged in Williston, ND where wages are doubled so there is more in play than just productivity.

          • re: ” productivity is basically unchanged in Williston, ND

            Why do you assume that?”

            because they’re doing the same jobs that are done in McDonalds in other places?

            why would you assume otherwise?

            the news reports say that labor is in short supply – even unskilled labor.

            don’t you think think supply and demand also applies to unskilled labor?

          • re: ” Why do you assume constant productivity?”

            oh I don’t but i’m skeptical that productivity in McDonalds varies that much and if it did, McDonalds would certainly want to make use of it everywhere they had a business.

            it’s unlikely that McDonalds operates much differently in high cost areas (beyond just Williston) but if they do why would they not propagate it across all their stores?

            in other words.. why would anyone believe that McDonalds would only benefit from increased productivity in high cost areas ?

            is it not possible that in areas across the country that there is a supply/demand for low skill labor – regardless of productivity?

          • oh I don’t but i’m skeptical that productivity in McDonalds varies

            Why?

            This is a mysterious assumption.

          • “oh I don’t but i’m skeptical that productivity in McDonalds varies

            Why?

            This is a mysterious assumption.”

            not at all… McDonalds is very good at what they do and they take advantage of all experience that benefits them.

            but it’s not JUST McDonalds in Williston. It’s ALL minimum wage jobs.. right?

            do you think by some strange coincidence that every low wage employer in Williston as found the secret to increased productivity and the increased wages is not due to supply/demand?

            that seems to be an odd argument coming form someone who professes to understand economics…

            do you not believe in supply and demand for wages?

          • You are soooooooooooo close. Maybe one more push.

            Why do you assume the increased wages are not due to supply and demand.

            C’mon, you are so so sooooooooooo close

          • re: ” Why do you assume the increased wages are not due to supply and demand.

            C’mon, you are so so sooooooooooo close”

            :-)

            oh I think they ARE! do I get a smiley face now?

          • C’mon, you are right at the door…just walk in. You are so close!

            Take it to the next step: how are supply and demand involved?

          • “because they’re doing the same jobs that are done in McDonalds in other places?”

            but the number of customers has gone way up.

            thus they spend more time serving them and sell more burgers per day (instead of standing around).

            if sales per hour per worker that is a rise in productivity.

          • “because they’re doing the same jobs that are done in McDonalds in other places?”

            but the number of customers has gone way up.

            thus they spend more time serving them and sell more burgers per day (instead of standing around).

            if sales per hour per worker that is a rise in productivity.”

            what makes the McD workers in Williston more productive than a equally busy McD in Philadelphia?

            don’t you think that supply/demand is independent from productivity?

            if labor is in short supply, you may well hire someone whom you’d never ever hire is labor was abundant, right?

    • ” If you think that all of them will answer nothing, or it will have little or no effect on our usage of this item then you have not idea about how a business needs to operate in order to survive.”

      no one says “nothing”. Conversely if you were to claim that ANY cost increase would ALWAYS result in harm ONLY to low skill workers – would that be any more intelligent?

      • True, in some companies, where manufacturing is heavy, they would keep the low skilled worker and fire someone in R&D with a high paying job.

        It has happened to me.

        • re: ” True, in some companies, where manufacturing is heavy, they would keep the low skilled worker and fire someone in R&D with a high paying job.”

          the point is that there are more than one impact or ways that the impacts are accommodated.

          It’s ignorant to insist that the impact can only be one thing no matter what – if the govt is the cause.

          • I gave you a detailed summary of how it works a few weeks ago and you blew me off.

            ND is a special case because the McDonald customers are also especially wealthy compared to other areas and so McDonalds in that very specific case can raise prices to cover the extra labor.

            But to point out the one off case, and say it works the same everywhere, like South Central LA, is folly.

          • re: ” ND is a special case because the McDonald customers are also especially wealthy compared to other areas and so McDonalds in that very specific case can raise prices to cover the extra labor.”

            no it’s not. for you guys, ANYTHING that does not “fit” your “theory” is a “special case”.

            the truth is that labor is ALSO a supply/demand item that is separate from productivity.

            “But to point out the one off case, and say it works the same everywhere, like South Central LA, is folly.”

            never said it worked everywhere. I pointed out that labor costs can rise – with no gov mandates.. and I ask when that happens what does the employer do? does he lay off because wages have gone up?

            we’re talking about basic economic principles here – not “special cases”.

            if the cost of wages goes up – what do employers do?

        • Harold – you’re ignorant guy. your ideology won’t let you actually think .

          businesses have a LOT of options when their costs increase.

          to insist that they have but one option is ignorant.

          • no larry, what’s ignorant is to keep insisting that anyone claimed they have only one option when no one has done so but you.

            you are just arguing with a straw man.

            seriously, do you even read things before you comment?

            “Much of the discussion and debate on the minimum wage focuses almost exclusively on whether or not (and how much) government-mandated wage increases for unskilled and low-skilled workers affect employment levels. The economic reality is that there are many potentially negative effects on low and unskilled labor following hikes in the minimum wage by government fiat that won’t be reflected in employment levels, and those economic realities seem to be largely ignored by proponents of government price controls.”

            -mark perry from this very post.

            so, at what point are you going to give up this preposterous insistence on mischaracterizing the arguments of others?

            harold has you nailed.

            you are simply not in the conversation that is actually going on.

          • re: ” no larry, what’s ignorant is to keep insisting that anyone claimed they have only one option when no one has done so but you.”

            go back and read these posts Perry has posted Morg.

            “you are just arguing with a straw man.

            seriously, do you even read things before you comment?”

            I’m responding DIRECTLY to the inane things that Mark Perry posts.. here

            “Much of the discussion and debate on the minimum wage focuses almost exclusively on whether or not (and how much) government-mandated wage increases for unskilled and low-skilled workers affect employment levels. The economic reality is that there are many potentially negative effects on low and unskilled labor following hikes in the minimum wage by government fiat that won’t be reflected in employment levels, and those economic realities seem to be largely ignored by proponents of government price controls.”

            -mark perry from this very post.”

            he gave qualifications THIS TIME.

            do you want me to go back and bring up the prior posts?

            so, at what point are you going to give up this preposterous insistence on mischaracterizing the arguments of others?”

            where did this come from:

            ” Even if we accept those questionable and unrealistic assumptions above that contradict economic theory and most of the empirical evidence on the minimum wage, we cannot therefore conclude that “increases in the minimum wage have no negative effects on unskilled workers.” Here’s why:

            Even if we assume that the same number of unskilled teenage workers will be employed after a hike in the minimum wage to $10.10 per hour, and assume that there is NO change in the teenage jobless rate, there are many OTHER adjustments that employers would make to offset the monetary increase in labor costs, which would make many unskilled workers worse off following an increase in the minimum wage to $10.10 per hour:”

            where did this come from? No one that I know assumed ANYTHING about teen unemployment rate but I can go back on PLENTY of Mark Perry posts that make this claim exactly!

            harold has you nailed.

            Harold is another simplistic idiot who believes that basic theory can explain the real world and reads and believes the simplistic pablum that Perry posts here.

            you are simply not in the conversation that is actually going on.

            from what I understand Morg, more than 1/2 of legitimate PHD mainstream economists have similar doubts.

            you believe what you want to believe guy. you have no objectivity.

            if the real world was one commodity and all workers with the same skills and all customers just buying one commodity and the sole determinate for that commodity was price – you’d be correct.

            but that’s not the real economic world and simpletons like Harold just believe.

          • businesses have a LOT of options when their costs increase.
            to insist that they have but one option is ignorant.

            Talk about ignorant. I did not say that they only have one option. Read more carefully guy!

            Some will do nothing, others may adjust with fewer hours, some others will have less min. wage employees. No firms will use more min. wage employees solely because min wage went up. So ON NET, GOING FORWARD, businesses as a whole will use fewer min. wage employees at a higher min. wage than they would at a lower min. wage.

            To think otherwise is just plain ignorant.

          • go back and read these posts Perry has posted Morg.

            You mean like this one? Who know, the one where he explicitly states: Even if we assume that the same number of unskilled teenage workers will be employed after a hike in the minimum wage to $10.10 per hour, and assume that there is NO change in the teenage jobless rate, there are many OTHER adjustments that employers would make to offset the monetary increase in labor costs, which would make many unskilled workers worse off following an increase in the minimum wage to $10.10 per hour

            By the way, in case you’re too stupid to realize, this is today’s post.

            See, this is exactly why everybody thinks you’re a joke!

          • It IS INDEEd today’s post. Now go back to his previous posts and find similar verbiage… especially Sowells..

          • Why do you guys waste everyone’s time by arguing with Larry? I admit that I’ve fallen into that trap. But maybe we should all take the advice Don Boudreaux gave us about Larry and Ballela and others: just ignore them.

          • the most important reason Jon Dewey is to realize that basic theory is not appropriate for use in real world scenarios that the basic theory holds as null.

            trying to confirm your own bias is not how you learn.

            the economics world is not so simple as the basic theory and you should want to know why.

          • It’s “instructive” to realize that quite a few mainstream PHD economists will tell you that basic theory is “instructive” only for a perfect world.

            beyond that, you have to think.

            you have to realize that the real world especially in economics is not pure theory.

            trying to understand the real world by clinging to a basic theory is for religious types but not those who are seriously interested in answers.

            that’s why the guys hear blather from internet caves.. and the real world has real economists to do things differently.

            according to the yahoos here, every single OECD country o the planet is run by morons.

            it’s a “good” thing those guys are here.. it does limit the damage.

          • John Dewey – you say that Sea Tac is a special case. Others say that Williston, ND is a special case.

            so.. anything that violates the basic theory is “special case”?

            what good is a theory when you have to make excuses for it?

            if you ever did work with real models – you’d surely know that the basic theory is not good enough and that’s why you create models.

            you start with the theory then you add in the things the theory says are null.. but in real world are not.

            If you tried to launch a missile with pure theory, you’d have a disaster.

            the reason why is that the theory is for a perfect world and we do not live in that perfect world and you have to account for it if you really want to understand and not rely on simplistic concepts.

            how much do you really want to understand?

          • larry-

            you are just talking nonsense.

            these “posts” you allude to do not exist.

            why would i run off on some snipe hunt?

            you are the one making the ridiculous claims.

            either back them up with an actual link or shut up.

  6. I’ve been walking around the food court at Sea-Tac airport. The majority of the people working here are non-caucasions. Assuming the $15 minimum wage issue survives the recount, a lot of these people will lose their jobs next year. One store manager that I spoke to said if he has to pay $15/hour he would fire about half his current staff and replace them with “more productive” people that he can hire at the hire wage. It was pretty clear he meant whites who can speak English.

    • re: ” Assuming the $15 minimum wage issue survives the recount, a lot of these people will lose their jobs next year. One store manager that I spoke to said if he has to pay $15/hour he would fire about half his current staff and replace them with “more productive” people that he can hire at the hire wage. It was pretty clear he meant whites who can speak English.”

      okay…. so they pay more … now how do they do that?

      do they charge more for food?

      SeTac would be an EXCELLENT study.

      SS – are you saying that overall employment will not change or will it reduce or increase?

      would you change your mind about what you think might happen if someone actually does a true before/after study and the results are different than what you thought based on theory?

      • The gentleman I spoke to said he would reduce his staff by some amount. He expects that by replacing non-whites he will be able to do that, but not enough to offset the higher wage rate. And Sea-Tac would be a ridiculous “test”. It’s an airport! Hard to imagine a place that would be less representative.

        • re: ” And Sea-Tac would be a ridiculous “test”. It’s an airport! Hard to imagine a place that would be less representative.”

          then basically you’re admitting that the basic theory does not always apply….

          if the theory works as people insist… it does..

          it would seem that if you artificially increase the salaries at any business that it would result is layoffs…

          otherwise.. I’m looking at about 40 or more posts by Perry that need to be revised.

          • No it applies just the same. In the airport the workers will get fired. The concessionairs do pass on some extra cost to the consumer – but then they do have lower sales. I for one fly about once a month, and will not pay $10 for a McDonald’s meal at the airport, so I pick one up on the way – lost sales. Even in airports they can’t get all the sales they would like by raising rates.

            And the money they charge extra, is not because of higher wages, but the high rent the airports charge for the captive audience. In the end I think the big loser will be Sea-tac, which will have to drop the rents to make sure there aren’t vacancies in the terminals.

          • re: ” No it applies just the same. In the airport the workers will get fired. The concessionairs do pass on some extra cost to the consumer – but then they do have lower sales.”

            how can they meet the demand if they fire people?

            so if you do a before and after snapshot – we are saying that they’ll sell less products and have less workers, right?

            ” I for one fly about once a month, and will not pay $10 for a McDonald’s meal at the airport, so I pick one up on the way – lost sales. Even in airports they can’t get all the sales they would like by raising rates.”

            I’m the same way but things at airports are outrageous no matter what the minimum wage is because they know you are a captive customer.

            “And the money they charge extra, is not because of higher wages, but the high rent the airports charge for the captive audience. In the end I think the big loser will be Sea-tac, which will have to drop the rents to make sure there aren’t vacancies in the terminals.”

            so the costs to the burger business are higher. How do they meet demand without employees?

            I’m trying to understand why if the govt increase minimum wage – workers are laid off but if the airport charges high rent – something else happens. why?

          • All I can tell you is that at this one store there will be fewer people working. I don’t imagine it will be very different at the others. And the people let go will be mostly the sorts of people minimum wage proponents purport to care about.

          • re: ” All I can tell you is that at this one store there will be fewer people working. I don’t imagine it will be very different at the others. And the people let go will be mostly the sorts of people minimum wage proponents purport to care about.”

            let me be clear. I could give a rats back end for CONCept of “poor” minimum wage workers.. as justification for increasing minimum wage.

            but I DO think we owe it to ourselves NOT to pretend about theory… vs real world.

            there are LOTS of reasons why costs to businesses go up.
            Local govt will add a sales tax. the water/sewer folks will have a rate increase. The electric company will increase rate.. there will be a drought that reduces beef supply, etc, etc, etc.

            all of these things affect businesses costs.. and businesses do what they have to do to accommodate those costs but what they will not do is lay off people when they still have demand for their products even if their products increase in price – like they do in Williston, ND.

            you pay the higher labor costs – you pass that on to customers. It there is elasticity, then you’re good to go. If not, then the demand reduces and THEN you cut back on staff but not before then.

        • And that’s what happens, Sam. The least productive workers, the ones earning the lowest wage, are shipped off. Bye-bye.

          Ergo, the argument that minimum wage helps the poor is bunk.

          • in a fast food environment.. there is not exactly – a higher level of productivity beyond the basic job.

            you can only flip so many burgers per minute or deep fry so many french fries or wait on so many customers.

            even basic minimum wage jobs require some level of competency … but the difference between the highest productive worker and the lowest is no big.

            there is only so much you can do in a certain timeframe.

            workers that do show more effort – usually get some increases… and are no longer “minimum” but what exactly is expected for a “minimum wage” worker does not change that much I would not think.

            if you want a higher grade worker, you’re going to have to pay more .

          • in a fast food environment.. there is not exactly – a higher level of productivity beyond the basic job.

            Why do you assume that?

          • He assumes that because he completely ignores the chance for advancement within the company.

            The same flawed reasoning applies to Piketty and Saez.

  7. There is some excellent commentary on this thread, and I’ve stated this elsewhere: this is why it is extremely difficult to disabuse mostly “progressive” (regressive) leftists of their economic misconceptions.

    Here you can see the length and depth of Larry’s (and others’) economic illiteracy and misunderstandings laid bare. I am not saying this derogatorily. The counterarguments and reponses to his economically demented (ok, that’s derogatory) and misguided postings are far, far longer than his original statements, and require more detailed and insightful thought and effort.

    That is often why you don’t see retorts to him (or others), and simply snarky smartass comebacks.

    But very well done here, all, even though that effort is wasted on Larry. It confirms my faith in the expert-level economics knowledge in my fellow commenters here.

    • what’s “derogatory” is trying to take a basic economic theory that assumes all real world influences to be null – and expect it to accurately predict outcomes.

      the theory assumes a perfect market of one commodity of which this is but what determinant – price and the real world is much more complex than that.

      and this is not me. this is quite a few PHD level economists that make this exactly point.

      to take a theory and claim that it indicates a certain outcome is dumb when the theory does not even take into account the real world influences in play.

      we talk about supply and demand for labor in Williston, ND but the reality is that in ALL markets there is a supply and demand for labor – and it varies.. in some places there is an excess of labor. In other places, labor is more scarce.

      but you basic theory does not even distingish the fact that there ARE …DIFFERENT labor markets… it ONLY knows a theoretical market… not a real one…

      if you ask anyone here to actual put boundaries on a given market where the minimum wage issue is an issue – how many different answers would you get ?

      I give credit to these guys:

      they ACTUALLY DID go out and define the boundaries markets.

      http://www.irle.berkeley.edu/workingpapers/157-07.pdf

      It’s not enough to “believe” the “theory”. You should want to know real world results.

      theories can help explain/illustrate real world dynamics but they cannot predict real world results when the theory does not even recognize real world influences that affect markets.

      the situation in Williston, ND is actually an opportunity to look at the real world when wages do increase – as a direct result of supply/demand…and in turn – affects the minimum wage paid – totally independent of skills or productivity…. it’s purely a supply/demand scenario for minimum skill workers.

          • but they do it in the whole oecd!
            which seems like it proves it to me
            it’s just theory, guy!
            though i cannot say why
            and sense you’ll not get me to see.

            right?

            right?

          • LOL.

            the reality lar, is that you have no idea what you are talking about here, make up facts, commit endless logical fallacies, and seem unable to string basic concepts together in a manner that makes sense.

          • Question B: The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy.

            (answers from a panel of 50 expert economists):

            strongly agree – 5%
            agree – 42%
            uncertain 32%
            disagree 8%
            strongly disagree 3%

            Morg – are you not in the 3% guy?

          • gee larry, 50 “expert economists”?

            picked by whom?

            that sample result is not congruent with the actual economic literature on the topic.

            i can find you 50 guys to say damn near anything.

            i note there is zero attribution in your comment.

            your problem lar, is that you are way out of your depth here and are repeatedly falling for any little bit of agenda driven charlatanry you stumble across on the internet.

          • @Morg – there is AMPLE EVIDENCE that the issue is disputed among economists and you are in that 3% guy not the mainstream.

  8. I published a letter to the editor of our local paper in New Jersey about the state’s recent minimum wage referendum, explaining how pasage would mostly hurt students and unskilled inner city teenagers (based on statistics on who was actually working at the minimum wage).

    Someone wrote a follow up letter saying that when states in the past have raised their minimum wage it didn’t change the unemployment rate compared to neighboring states. While I think there are good arguments against that point of view, I would still love to know of anyone who is tracking New Jersey unemployment rates (particularly for inner city teenagers) before and after the recent rise in the NJ minimum wage that was voted in this November. The best argument is to demonstrate an increase in unemployment when the minimum wage went up is to show an actual number. Anyone keeping track? I know it might be hard in the sense that the teens that were unemployed before are still unemployed, but there should still be some effect on the margin.

    • Dave, here’s a comment I posted over at Café Hayek about how a minimum wage hike in Washington raised unemployment:

      ———————————————————-

      A 2011 study by Debra Burke, Stephen Miller, and Joseph Long showed the 8 year impact in the state of Washington of a 48% hike in the minimum wage:

      “The corresponding trends between minimum wage rate changes and unemployment rates on both sides of the Washington-Idaho border are large and readily observable. In 1998, when both states still had the same minimum wage rate, the border unemployment rate in Washington was 40% lower than the border unemployment rate in Idaho.[104] By 2006, Washington’s minimum wage rate was 48% higher than that of Idaho and the unemployment rate of Washington’s border counties was 38% higher than that of the Idaho counties.[105] The comparison between contiguous counties only strengthens the impact of that observation. Net unemployment in the Washington border counties increased by over 22% between 1998 and 2006; over the same period, net unemployment in Idaho border counties fell by 48%.[106] These trends strongly suggest that when a minimum wage rate increase is large enough, higher unemployment rates will follow, especially when compared to unemployment trends in contiguous counties without any minimum wage increase.”

      http://www.law.gonzaga.edu/law-review/2011/09/07/minimum-wage/

      Please note that these findings are exactly the opposite of what Daniel Kuehn found in the Dube-Lester-Reich study of contiguous counties. As I commented back in October about the Dube-Lester-Reich study:

      “David Neumark and William Washer … find serious flaws with the methodology used by Dube-Lester-Reich. In particular, Neumark and Washer show that it takes very specific controls by Dube-Lester-Reich to make the negative effects of minimum wage laws disappear.”

      I have found no such scholarly criticism of the Burke-Miller-Long study.

      • Do Minimum Wages Really Reduce Teen
        Employment? Accounting for Heterogeneity and
        Selectivity in State Panel Data

        http://www.irle.berkeley.edu/workingpapers/166-08.pdf

        you can find “studies” by PHD economists with opposite conclusions.

        the point being that there are disagreements among economists as to effects.

        but when someone holds a point of and considers ALL of the studies that are in contradiction to their beliefs as “flawed” what does that mean?

        Does it not mean that you no longer have an objective view?

        I see these contradicting studies as proof that it’s not such a simple thing to decide – in part because you’re not dealing with just a theory – you’re dealing in a very messy real world with a lot of moving parts

        AND

        most people think there are a range of other possible impacts – for instance – increasing prices OR a combination of things that may or may not cause staffing to be reduced.

        when you KNOW there are a range of possible effects, how do you decide what they are – or are not?

        the most convincing studies to me would be before/after studies of the staffing levels of the same exact stores that increase wages. The further away from that you move, like regional unemployment of teens, the more you have contaminated the study.

        It would also be effective to study stores that sit on borders of which the opposite sides have different minimum wages – again looking at the staffing levels of the stores – not regional unemployment which has far more moving parts.

        to me it boils down to this. Do you really want to know the answer OR are you seeking only studies that confirm your own beliefs?

        real economists want to know the truth even if it contradicts their own beliefs. The want the knowledge.

      • The Gonzaga study is essentially about Spokane,WA and Couer d’Alene, ID.

        Spokane was badly hurt by the closure of the Boeing and Kaiser manufacturing plants and its supply chains in the early 2000s. Unless that variable is controlled for (which it isn’t), the study doesn’t say much about the minimum wage and the unemployment rate.

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