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Archive for the ‘Minimum Wage’ Category

The real world is like a cold shower for our friends on the left. Everywhere they look, there is evidence that jurisdictions with free markets and small government outperform places with big welfare states and lots of intervention.

That’s true when comparing nations. And it’s also true when comparing states. That must be a source of endless frustration an disappointment for statists.

Speaking of disappointed statists, the real world has led to more bad news. The left-wing Mayor of Baltimore campaigned in favor of a $15 minimum wage, but then decided to veto legislation to impose that mandate. The Wall Street Journal opines on this development.

Mayor Catherine Pugh, a Democrat, has rejected a bill that would raise the city’s minimum wage to $15 an hour by 2022. She did so even though she had campaigned in favor of raising the minimum wage, which shows that economic reality can be a powerful educator. She explained her change of heart by noting that raising the rate above the $8.75 an hour minimum that prevails in the rest of Maryland would send jobs and tax revenue out of Baltimore to surrounding counties. The increase would also have raised the city’s payroll costs by $116 million over the next four years when she’s already coping with a deficit of $130 million in the education budget.

The key thing to notice is that the Mayor recognized that the real-world impact of bad legislation is that economic activity would shrink in the city and expand outside the city.

Writing for Reason, Eric Boehm also points out that the Mayor was constrained by the fact neighboring jurisdictions weren’t making the same mistake.

Pugh said the bill would not be in the best interest of Baltimore’s 76,000 unemployed workers and would drive businesses out of the city to the surrounding counties. …Indeed. Raising the minimum wage would not solve Baltimore’s economic troubles, and would likely only add to them. While support for a $15 minimum wage has become something of a litmus test for progressive politicians, the true test of any politician should be whether he or she is willing to set aside campaign trail rhetoric that flies in the face of economic reality. Signing the bill would have made progressive pols and activists happy—one Baltimore city councilman called Pugh’s decision “beyond disappointing” and a minimum wage activist group said it would remind voters of Pugh’s “broken promise”—but there’s no honor in following through on a promise to do more damage to an already struggling city’s economy. Pugh’s decision to veto a $15 minimum wage bill isn’t disappointing in the least. More politicians should learn from her example of valuing economic reality over populist rhetoric.

The Mayor’s veto is good news, though it remains to be seen whether city legislators will muster enough votes for an override.

Regardless of what happens, notice that the Mayor didn’t do the right thing because she believed in economic liberty and freedom of contract. She also didn’t do the right thing because she recognized that higher minimum wage mandates would lead to more joblessness.

Instead, she felt compelled to do the right thing because of jurisdictional competition. She was forced to acknowledge that bad policy in her city would explicitly backfire since economic activity is mobile. She had to admit that there are no magic boats.

And this underscores why federalism and decentralization are vital features of a good system. Governments are more likely to do bad things when the costs can be imposed on an entire nation (or, even better from their perspective, the entire world). But when bad policy is localized, it becomes very hard to disguise the costs of bad policy.

And, as today’s column illustrates, decentralization stopped the Mayor of Baltimore from a bad policy that would hurt poorly skilled workers. Just as federalism stopped Vermont politicians from imposing a destructive single-payer health system.

Let’s close by circling back to the minimum wage.

Writing in today’s Wall Street Journal, Andy Puzder makes a very timely point about automation.

Entry-level jobs matter—and you don’t have to take my word for it. In a speech last week on workforce development in low-income communities, Federal Reserve Chair Janet Yellen said that “it is crucial for younger workers to establish a solid connection to employment early in their work lives.” Unfortunately, government policies are destroying entry-level jobs by giving businesses an incentive to automate at an accelerated pace. In a survey released last month, the publication Nation’s Restaurant News asked 319 restaurant operators to name their biggest challenge for 2017. Nearly a quarter of them, 24%, said rising minimum wages. …The trend toward automation is particularly pronounced in areas where the local minimum wage is high.

Need more evidence?

By the way, even the normally left-leaning World Bank has research on the damaging impact of minimum wage mandates.

This paper uses a search-and-matching model to examine the effects of labor regulations that influence the cost of formal labor (notably minimum wages and payroll taxes) on labor market outcomes… The results indicate that these regulations, especially minimum wage policy, contribute to higher unemployment rates and constraint formalization…, especially for youth and women.

The research was about the labor market in Morocco, but the laws of supply and demand are universal.

As I’ve repeatedly stated, when you mandate that workers get paid more than what they’re worth, that’s a recipe for unemployment. And as the World Bank points out, it’s the more vulnerable members of society who pay the highest price.

In an ideal world, there should be no minimum wage mandates. But since that’s not an immediately practical goal, the best way of protecting low-skilled workers is to make sure Washington does not impose a nationwide increase. That won’t stop every state and local government from imposing destructive policies that cause unemployment, but the pressure of jurisdictional competition will

And when those bad policies do occur, that will simply give us more evidence against intervention. Which brings us back to where we started. The real world is a laboratory that shows statism is a bad idea.

P.S. In honor of Equal Pay Day, I can’t resist sharing this tidbit from the Washington Free Beacon.

Oh, you also won’t be surprised to learn that there was also a big pay gap in Hillary Clinton’s Senate office, as well as Obama’s White House. In reality, of course, the market punishes genuine discrimination and the pay gap is basically nonexistent when comparing workers with similar education, experience, and work patterns.

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While economists are famous for their disagreements (and their incompetent forecasts), there is universal consensus in the profession that demand curves slope downward. That may be meaningless jargon to non-economists, but it simply means that people buy less of something when it becomes more expensive.

And this is why it makes no sense to impose minimum wage requirements, or to increase mandated wages where such laws already exist.

If you don’t understand this, just do a thought experiment and imagine what would happen if the minimum wage was $100 per hour. The answer is terrible unemployment, of course, which means it’s a very bad idea.

So why, then, is it okay to throw a “modest” number of people into the unemployment line with a “small” increase in the minimum wage?

Yet some politicians can’t resist pushing such policies because it makes them seem like Santa Claus to low-information voters. Vote for me, they assert, because I’ll get you a pay raise!

All of this sounds good, and it may even be the final result for some workers. But there’s overwhelming evidence that you get more unemployment when politicians boost the minimum wage.

There are no “magic boats.” In the real world, businesses only hire workers when they expect that additional employees will generate more than enough revenue to offset their costs. So when politicians artificially increase the cost of hiring workers, there will be some workers (particularly those with low skills) who become redundant.

And that’s exactly what we’re seeing in cities that have chosen to mandate higher minimum wages.

The Wall Street Journal opines on Seattle’s numbers.

Seattle’s increase last year seems to be reducing employment. That’s the finding of a new report by researchers at the University of Washington. The study compared nine months of 2015 in Seattle, where the wage is ticking up gradually and hit $13 an hour in January, with similar areas elsewhere in Washington. …The researchers found that the ordinance decreased the low-wage employment rate by about one-percentage point. …The ordinance “modestly held back” employment of low-wage earners, and hours worked “lagged behind” regional trends, on average four hours each quarter (or 19 minutes a week). Many such individuals moved to take jobs outside the city at “an elevated rate compared to historical patterns,” says the report. …None of this will surprise anyone who understands that increasing the cost of something will reduce the demand for it. Then again, that concept seems to elude both major presidential candidates, who have floated national minimum-wage increases.

By the way, it’s not just Trump and Clinton supporting this destructive policy. Mitt Romney also was on the wrong side back in 2012.

And it goes without saying that Obama has been a demagogue on the issue.

Sigh.

Let’s examine evidence from another city. Mark Perry of the American Enterprise Institute looks at what has been happening in Washington, DC.

Since the DC minimum wage increased in July 2015 to $10.50 an hour, restaurant employment in the city has increased less than 1% (and by 500 jobs), while restaurant jobs in the surrounding suburbs increased 4.2% (and by 7,300 jobs). An even more dramatic effect has taken place since the start of this year – DC restaurant jobs fell by 1,400 jobs (and by 2.7%) in the first six months of 2016 between January and July – that’s the largest loss of District food jobs during a 6-month period in 15 years. Perhaps some of those job losses were related to the $1 an hour minimum wage hike on July 1, bringing the city’s new minimum wage to $11.50 an hour. In contrast, restaurant employment outside the city grew at a 1.6% rate in the suburbs (and by 2,900 jobs) during the January to July period. …While it might take several more years to assess the full impact, the preliminary evidence so far suggests that DC’s minimum wage law is having a negative effect on staffing levels at the city’s restaurants. At the same time that suburban restaurants have increased employment levels by nearly 3,000 new positions since January, restaurants in the District have shed jobs in five out of the last six months, with a total loss of 1,400 jobs during that period (an average of nearly 8 jobs lost every day). The last time DC experienced restaurant job losses in five out of six consecutive months was 25 years ago in 1991, and the last time 1,400 jobs were lost over any six-month period was 15 years ago during the 2001 recession.

Here’s a chart looking at how restaurant employment in DC and the suburbs used to be closely correlated, but how there’s been a divergence since the city hiked the minimum wage.

As Mark noted, we’ll know even more as time passes, but the net result so far is predictably negative.

For additional background info, this video is a succinct explanation of why minimum-wage mandates are such a bad idea.

Let’s close with something rather amusing. It turns out that the State Department, during Hillary Clinton’s tenure, actually understood that higher minimum wages destroy jobs. Indeed, her people were even willing to fight against such job-killing measures.

But in Haiti rather than America, as Politifact reports.

Memos from 2008 and 2009 obtained by Wikileaks strongly suggest…that the State Department helped block the proposed minimum wage increase. The memos show that U.S. Embassy officials in Haiti clearly opposed the wage hike and met multiple times with factory owners who directly lobbied against it to the Haitian president. …media outlets assessed the cables and found, among many other revelations, that the “U.S. Embassy in Haiti worked closely with factory owners contracted by Levi’s, Hanes, and Fruit of the Loom to aggressively block a paltry minimum wage increase” for workers in apparel factories. …Deputy Chief of Mission David Lindwall put it most bluntly, when he said the minimum wage law “did not take economic reality into account but that appealed to the unemployed and underpaid masses.” …The U.S. Embassy, meanwhile, continued to lament the hike… USAID studies found that a 200 gourdes minimum wage “would make the sector economically unviable and consequently force factories to shut down.”

Hmmm…., I wonder if some of those textile companies made contributions to the Clinton Foundation?

P.S. People in Switzerland obviously understand this issue, overwhelmingly voting against a minimum-wage mandate in 2014.

P.P.S. As Walter Williams has explained, minimum wage laws are especially harmful for blacks.

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Every so often, I see visuals that do a great job of illustrating various economic principles.

This Wizard-of-Id parody contains a lot of insight about labor economics. As does this Chuck Asay cartoon and this Robert Gorrell cartoon.

If you want to understand Keynesian economics, this Scott Stantis cartoon is a gem, as is the house-on-fire image in this post.

Regarding tax policy, the philoso-raptor explains supply-side economics and Paul Bunyan helps to illustrate why double taxation is so destructive.

You can also get clear messages about why a welfare state is economically destructive in this classic from Chuck Asay, as well as these home-made cartoons on riding the wagon vs pulling the wagon.

Regarding the minimum wage, I think Henry Payne effectively shows – in this cartoon and this cartoon – how mandating above-market wages is very bad news for those with limited skills. But this cartoon strip from Red Panels deserves special praise because it shows both what some people think and what actually happens.

Amen. I’ve always been mystified why some people don’t understand that jobs are only created when an employee is expected to generate net revenue.

In other words, there are no “magic boats.” Especially in the long run, companies will shed workers that hurt the bottom line.

P.S. Here are some of my favorites images that don’t involve economic principles.

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As you can see from this interview, I get rather frustrated by the minimum wage debate. I’m baffled that some people don’t realize that jobs won’t be created unless it’s profitable to create them.

You would think the negative effects of a higher minimum wage in Seattle would be all the evidence that’s needed, but I’ve noted before that many people decide this issue based on emotion rather than logic.

So even though we have lots of evidence already that wage mandates cause joblessness (especially for minorities), let’s add to our collection.

Here are some excerpts from a Wall Street Journal column by Professor David Neumark from the University of California Irvine.

Economists have written scores of papers on the topic dating back 100 years, and the vast majority of these studies point to job losses for the least-skilled. They are based on fundamental economic reasoning—that when you raise the price of something, in this case labor, less of it will be demanded, or in this case hired. Among the many studies supporting this conclusion is one completed earlier this year by Texas A&M’s Jonathan Meer and MIT’s Jeremy West, which reaffirmed that “the minimum wage reduces job growth over a period of several years”… An extensive survey of decades of minimum-wage research, published by William Wascher of the Federal Reserve Board and me in a 2008 book titled “Minimum Wages,” generally found a 1% or 2% reduction for teenage or very low-skill employment for each 10% minimum-wage increase. …let’s not pretend that a higher minimum wage doesn’t come with costs, and let’s not ignore that some of the low-skill workers the policy is intended to help will bear some of these costs.

The column also exposes some of the methodological flaws in studies that claim high minimum wages don’t lead to job losses, so the entire piece is worth reading.

Since we’re on this topic, here’s a great table prepared by Mark Perry of the American Enterprise Institute. Is anyone shocked to learn that countries with minimum wage mandates have higher unemployment levels, particularly for young people?

I have two big observations and two minor comments in response to this data.

The first big observation is the caveat that minimum wage mandates are just one piece of the economic puzzle. The numbers if Greece, for instance, are miserable for many reasons. The minimum wage mandate is just another straw on the camel’s back. Moreover, it’s possible for a nation to have a decent-performing economy with a minimum wage (see Luxembourg) and a decrepit economy without one (see Italy). It’s the overall burden of government that matters, which is why the rankings from Economic Freedom of the World are the first place to look when determining if a nation is market-oriented or statist.

That being said, Mark’s data certainly shows a correlation between joblessness and minimum wage mandates. Part of the reason for this link is that higher minimum wages are bad for employment, and part of the reason for the correlation is that governments foolish enough to impose minimum wages are probably foolish enough to impose other bad policies as well.

The second big observation is that I periodically encounter leftists who say a minimum wage is needed because employers have all the leverage and would pay workers starvation wages in the absence of a mandate. To which I always respond by asking them, “Then why don’t employers use that leverage to reduce the wages of the 98 percent of workers who make more than the minimum wage?” That shuts down the conversation very quickly.

But now I’ll also ask these folks, “And why aren’t workers in Austria and Sweden paid starvation wages?” Their responses will be amusing.

For my minor comments, I’ll start by noting that Switzerland is a uniquely sensible nation. Voters recently rejected a minimum wage mandate by an overwhelming 3-1 margin. I fear American voters would not be nearly as sensible if we had a national referendum.

My second minor comment is to share this amusing report about Belgian politicians whining that the lack of a minimum wage in Germany (at least as of 2013) was causing “unfair” competition. Oh, the horror!

Last but not least, let’s recycle this great video from the Center for Freedom and Prosperity.

If you have friends and colleagues who lean left but nonetheless are open-minded, please share this video with them.

And let them know that even Janet Yellen of the Federal Reserve has acknowledged that minimum wage mandates are recipe of joblessness.

P.S. I wrote a few days ago to identify several statist policies that cause inequality. Well, I’ve added to that list because it turns out that red tape also can unjustly line the pockets of the rich at the expense of the poor. Make sure to check out the updated version of that post.

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It must be fun to be a leftist.

You get to spend other people’s money. But that’s just for starters. Using the power of majoritarianism, you also get to tell the rest of the country what to do, how to behave, and even what to eat.

Best of all, you can be a complete hypocrite. Even if you’re in the public eye, like Hillary Clinton, that’s apparently no obstacle to behaving in one way and then insisting that the rest of us do the opposite.

I’m particularly impressed that statists feel no guilt about dodging taxes while insisting that the rest of us pay more. That’s true even if you’re Barack Obama’s first Treasury Secretary or his current Treasury Secretary.

And it’s definitely true if you’re part of the statist chattering class.

Jillian Kay Melchoir of National Review reveals that the pro-tax crowd at MSNBC must think they’re working at the OECD.

How else to explain that so many of them have unpaid tax bills?

Touré Neblett, co-host of MSNBC’s The Cycle, owes more than $59,000 in taxes, according to public records reviewed by National Review. In September 2013, New York issued a state tax warrant to Neblett and his wife, Rita Nakouzi, for $46,862.68. Six months later, the state issued an additional warrant to the couple for $12,849.87. …MSNBC’s hosts and guests regularly call for higher taxes on the rich, condemning wealthy individuals and corporations who don’t pay their taxes or make use of loopholes. But recent reports, as well as records reviewed by National Review, show that at least four high-profile MSNBC on-air personalities have tax liens or warrants filed against them.

And why is this hypocritical?

Because, as illustrated by this video from Washington Free Beacon, so many of them urge higher taxes on the rest of us and argue that paying taxes is a wonderful experience.

I guess the MSNBC hosts forget to mention that higher taxes are only good for other people, not for themselves.

Now let’s look at another example.

Though I confess I’m merely assuming hypocrisy in this case. It deals with actors, the vast majority of which almost surely would want to impose a higher minimum wage on, say, the fast-food industry.

But, writing for Investor’s Business Daily, Larry Elder points out that these actors in Los Angeles don’t want to be covered by the minimum wage because they understand it means less work for themselves.

In Los Angeles County, the minimum wage is $9 per hour. Theater actors, however, can be paid as little as $7 a performance, and an actor can even work long rehearsal hours with no pay. Three decades ago, L.A. County actors sued their union for an exception to union wages for theaters with 99 seats or fewer seats. Why do these stage actors work for so little? They want to work. By working, they improve their skills, stay sharp and or perhaps have a chance to get spotted by an agent. Some say simply having something to do is better than just sitting around and waiting for a casting agent to call. Actors Equity, the national union, wants to change this. …But then a very Republican thing happened — 66% of the union members voted against a higher minimum wage. Their rationale was simple: A higher minimum wage means fewer plays get performed. Fewer plays mean fewer opportunities for actors and therefore fewer opportunities to gain experience, stay in practice or get discovered. …When it comes to their own lives, these actors understand the law of economics: Artificially raise the cost of a good — in this case the price of an actor in a stage play — and you reduce the demand for actors.

Unfortunately, this episode of economic enlightenment doesn’t have a happy ending.

But the union’s national council ignored this advisory vote and ordered, with some exceptions, a $9 per hour minimum wage.

Mr. Elder also includes a very perceptive quote from a Hollywood celebrity.

Pat Sajak, host of “Wheel of Fortune,” recently offered a different perspective on the minimum wage. “When I had minimum wage jobs,” he tweeted, “my goal was to better myself, not to better the minimum wage.”

Kudos to Mr. Sajak. Too bad there are so many politicians (including many Republicans) who don’t understand that higher minimum wages mean fewer jobs for the less vulnerable.

Though, to be fair, maybe supporters do understand the harsh impact and simply don’t care.

P.S. I wrote yesterday about the impact of tax reform on the 2016 election, and I included a postscript about a healthcare issue that has resonance with voters.

Well, Philip Klein of the Washington Examiner makes the case for another healthcare issue that he hopes will motivate Republican primary voters to reject Ohio Governor John Kasich.

…not only did Kasich decide to participate in Obamacare’s fiscally destructive expansion of Medicaid, in doing so he also displayed a toxic mix of cronyism, dishonesty and executive overreach. …despite campaigning on opposition to Obamacare, Kasich crumbled under pressure from hospital lobbyists who supported the measure, and endorsed the expansion. When his legislature opposed him, Kasich bypassed lawmakers and imposed the expansion through a separate panel — an example of executive overreach worthy of Obama. Kasich cloaked his cynical move in the language of Christianity, and, just like a liberal demagogue, he portrayed those with principled objections to spending more taxpayer money on a failing program as being heartless. …Republican voters made a terrible miscalculation when they chose so-called compassionate conservative George W. Bush as their nominee, as he went on as president to push the largest expansion of entitlements since the Great Society in the form of the Medicare prescription drug plan. …During this presidential primary season, Republican voters will have much better options than they did last time. They don’t have to settle for another champion of big government. By punishing Kasich for expanding Medicaid, conservative primary voters would be sending the message to state-level Republicans everywhere that if they choose to advance big government healthcare solutions, there will be consequences — and they will have no chance of rising to higher office.

It’s not my role to comment on which candidates deserve support, but I definitely agree that Kasich’s Obamacare expansion was very bad policy.

And it’s particularly galling that he made a religious argument for bigger government. I don’t think Libertarian Jesus would be amused.

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A few days ago, we used supply-and-demand curves to illustrate how taxes reduce economic output.

Supply-and-demand curves also can be used to examine the impact of minimum wage laws on the labor market.

Workers understandably will be willing to supply more labor at higher wages.

Employers are just the opposite. They demand more labor when wages are low.

In an unfettered market, the interplay of supply and demand will result in an “equilibrium wage.”

But as you can see from the chart, if politicians impose a minimum-wage mandate above the equilibrium level, there will be unemployment.

Some folks, though, may not be overly impressed by theory. So how about empirical research.

Other folks, though, may prefer real-world examples rather than academic studies.

We’ve already looked at the bad results when the minimum wage was increased in Michigan.

Now we have some more unfortunate evidence from the state of Washington. Seattle Magazine has a story about a bunch of restaurants closing because of an increase in the minimum wage.

The article starts by noting a bunch of eateries are being shut down.

Last month—and particularly last week— Seattle foodies were downcast as the blows kept coming: Queen Anne’s Grub closed February 15. Pioneer Square’s Little Uncle shut down February 25. Shanik’s Meeru Dhalwala announced that it will close March 21. Renée Erickson’s Boat Street Café will shutter May 30… What the #*%&$* is going on?

Hmmm…so what’s changed. It’s not higher food prices. It’s not a change in dining preferences of consumers.

Instead, government intervention is having a predictable effect.

…for Seattle restaurateurs recently, …the impending minimum wage hike to $15 per hour. Starting April 1, all businesses must begin to phase in the wage increase: Small employers have seven years to pay all employees at least $15 hourly; large employers (with 500 or more employees) have three. Since the legislation was announced last summer, The Seattle Times and Eater have reported extensively on restaurant owners’ many concerns about how to compensate for the extra funds that will now be required for labor: They may need to raise menu prices, source poorer ingredients, reduce operating hours, reduce their labor and/or more.

An industry expert tries to explain the new reality of coping with higher costs.

Washington Restaurant Association’s Anton puts it this way: “It’s not a political problem; it’s a math problem.” …he says that if restaurant owners made no changes, the labor cost in quick service restaurants would rise to 42 percent and in full service restaurants to 47 percent. “Everyone is looking at the model right now, asking how do we do math?” he says. “Every operator I’m talking to is in panic mode, trying to figure out what the new world will look like.”

Well, we know what “the new world will look like” for many workers. They’ll be unemployed.

So you can understand why this issue is so frustrating. Politicians posture about helping workers, but they wind up displaying their economic ignorance and real-world innumeracy.

And innocent people pay the price, as shown in the Branco cartoon.

P.S. Walter Williams explains the racist impact of minimum-wage laws.

P.P.S. On a lighter note, here are a couple of additional clever cartoons illustrating the negative impact of minimum-wage mandates.

P.P.P.S. And this video is a must-watch on the issue.

P.P.P.P.S. Shifting to a different topic, I’m not quite sure this guy deserves to be in the Moocher Hall of Fame, but I’m glad he’s going to jail.

Champion golfer Alan Bannister, who played off a handicap of seven, was convicted of benefits fraud after being caught on camera walking around the course on his daily game. He even had a taxpayer-funded mobility car by claiming he was in too much pain to walk. …Inspectors discovered he used his mobility car – intended for people “virtually unable to walk” – to drive to the golf club to play with the “Sunday Swingers” and “The Crazy Gang” players, despite claiming he could barely walk 50 metres at a time. …The court was told Bannister dishonestly claimed £26,090.55 from 2007 until 2012 in Disability Living Allowance.

And while he’s only a borderline case for the Moocher Hall of Fame, he’s a perfect example of eroding social capital.

He’s a dirtbag who decided that it is perfectly okay to scam off taxpayers. When enough of his fellow citizens make the same choice, a society is in deep trouble.

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It’s very frustrating to write about the minimum wage. How often can you make the elementary observation, after all, that you’ll get more unemployment if you try to make businesses pay some workers more than they’re worth?

But it’s my mission to promote economic liberty, so I’ve written on why government-mandated wages can create unemployment by making it unprofitable to hire people with low work skills and/or poor work histories. And I’ve attacked Republicans for going along with these job-killing policies, and also pointed out the racist impact of such intervention.

Heck, just about everything sensible that needs to be said about the topic is contained in this short video narrated by Orphe Divougny

But I guess I’m the Sisyphus of the free-market movement because once again I’m going to try to talk some sense into those who think emotion can trump real-world economics.

Let’s start by citing some new reasearch.

States are allowed to increase minimum wages above the federal level. This creates interesting opportunities to measure what happens to employment when the national minimum wage is increased, since the change presumably doesn’t impact states that already are at or above that level.

Two economists from the University of California at San Diego took advantage of this natural experiment and examined employment changes in states that were “bound” and “unbound” by the law.

…we find that minimum wage increases significantly reduced the employment of low-skilled workers.  By the second year following the $7.25 minimum’s implementation, we estimate that targeted workers’ employment rates had fallen by 6 percentage points (8%) more in ‘bound’ states than in ‘unbound’ states.  …Over the late 2000s the average effective minimum wage rate rose by nearly 30% across the United States.  Our best estimate is that these minimum wage increases reduced the employment of working-age adults by 0.7 percentage points.  This accounts for 14% of the employment rate’s total decline over this time period and amounts to 1.4 million workers.  A disproportionate 45% of the affected workers were young adults (aged 15 to 24).

Gee, what a surprise. Fewer jobs.

But the mandated hike in wages didn’t just reduce employment.

There were also negative effects on income.

We find that binding minimum wage increases reduced low-skilled individuals’ average monthly incomes.  Targeted workers’ average incomes fell by an average of $100 over the first year and by an additional $50 over the following two years. …We provide direct evidence that such losses translate into meaningful reductions in upward economic mobility.  Two years following the minimum wage increases we study, low-skilled workers had become significantly less likely to transition into higher-wage employment in bound states than in unbound states. 

This evidence on income is particularly important because some statists make a rather utilitarian argument that it’s okay for some people to lose jobs because others will benefit.

Jared Bernstein is Exhibit A, as you can see in this debate we had for CNBC.

But let’s not just focus on numbers. There are painful human costs when low-skilled workers are priced out of the labor market.

Here are some excerpts from a column in the Wall Street Journal about a real-world example of people losing their jobs.

It’s well-established in the economic literature, if not in the minds of proponents of these laws, that the result will be job losses. Yet this empirical reality fails to capture the emotional reality of the employees who are let go, or of the business owners who had no choice but to let them go. …Michigan’s minimum wage rose in September to $8.15 an hour from $7.40 (the minimum wage for tipped employees rose 17%, to $3.10 an hour). The wage will rise to $9.25 by January 2018.

Now let’s look at the impact on a non-profit restaurant that helped disadvantaged people.

The staff at Tastes of Life was made up of recovering addicts, recently incarcerated individuals and others who would have a hard time landing a job elsewhere. Mr. Mosley explained that on-the-job offenses for which an employee would have been “gone that day” in a traditional work setting were instead used as training opportunities at Tastes of Life. …Mr. Mosley’s financial goal was to break even and use any excess funds to subsidize Life Challenge participants. After more than two years of operation on Beck Road, 2½ miles from the center of town, Tastes of Life had a steady flow of loyal customers, but rising food costs presented a challenge.Mr. Mosley and Ms. Tucker had planned to print new menus with higher prices to cover the food costs, but the September wage hike complicated those plans, in particular because the increase covered both tipped and non-tipped employees. …“If we had a $10 menu item, it would have to be $14,” Mr. Mosley said. The restaurant’s customer base of seniors on a fixed income and Hillsdale locals made this option a nonstarter. The restaurant also had to find roughly 250 new customers a month, unrealistic in a small town of about 8,300.

So the inevitable happened.

The increased minimum wage, he told me, was “the straw that broke that camel’s back,” forcing him to close his doors and lay off his 12-person staff. …with the higher wage costs, the arrangement was no longer feasible, and Tastes of Life closed on Sept. 28. …Four former employees have been able to leverage their restaurant experience to find new employment, but Mr. Mosley told me that eight are still out of work. …the loss of Tastes of Life cuts deep, because the benefit for Life Challenge participants was both valuable and is not easily attained elsewhere. These unintended consequences of a minimum wage hike aren’t unique to small towns in south-central Michigan. Tragically, they repeat themselves in locales small and large each time legislators heed the populist call to “raise the wage.”

Understanding “unintended consequences” is a key characteristic of a good economist.

Indeed, Bastiat’s wise words about the “seen” and “unseen” help to explain why Krugman makes so many mistakes.

But that’s a topic for another column (actually, a whole series of columns).

Today, the goal is simply to understand that it is pointlessly destructive to make low-skilled labor less affordable.

P.S. Given all the evidence that minimum-wage laws destroy jobs, why do some people persist in supporting such a destructive policy? In this post, I provide six possible reasons.

P.P.S. No wonder I get so frustrated on this topic.

P.P.P.S On the lighter side, here are some good cartoon on the minimum wage from Steve Breen, Lisa Benson and Henry Payne.

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