Here are four new items on the minimum wage law government mandated price floor that guarantee reduced employment opportunities for low skilled and limited-experience workers, especially minorities.
1. Last year Larry Reed wrote an article titled “How the Minimum Wage Folks Think [Badly], And What Economists Think of That,” here’s an excerpt:
If you’re a lay person and are wondering how a good economist sees the way the minimum wage advocate thinks, the following will explain the matter. The good economists can’t help but conclude that minimum wage believers are guilty of one or more of the following errors:
1. They believe in political law (edicts, orders, and mandates) but not economic law (supply and demand and the market-clearing function of prices and wages);
2. They think that every job and every person is automatically worth at least as much as Congress decrees to be the minimum;
3. They believe that even if a person or a job is really worth less than the minimum, employers will still hire them and happily eat the loss;
4. They often have no clue that they’re unwitting accomplices of organized labor, which favors a minimum wage hike as a way to disadvantage its lower-cost or less-skilled or non-union competition;
5. They usually oppose raising the minimum to $100/hour but can’t figure out why the reasoning that leads them to that conclusion applies to any other increase too;
6. They never tell you that European OECD countries that don’t have a minimum wage have an average unemployment rate about half the average jobless rate of European OECD countries that do (see table above for OECD data in 2014).
2. In Wednesday’s WSJ (might require subscription), UC-Irvine economist David Neumark summarizes the overwhelming empirical evidence confirming the expected negative employment effects of government-mandated minimum wages in his op-ed “The Evidence Is Piling Up That Higher Minimum Wages Kill Jobs.” Here’s a slice:
President Obama says “there is no solid evidence that a higher minimum wage costs jobs.” On the contrary, a full and fair reading of the evidence shows the opposite. Raising the minimum wage will cost jobs, particularly those held by the least-skilled.
3. In the WSJ yesterday, Michael Saltsman outlines some of the drawbacks of mandated minimum wages for the restaurant industry in his op-ed “A Dubious New Menu Item: No Tipping.” Here’s the summary: Minimum wages go up by government fiat to $15 for example, which significantly raise a restaurant’s labor costs. To stay in business, restaurants decide to eliminate tipping, pay servers a fixed hourly wage, and raise menu prices by 25% or more to cover the higher labor costs with fixed hourly wages as high as $15. Without the monetary incentives from tipping, servers are less motivated and provide lower-quality service. Facing menu prices that are 25% higher or more, possibly with lower-quality service, and with no control over their server’s tip, customers are less motivated to eat at those no-tip, higher cost restaurants with servers who are less motivated than before.
As Michael Saltsman concludes, “As more full-service restaurants are forced to consider the tip-free approach, the customers confronted with higher prices and employees who face smaller paydays should remember who’s to blame.” They can think the minimum wage proponents who: a) are guilty of one or more of the errors outlined above in Item #1 and/or b) ignore the overwhelmingly evidence outlined in Item #2 above.
4. In a Forbes article a few weeks ago Tim Worstall made the important, but frequently overlooked, point that “if you tax something, you get less of it.” Applying that important economic concept to the minimum wage, which is equivalent to a tax on unskilled labor, leads us to conclude that higher minimum wages have to result in fewer employment opportunities for unskilled workers. That is, raising the minimum wage from $7.25 an hour to $15 an hour is equivalent to imposing a $7.75 an hour tax on employers who hire unskilled workers. If you correctly believe that a $7.75 an hour tax on unskilled workers would reduce the number of hours of unskilled labor demanded by employers, then you would have to agree that a $15 an hour minimum wage would have to have negative employment effects.
Another example of the “tax something, you get less of it” principle that Tim highlights in his article is – the window tax, which was a property tax in England from about 1700 to 1850 that was based on the number of windows in a building. When they taxed windows, they predictably got fewer windows in England, as the pictures below clearly show (see more photo examples here). Think of the covered windows as unskilled workers who had jobs before the minimum wage (before the window tax), but were “shut out” of the labor market following the government mandated wage increase (tax) on employers hiring unskilled workers.
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