Minimum Wage Graphic Image
While economists are famous for their disagreements (and their incompetent forecasts), there is universal consensus in the profession that demand curves slope downward. That may be meaningless jargon to non-economists, but it simply means that people buy less of something when it becomes more expensive.
And this is why it makes no sense to impose minimum wage requirements, or to increase mandated wages where such laws already exist.
If you don’t understand this, just do a thought experiment and imagine what would happen if the minimum wage was $100 per hour. The answer is terrible unemployment, of course, which means it’s a very bad idea.
So why, then, is it okay to throw a “modest” number of people into the unemployment line with a “small” increase in the minimum wage?
Yet some politicians can’t resist pushing such policies because it makes them seem like Santa Claus to low-information voters. Vote for me, they assert, because I’ll get you a pay raise!
All of this sounds good, and it may even be the final result for some workers. But there’s overwhelming evidence that you get more unemployment when politicians boost the minimum wage.
There are no “magic boats.” In the real world, businesses only hire workers when they expect that additional employees will generate more than enough revenue to offset their costs. So when politicians artificially increase the cost of hiring workers, there will be some workers (particularly those with low skills) who become redundant.
And that’s exactly what we’re seeing in cities that have chosen to mandate higher minimum wages.
The Wall Street Journal opines on Seattle’s numbers.
Seattle’s increase last year seems to be reducing employment. That’s the finding of a new report by researchers at the University of Washington. The study compared nine months of 2015 in Seattle, where the wage is ticking up gradually and hit $13 an hour in January, with similar areas elsewhere in Washington. …The researchers found that the ordinance decreased the low-wage employment rate by about one-percentage point. …The ordinance “modestly held back” employment of low-wage earners, and hours worked “lagged behind” regional trends, on average four hours each quarter (or 19 minutes a week). Many such individuals moved to take jobs outside the city at “an elevated rate compared to historical patterns,” says the report. …None of this will surprise anyone who understands that increasing the cost of something will reduce the demand for it. Then again, that concept seems to elude both major presidential candidates, who have floated national minimum-wage increases.
By the way, it’s not just Trump and Clinton supporting this destructive policy. Mitt Romney also was on the wrong side back in 2012.
And it goes without saying that Obama has been a demagogue on the issue.
Sigh.
Let’s examine evidence from another city. Mark Perry of the American Enterprise Institute looks at what has been happening in Washington, DC.
Since the DC minimum wage increased in July 2015 to $10.50 an hour, restaurant employment in the city has increased less than 1% (and by 500 jobs), while restaurant jobs in the surrounding suburbs increased 4.2% (and by 7,300 jobs). An even more dramatic effect has taken place since the start of this year – DC restaurant jobs fell by 1,400 jobs (and by 2.7%) in the first six months of 2016 between January and July – that’s the largest loss of District food jobs during a 6-month period in 15 years. Perhaps some of those job losses were related to the $1 an hour minimum wage hike on July 1, bringing the city’s new minimum wage to $11.50 an hour. In contrast, restaurant employment outside the city grew at a 1.6% rate in the suburbs (and by 2,900 jobs) during the January to July period. …While it might take several more years to assess the full impact, the preliminary evidence so far suggests that DC’s minimum wage law is having a negative effect on staffing levels at the city’s restaurants. At the same time that suburban restaurants have increased employment levels by nearly 3,000 new positions since January, restaurants in the District have shed jobs in five out of the last six months, with a total loss of 1,400 jobs during that period (an average of nearly 8 jobs lost every day). The last time DC experienced restaurant job losses in five out of six consecutive months was 25 years ago in 1991, and the last time 1,400 jobs were lost over any six-month period was 15 years ago during the 2001 recession.
Here’s a chart looking at how restaurant employment in DC and the suburbs used to be closely correlated, but how there’s been a divergence since the city hiked the minimum wage.
As Mark noted, we’ll know even more as time passes, but the net result so far is predictably negative.
For additional background info, this video is a succinct explanation of why minimum-wage mandates are such a bad idea.
