The Minimum Wage
Thanks, Josh, for the great post on the minimum wage increase. I’d like to add a few thoughts about potential drawbacks of the minimum wage.
In an economic downturn, it will be hard to sort out the unemployment effects of the minimum wage from the job losses that would have happened anyway. And some economists believe that the unemployment effects would be minimal, because most businesses will just grin and bear it — they won’t fire anyone.
Even if that’s the case, raising the minimum wage is not the wisest labor policy. Here’s why:
- Some employers can’t be that flexible. The layoffs may not be widespread enough to have a big effect on unemployment, but they could cause hardship for individual workers. Interestingly, government agencies and departments with fixed budgets may have to let go of more workers than private businesses. I don’t have the link on hand, but I remember a news story a year or two ago about a state university that fired people in the wake of a minimum wage increase.
- Employees who get to stay on the job could still lose out. Businesses might make up for the extra labor expense by doing away with training, on-the-job learning, and whatever other practices temporarily distract from productivity. For now, the employees will happily keep their jobs at the new, higher wage. But in the future, they’ll be unprepared to advance in their careers because of all the training that didn’t take place.
- Minimum wage increases give citizens an unwarranted warm, fuzzy feeling. Voters are content that they’ve done their part to help the poor, despite the fact that most poor people don’t work for minimum wages. Then there’s less momentum behind proposals (earned income tax credit increases, training programs, etc.) that actually make a difference.