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.