from Carpe Diem, Don Boudreaux’s ongoing, excellent coverage of the minimum wage issue
And don’t forget: empirical studies today of the effects of changes today in the minimum wage are biased against finding negative employment results because many of the negative results of minimum-wage legislation have long ago been ‘internalized’ into the economy due to the fact that the minimum wage has been in existence in the U.S. for 80 years.
It would be like empirically studying today the effects of a recent rise in the minimum-allowed price of strawberries if strawberries had long ago been made unnecessarily pricey by minimum-strawberry-price legislation. Consumers would long ago have switched their diets away from strawberries; chefs would long ago have begun concocting fewer desserts and recipes with strawberries and more with other fruits and berries. Other ingredients would have become staple substitutes for strawberries in consumers’ diets and in chefs’ dishes and recipes. Farmers, in turn, would have – despite the formal, legislated higher list price for strawberries – either totally abandoned or significantly abandoned strawberry production. Many producers who would otherwise, in the absence of the minimum-strawberry-price legislation, grown and sold strawberries, wind up more and more as the years pass producing other berries that are not burdened with price controls. So when an empirical study is done of the effect on strawberry sales of, say, a 10 percent or even of a 100 percent hike today in the minimum price of strawberries, the detected empirical effects will underrepresent the full depressing impact that a legislated minimum price of strawberries has on the market for strawberries.
In other words, we would expect a huge difference in the possible, detectable negative employment effects between: a) the highly likely, inevitable 28th increase in the federal minimum wage from $7.25 to $10.10 per hour (or something close to that) in the next few years, the effects of which have already been internalized and incorporated into business and staffing decisions over the last 80 years, and b) the imposition for the first time of a government-mandated minimum wage of $10.10 per hour, which didn’t follow 27 previous increases over almost 80 years.
It’s also important to note that increases in the federal minimum wage follow years of highly publicized debate and are therefore fully anticipated by employers well in advance of the actual implementation of a minimum wage hike. For example, the current proposal to raise the minimum wage to $10.10 per hour came from President Obama in his January 2014 State of the Union address. Assuming that a $10.10 per hour minimum wage will likely eventually become a reality, it might be another year or more before it will take effect, giving employers several years of advance notice that a higher minimum wage is inevitable, and giving them incentives to prepare today for the inevitable 39% increase in their labor costs for unskilled workers. Those preparations might include investing today in labor-saving technologies like robots and self-ordering kiosks that McDonald’s and other restaurants are introducing to replace cashiers and servers.
Therefore, Don highlights an important point that the distortionary effects of government-mandated price controls on unskilled labor markets have been internalized by employers for so long, along with the fact that future labor market distortions are so widely anticipated well in advance, that empirical studies will be generally biased against finding negative employment effects of new minimum wage increases.
Don made his case that employers have had almost 80 years to adjust to the distortionary effects of government price controls on unskilled labor in a letter to the Washington Examiner on December 9, 2014:
Jason Russell nicely summarizes the much-discussed new study that finds that raising the minimum wage destroys jobs for many low-skilled workers (“New evidence that the minimum wage kills jobs,” Dec. 9). Yet even this careful study underestimates the damage that minimum-wage legislation inflicts on the job prospects of the unskilled.
Employers in the U.S. have now had 76 years to adjust to the existence of this regulation that makes unprofitable the hiring of the lowest-skilled workers. One result is that business and labor practices that would have employed legions of low-skilled workers in the absence of a minimum wage were either long ago snuffed out or never created. Empirical studies today, therefore, can at best detect only changes in employment at existing firms that use existing business practices – firms and practices that, having evolved in an economic environment with a minimum wage, were never suited to employ as many low-skilled workers as would be employed by businesses that evolved in an environment without a minimum wage.
Raising the existing minimum wage does indeed destroy some jobs. But even the most accurate measurements of today’s job destruction offer no clue to the full magnitude of the vast amount of economic opportunities that the minimum wage denies to the poor and unskilled.
My analogy – the first time you get the shit beat out of you it is devastating, an act you will go to extremes to avoid. The 26th time it has much less of an impact. Or like the bricks on a pick up; you can add one more brick but eventually the frame will collapse. It wasn’t the last brick that caused the damage but the accumulation.