Some Wrongheaded Policy On Minimum Wage

Politics are local.  Often we hear Republicans say they want to return power to the states and cities where politicians are more accountable.  Milton Friedman also believed that.  But, they better practice what they preach.

The state of Alabama has no minimum wage law.  They set the prevailing state minimum wage at whatever the federal government’s is.  The city of Birmingham, Alabama wanted to enact a higher minimum wage.  They did.  The state struck it down by passing a law making it illegal to have city minimum wages higher than the state.

No doubt, having a higher minimum wage is damaging.  Seattle has had significant job losses since it enacted a significantly higher minimum wage.  It hurts employment prospects for people that need any job.  It stops businesses from hiring more people.  It stops businesses from growing.  The marginal cost of the minimum wage is a lot higher than the cost of the wage.

If we believe in small government and more local control, then you have to let it happen.  It is hard to watch a slow motion train wreck.  But, it has to happen.  Markets will adjust over time.

 

  • WB
    • I guess you didn’t click the link. Plenty of data at the link.

      • oldmd71

        The data do not support the conclusion that Seattle’s new minimum wage law had a negative impact on employment. See http://ritholtz.com/2016/02/157443/.

        • It does. Unemployment is higher. It’s harder to find work. Let me help you with the fine print on the link. “Early evidence from the Bureau of Labor Statistics (BLS) on Seattle’s monthly employment, the number of unemployed workers, and the city’s unemployment rate through December 2015 suggest that since last April when the first minimum wage hike took effect: a) the city’s employment has fallen by more than 11,000, b) the number of unemployed workers has risen by nearly 5,000, and c) the city’s jobless rate has increased by more than 1 percentage point (all based on BLS’s “not seasonally adjusted basis”). Those figures are based on employment data for the city of Seattle only (not the Seattle MSA or MD), and are available from the BLS website here (data are “not seasonally adjusted”). Those three negative employment effects are displayed in the three charts above and I’ll explain each in greater detail below.”

          • oldmd71

            No, it explains a correlation but not causation. Unemployment patterns in cities surrounding Seattle that did not raise their respective minimum wages–including Bellevue, Everett, Federal Way, Lynwood, and Redmond–were similar to Seattle’s.

          • The paper ignores the law of diminishing marginal returns.

          • oldmd71

            There’s also this 1993 NBER paper: http://www.nber.org/papers/w4509. Here’s the abstract:

            “On April 1, 1992 New Jersey’s minimum wage increased from $4.25 to $5.05
            per hour. To evaluate the impact of the law we surveyed 410 fast food
            restaurants in New Jersey and Pennsylvania before and after the rise in
            the minimum. Comparisons of the changes in wages, employment, and
            prices at stores in New Jersey relative to stores in Pennsylvania (where
            the minimum wage remained fixed at $4.25 per hour) yield simple
            estimates of the effect of the higher minimum wage. Our empirical
            findings challenge the prediction that a rise in the minimum reduces
            employment. Relative to stores in Pennsylvania, fast food restaurants
            in New Jersey increased employment by 13 percent. We also compare
            employment growth at stores in New Jersey that were initially paying
            high wages (and were unaffected by the new law) to employment changes at
            lower-wage stores. Stores that were unaffected by the minimum wage had
            the same employment growth as stores in Pennsylvania, while stores that
            had to increase their wages increased their employment.”

            Many subsequent studies confirmed this conclusion, and it has withstood non-oversimplified, non-ideological challenges.

            The basic conclusion is that modest increases in minimum wages don’t hurt employment and tend to boost overall economic activity.

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