Opinion: SJ's minimum wage increases actually quell job opportunities
Alexander Zick: The Fisherman and his Wife, 1886. Image in Public Domain
Several Bay Area cities (Mountain View, Sunnyvale, and Palo Alto) sit in the top five U.S. cities with the highest minimum wages; San Jose will likely join them next year at its planned $17.60, just eight cents shy of 2023's #1. Econlib's Linda Gorman unpacks the research on minimum wage bumps, which are tied to more unemployment (particularly for low-skilled workers) and less fringe benefits.
Most economists believe that minimum wage laws cause unnecessary hardship for the very people they are supposed to help.
The reason is simple: although minimum wage laws can set wages, they cannot guarantee jobs. In practice they often price low-skilled workers out of the labor market. Employers typically are not willing to pay a worker more than the value of the additional product that he produces. This means that an unskilled youth who produces $4.00 worth of goods in an hour will have a very difficult time finding a job if he must, by law, be paid $5.15 an hour. As Princeton economist David F. Bradford wrote, “The minimum wage law can be described as saying to the potential worker: ‘Unless you can find a job paying at least the minimum wage, you may not accept employment.’” [2]
Several decades of studies using aggregate time-series data from a variety of countries have found that minimum wage laws reduce employment. At current U.S. wage levels, estimates of job losses suggest that a 10 percent in crease in the minimum wage would decrease employment of low-skilled workers by 1 or 2 percent. The job losses for black U.S. teenagers have been found to be even greater, presumably because, on average, they have fewer skills. As liberal economist Paul A. Samuelson wrote in 1973, “What good does it do a black youth to know that an employer must pay him $2.00 per hour if the fact that he must be paid that amount is what keeps him from getting a job?” [3] In a 1997 response to a request from the Irish National Minimum Wage Commission, economists for the Organization for Economic Cooperation and Development (OECD) summarized economic research results on the minimum wage: “If the wage floor set by statutory minimum wages is too high, this may have detrimental effects on employment, especially among young people.” [4] This agreement over the general effect of minimum wages is long-standing. According to a 1978 article in American Economic Review, 90 percent of the economists surveyed agreed that the minimum wage increases unemployment among low-skilled workers. [5] ...
In addition to making jobs hard to find, minimum wage laws may also harm workers by changing how they are compensated. Fringe benefits—such as paid vacation, free room and board, inexpensive insurance, subsidized child care, and on-the-job training—are an important part of the total compensation package for many low-wage workers. When minimum wages rise, employers can control total compensation costs by cutting benefits. In extreme cases, employers convert low-wage full-time jobs with benefits to high-wage part-time jobs with no benefits and fewer hours. David Neumark and William Wascher found that a 10 percent increase in minimum wages decreased on-the-job training for young people by 1.5–1.8 percent. [6] Since on-the-job training is the way most people build their salable skills, these findings suggest that minimum wage laws also reduce future opportunities for the unskilled.
This article originally appeared in Econlib. Read the whole thing here.
Read more about minimum wage increases here.
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