No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Six: Applications in Markets 132 The stated intent of minimum wage legislation is to help those making minimum wage get to a “living” wage. For those that continue working, it is indeed a good thing—they now have a higher income. However, it comes at a cost to those who would like to work but find themselves priced out of the market through no fault of their own. The government, in effect, is saying ‘we’d rather you be paid $0/hr., than work for less than we think you ought to.’ To try to work at $3/hr. when no one is willing to pay you $7.25/ hr. is illegal . The workers most harmed by this legislation are those with few skills— skills that can often only be obtained by working. John Stossel’s video nicely summarizes the issues surrounding the minimum wage: John Stossel - The Minimum Wage and Consequences Minimum wage jobs are often derided as having no real potential by some popular press writers and politicians, as can be revealed with an internet search on “hamburger- flipping” jobs. And while preferring higher-paying manufacturing jobs to any minimum wage job is understandable, one should not denigrate the benefits of any kind of work to the unskilled. For inner- city teenagers (who have historically high unemployment rates), minimum wage legislation may deny them the opportunity to gain skills that ultimately will lead to higher wages. Some of the skills that one can obtain and demonstrate to subsequent employers from a “hamburger- flipping” job are: § § ability to work with others in a close environment § § punctuality and ability to be a dependable worker § § ability to learn multiple responsibilities (move from one job to another; e.g., cook to cashier, etc.) § § ability to work with demanding customers § § willing to conform personal desires to meet job needs (e.g., wear a hair net) To some, these represent meaningless attributes. But to other future employers, these attributes present a record of successful employment, suggesting that if they invest in you to learn a more marketable skill, you have the character to be a valuable employee. MUST EMPLOYERS ELIMINATE POSITIONS WHEN THE MINIMUM WAGE IS INCREASED? Some empirical studies find low to no near term employment losses when the minimum wage is increased. Doesn’t this disprove the theory outlined in this chapter? In short, no. Employers have many margins that they can adjust on in the face of a price increase for one of their productive inputs (such as labor). What matters for an employer is not a particular cost, but rather the total cost for that input. The wage rate is only one component of the cost of an employee to an employer. Other costs include benefits, training, work environment, perks, etc. Many employers may adjust to an increased cost of the wage rate by simply cutting some of these other aspects of the employee’s job, many of which are harder to measure in an empirical study. Even for workers that keep their job when the minimum wage is increased, it is by no means clear that they will be necessarily better off when one considers their true total compensation.