The Myth Of The Harmless Minimum Wage Increase

The left’s been bruiting about a study that shows unemployment isn’t that badly affected by minimum wage increases.

For example, the study claims that a 10% hike in the minimum wage translates over time into about a 1% hike in unemployment among low-wage, low-skill workers – the ones that get minimum wage.

BikeBubba, over at BikeBubba’s Boulangerie, unpacks the meme in a way most of the study’s proponents seem unprepared to:

So let’s work with that.   Let’s assume, for what it’s worth, that “low wage workers” includes about the bottom quintile, or about 30 million workers.  So that 1% decrease in employment impacts about 300,000 workers, which is about the same number of people as are currently employed by Sears, Roebuck and Company–which now includes Kmart as well.  In short, three of every forty minimum wage workers would lose their jobs.

In short, even a 10% increase in the minimum wage impacts a LOT of people.  But of course, the story gets worse, as President Obama and Governor Dayton Messinger are proposing 24% and 31% increases in the minimum wage.  So we would expect, if the relationship were linear, that over 700,000 people would lose their jobs from Obama’s minimum wage proposal–seven out of forty–and we can thank God that Mark Dayton is not the President.

All true.  And, as BikeBubba notes, probably still too pollyannaish; linear behavior is for sissies:

Of course, few things are linear in real life, and so I’ve constructed a model assuming that the actual productivity of labor is normally distributed somewhere above the minimum wage, and that those workers whose productivity does not exceed the minimum wage will lose their jobs.  If we assume that the current minimum wage deprives only 2.3% of these workers of work (-2 standard deviations), then we arrive at a mean productivity of $8.95/hour with a standard deviation of about $0.85.

And that means…

Shift the minimum wage to $9/hour, and we then predict overall job losses of approximately half of minimum wage workers.   Any historical comparisons?

Glad you asked.  From 2007 to 2009, there were three consecutive increases in the minimum wage exceeding 10%.  Here’s what happened to unemployment among young people:  it more than doubled as overall unemployment went from 4.6% to 10%.  When the increases in the minimum wage stopped in 2009, the trend in unemployment quickly stabilized and started to reverse.  In short, it’s exactly what one would predict if the productivity of entry level labor were normally distributed somewhere above the minimum wage.

 

Now granted, there were other things going on at this time, but reality is that it shouldn’t take a PhD economist to realize that when the price of labor rises, less of it will be demanded.  So if someone tells you he’s trying to increase the minimum wage for your good, let him know that you’d be thankful if he didn’t try to “help” you that way.

The only real way to “help” minimum wage workers is to teach them how to do median-wage jobs.

And the best way to do that – barring some flash of brilliance – is to stay in school, moderate your behavior so you can actually learn things, get a job and go to it every day without all sorts of drama, so you learn the behaviors that successful workers have, and learn a skill worth more, preferably way more, than whatever the “minimum” or “living” wages  are.

Increasing the minimum wage is not just pretty window-dressing on the poverty problem; it’s geometrically counterproductive.

11 thoughts on “The Myth Of The Harmless Minimum Wage Increase

  1. This post is the perfect counterpoint to the pathetic official (Obama? – I forgot) who garnered support for the hike by describing the hardships a two child family struggling to get by on a minimum wage job.

    Minimum wage jobs do not exist to support families. As mentioned, they’re prep schools for upward mobility.

    Interesting that this is happening as Governor Dayton is ramping up his push to unio nize day care workers and others in the care-giving field. Particularly when many of them are subsidized by the state of MN.

    Still, is $9.50 too much to pay for a Big Mac if it saves one life?

  2. This post is the perfect counterpoint to the pathetic official (Obama? – I forgot) who garnered support for the hike by describing the hardships a two child family struggling to get by on a minimum wage job.

    Minimum wage jobs do not exist to support families. As mentioned, they’re prep schools for upward mobility.

    Interesting that this is happening as Governor Dayton is ramping up his push to unio nize day care workers and others in the care-giving field. Particularly when many of them are subsidized by the state of MN.

    Still, is $9.50 too much to pay for a Big Mac if it saves one life?

  3. Of course, few things are linear in real life. That’s why economists use the term ‘moving the curve’, not ‘moving the line’.
    More of the liberal war on math.
    All change happens on the margins. The people who will be left without work are the people whose jobs are most easily automated or whose work is eliminated altogether. Those workers will go on the dole. They are the least employable of the minimum wage workers. Their prospects for future employment at the new minimum wage are dim.
    Best case — even if what the libs say about minimum wage is true — is that you’ll transfer money from the middle class (not the rich) to the poor.

  4. Thanks for the mention, Mitch! It’s not a perfect model, and wouldn’t get my a PhD. in economics, but…..hey, isn’t it the PhDs in econ (from the Michigan school at least) who can’t figure this out?

  5. All change happens on the margins. The people who will be left without work are the people whose jobs are most easily automated or whose work is eliminated altogether. Those workers will go on the dole. They are the least employable of the minimum wage workers. Their prospects for future employment at the new minimum wage are dim.
    Best case — even if what the libs say about minimum wage is true — is that you’ll transfer money from the middle class (not the rich) to the poor.

    I wonder if this isn’t a case of the left being too stupid by half. It’s not at all difficult to imagine that they know exactly what Terry just said, and are doing this by design to get even more people addicted to the government dole, thereby guaranteeing even more voters interested in preserving their government benefits.

    And the water continues to circle the drain…

  6. BillC, my view of this scam at both the Fed and State levels, are to pay back the unions! Every time the minimum wage goes up, they wail and moan that they need a cost of living increase, citing the rise in minimum wage. If that is $9.50 or $10, then by their twisted logic, the financially irresponsible pay that they get doesn’t look like such a big difference!

  7. Unfortunately, the minimum wage debate is handled extremely poorly by conservatives.
    It reminds me of the push to make it illegal to job-discriminate against cons & felons (in NJ for example). You don’t make points by explaining how this will hurt businesses and their customers. You make points by explaining how this hurts those low-skill, low-income workers who have kept their noses clean when they compete against cons for the few available jobs.
    And of course the public policy lawyers who are pushing these ‘anti-discrimination’ measures belong to a professional cartel that forbids entry to felons.

  8. BH429: You are correct also. I do know that one of the discoveries after researching the effects of Dayton’s proposed minimum wage increase, is that a lot of the state employee unions like AFSCME and MAPE, their contracts and salaries are tied to the minimum wage. So they’d get even more of an increase than their steps and lanes already give them.

  9. Some studies say that only about 3% of minimum-wage workers are above age 25, so this idea that somebody is “raising a family” on min wage is just more liberal blather intended to appeal to those who didn’t want a job anyway.

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