I can respect that it's difficult to isolate for the variables and testing the effects of minimum wage (ie you would have to isolate the "value" created from the various businesses like the food service companies), but the laws of supply and demand are pretty straightforward. Price floors (e.g. minimum wage) result in surpluses, price ceilings (e.g. rent control) result in shortages.
From an employer's perspective it's easy to see that the more you pay the more interest you'll get from those who can perform work better. The idea that employers would naturally exploit their workers is a bit silly given the ability for those workers to look elsewhere. And they do - which is why real wages have risen substantially over time (capturing some of the value in productivity improvements) to the point that in many cases entry level/effective minimum wages greatly exceed legislated minimum wage. The idea however that government should impose a choice means higher costs on society - in this case borne by the lowest wage earners as they are the ones who are least employable for whatever reason (by definition), means that fewer get hired.
They make it illegal for you to hire someone at a rate below the minimum wage, even if they agree to it.
They force unemployment of those with skills below the average minimum-wage employee's.
They pick an arbitrary minimum wage mandated by government fiat, instead of determined in the marketplace. Such an arbitrary wage suffers from the economic calculation problem, where rational allocation of goods is impossible without free markets and prices to communicate supply and demand.
Changes in the minimum wage affect other things, like the price of food in restaurants, in way which is nonlinear from the actual supply and demand of those goods and services. It's as though there is pressure for prices to move upwards or downwards in response to market conditions, but the minimum wage, or other prices directly affected by the minimum wage, are not allowed to respond to those market conditions, and so a shortage or oversupply occurs.
Most data doesn't tell us anything though. It is quite hard to find data that is interesting and relevant at the same time.
The minimum wage might well have led to a worse outcome for those workers that is being masked by some other effect. In theory a minimum wage rise will have no impact (good or bad) if the equilibrium wage is high enough.
It strains credulity to think that New York's restaurant scene is thriving because of the minimum wage. There is clearly something else going on.
Well, there is research suggesting that a minimum wage has unexpected effects. The economics 101 take is that raising the minimum wage will increase unemployment, but that theoretical view is not well supported empirically.
This is one of those topics that really shows economics being the "dismal science."
The "economics 101" ideas applied to price floors (which ie what a minimum wage is) predicts lower volume (fewer jobs/hours). It doesn't predict how much, so it still might be worth having a minimum depending on the demand curve (which is never really known). OTOH, even the biggest proponents of minimum wage would admit that at some level minimum wage makes things worse. Most would agree that a $1,000 minimum wage would cause unemployment. Still, there's no real way of determining the "correct" amount, and even proponents seldom come up with a figure.
Anyway, being the dismal science economists just don't have any good way of settling this. This isn't the first study on the topic. If you look at it from a meta-research perspective, it looks like a null result with findings on both sides.
If you believe in supply and demand, minimum wage increases increase spending power in a group of people that tend to spend all of their money. This increases aggregate demand, leading to more jobs.
I'm not saying you can increase minimum wage as high as you like with no downsides, but it's more complicated than you're making it out to be.
The relationship between minimum wage and employment is profoundly complex and the empirical data is inconsistent with the simple supply and demand model many believe in. There are many documented cases of increases in minimum wage resulting in reduced unemployment.
Mentioning minimum-wage laws as a contributing factor isn't quite 'blaming' them. Also, even minimum-wage proponents can (and often do) admit there are tradeoffs involved with such mandates, they just think those tradeoffs are worth it.
You've guessed right that I don't personally think the tradeoffs of price-controls on wages are worth it. (Among other problems, the very young & low-skilled, who get priced out of essential starter jobs, are hurt more than those who remain employed at the higher wages are helped.) But we don't have to agree on that to reach common understandings on other particulars of how employers and employees adjust to constraints.
A lot of this points out why I don't understand "left-leaning" folk.
When the minimum is forced up, being better than the minimum gets harder.
A lot of that can be drawn out in a straightforward way on an introductory Economics class chalkboard. It makes sense & no one rational would argue that regardless of the lvel, employment would stay the same. At $100 p/h, the level of employment would decrease. On the chalkboard, the biggest most straightforward effect would be that most jobs paying less then that would cease to exist. The other effects of pushing the remaining low pay jobs over the line & a few of the ones close to it up a bit seem to have a hard job of it to make the whole thing worthwhile.
But the real world experience doesn't paint such a grim picture. Minimum wage changes, have not been shown in real world case studies to have very much of an effect on employment rates. The effects are usually cloudy & cannot be distinguished from the effects of say, a credit crisis.
Now economists can rationalise this in lots of ways. Maybe the labor market tends to place employers of low wage employees in better bargaining positions, so when you look at the difference between what a worker is willing to earn (there is no floor other then what his other options set) & what an employer is willing to pay (the marginal output of that labor), they settle closer to the bottom. Perhaps the various wildcards of social & psychological effects of the difference between a minimum wage job & welfare supplements or some such wishy-washy effect is screwing with things. You can even come up with all sorts of circular sounding arguments about stimulating spending by putting money in the hands of the poor. To put it on the chalkboard you need to talk abut it in terms of information availability, market power, mobility, secondary effects etc.
But when you take a step back, there just aren't many good examples of minimum wage humiliating itself in the same way that grain price floors or wool subsidies have. For such a heavy handed economic policy it has remarkably little catastrophe that goes with it. No stockbroker surpluses being dumped on unsuspecting thord world markets. No stockpiles of teachers that need to be refined into ethanol at a cost of 20X higher then cane ethanol.
The automatic rejection of minimum wage increases based on the classic economic theories is not rational.
So how come the studies find that by introducing minimum wage no jobs were lost, it just increased prices by a very small amount?
A 2004 study of available literature, “The Effect of Minimum Wage on Prices,” analyzed a wide variety of research on the impact of changes in the minimum wage. The paper, from the University of Leicester, found that firms tend to respond to minimum wage increases not by reducing production or employment, but by raising prices. Overall, price increases are modest: For example, a 10 percent increase in the minimum wage would increase food prices by no more than 4 percent and overall prices by no more than 0.4 percent, significantly less than the minimum-wage increase.
In a 2010 study published in Review of Economics and Statistics, scholars Arindrajit Dube, T. William Lester and Michael Reich also looked at low-wage sectors in states that raised the minimum wage and compared them with those in bordering areas where there were no mandated wage changes. They found “strong earnings effects and no employment effects of minimum-wage increases.”
A 2012 paper published in the Journal of Public Economics, “Optimal Minimum Wage Policy in Competitive Labor Markets,” furnishes a theoretical model that lends some support to the empirical insights of Krueger/Card. The paper, from David Lee at Princeton and Emmanuel Saez at UC-Berkeley, concludes: “The minimum wage is a useful tool if the government values redistribution toward low wage workers, and this remains true in the presence of optimal nonlinear taxes/transfers.” However, under certain labor market conditions, it may be better for the government to subsidize low-wage workers and keep the minimum wage relatively low.
And yet there is, at very best, mixed evidence that minimum wage increases cause increased unemployment. Particularly in the food sector: people still need to eat, and they need to eat where they are. Inflation isn't very high either.
The problem with minimum wages is that they don't do anything. There is a mild psychological effect that forces people below minimum wage to find a new job. However, if the economy doesn't have enough jobs above minimum wage, then it does nothing.
If the government offered jobs at the minimum wage there would be an effective price floor for wages. Better yet, if those government workers spend their income they can drive economic demand which ends up creating jobs above minimum wage. Eventually every job pays more than minimum wage and nobody is dependent on the jobs guarantee.
Source that a higher minimum wage leads to those undesired outcomes. My best reading of research into the effects of minimum wage increases is that it doesn't lead to higher unemployment, but may result in reduced hours, which is a different kind of raise.
This is the "everything is complicated" view where you can find weird effects to support whatever you want if you look at enough different examples.
For example, when major employers are large inefficient bureaucracies with high margins, raising the minimum wage doesn't result in those entities laying off many if any workers, because they can just eat the cost and keep going as if nothing changed.
But when the employers are lean and operate in markets with high elasticity of demand, as in this case, it does directly result in unemployment. Because there is no way to pay more without charging more, but charging more reduces demand.
Notice that this is another way of saying that minimum wage has more negative impact on efficient companies than inefficient ones, which I take as another argument against it.
If you raise the price of something–anything–it lowers demand. That's why minimum wage laws create unemployment.
> It may or may not yield less employment depending on elasticity.
If you're earning your employer $10/h and the minimum wage rises to $11, you will not have a job. Either right away if the employer realizes it, or eventually when they go out of business if they don't.
Adding elasticity to the equation unnecessarily complicates this. Some things have elastic demand, others have inelastic demand. Why focus only on the relevant case for the point you're making? The overall effect of a price increase is decreased demand.
> If businesses are flush with profits, then they'll eat the higher labour input and that's it
Profits have nothing to do with it. If a business has employees at some wage and the minimum wage rises above that wage, they will, at least eventually, replace the low-wage employees with new ones (or with automation) that add at least as much value as they are paid (or cost). Profits don't magically make businesses waste money on inexperienced employees where they could otherwise be more efficient with more experienced employees at the same price or with automation.
> Otherwise, prices may rise
Not without an associated drop in demand.
> You can see this more acutely in healthcare, where there are stronger regs, because the power asymmetry is bigger aka the supplier has the power of 'life or death' over the customer.
Assuming you are talking about the US, there is no difference there. The supplier has power because they are able to limit the supply, e.g. the AMA limiting (with govt help) the number of doctors who graduate every year. https://blog.petrieflom.law.harvard.edu/2022/03/15/ama-scope...
You're right in pointing out that there might be unnacounted variables which might confound the impact of the minimum wage hike. But the majority of people running around saying that higher minimum wages cause unemployment do so on the basis of an overly simplified model (the standard partial equilibrium from Econ 101, where they're looking only at supply and demand curves for labor under complete information).
Once you start weaking some conditions (using a search and matching framework instead of contracting under complete information) and adding confounding variables (like economy wide-effects or consumer credit restritions), not only your conclusions might change, but you might actually get a better model. Academics have some grasp of this and are much more subdued in their conclusions, specially when coming from pure theory. Pundits, however, are paid to be clueless. And I think this is the true insight of this submission.
I'm explaining it through logic because statistical correlation is especially complicated and difficult to tease out in social science. You can't take a snapshot of one city, pre and post minimum wage and definitely conclude that the change (or lack of change) in unemployment is due to the minimum wage. Here's a few things to consider:
There are more people being paid under minimum wage than there are being paid minimum wage [0]. The unemployment effect of a price floor could be partially offset by a larger number of people being pushed to below-minimum wage jobs (presumably under-the-table). The minimum wage isn't changed randomly, often hire minimum wages get imposed on higher income cities. There are other factors that happened between pre-min wage increase and post-min wage increase. Expectations of wage increases are often implied in current conditions. For instance, if you do that math that you can open a business and make 10% profit margin with 50% of your expenses coming from min wage labor, you would know that your profit margin is complete wiped out with a 20% increase in labor cost. You know that it is likely that min wage will go up rather soon, you will not bother opening the business. And so on...
In your corn example, sure, we don't know what would happen if a price floor of corn at $10 were mandated (assuming the market price is less than $10). But I think we can be pretty certain that the amount of corn demanded would drop. Similarly, at a price ceiling below the market price, the quantity demanded will rise, although the quantity supplied will drop, causing a shortage. Look at Venezuela where price ceilings exist for many products.
So many commenters here are taking it for granted that an increased minimum wage invariably leads to increased unemployment and inflation. It looks like empirical data doesn't really bear that out.
>It appears that if negative effects on employment are present, they are too small to be statistically detectable. Such effects would be too modest to have meaningful consequences in the dynamically changing labor markets of the United States.
>wage-price elasticities are notably lower than reported in previous work: we find prices grow by 0.36 percent for every 10 percent increase in the minimum wage.
>A $10 minimum—According to the CBO's projections, the $10 minimum wage would raise earnings for up to 3.5 million workers and "have virtually no effect on employment." Nor would it have an appreciable impact on the number of people in poverty.
>A $12 minimum—The $12 minimum wage would benefit up to 11 million workers while reducing overall employment by an estimated 300,000 jobs. The number of people whose annual incomes fell below the poverty threshold in 2025 would be reduced by 400,000.
>A $15 minimum—Finally, the $15 minimum wage would benefit up to 27 million workers but cost an estimated 1.3 million jobs. At the same time, a similar number of people (1.3 million) would see their annual incomes rise above the poverty threshold.
Honestly, I haven't looked into your claim. But just off-hand, I'm very skeptical of any evidence that minimum wage increases cause anything but a decrease (even if tiny) in employment. How many goods in the world do price increases cause an increase of demand?
Economists have a term for this type of good, "Giffen Good"[1]. And for obvious reasons, they almost never exist. When does an increase lead to a demand increase? Why would employers demand more labor with a price floor than they would without one?
From an employer's perspective it's easy to see that the more you pay the more interest you'll get from those who can perform work better. The idea that employers would naturally exploit their workers is a bit silly given the ability for those workers to look elsewhere. And they do - which is why real wages have risen substantially over time (capturing some of the value in productivity improvements) to the point that in many cases entry level/effective minimum wages greatly exceed legislated minimum wage. The idea however that government should impose a choice means higher costs on society - in this case borne by the lowest wage earners as they are the ones who are least employable for whatever reason (by definition), means that fewer get hired.
And thus you get examples like this: http://www.seattlepi.com/opinion/153901_unemploy26.html
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