Economic FreedomEconomic Policy

Minimum Wage, Maximum Suffering

minimum_wageYesterday, I attended a press conference hosted by Give Arkansas A Raise Now. What I heard were a bunch of demands that Arkansas raise its minimum wage — and a bunch of assertions that doing so would have a positive impact on our state’s economy. What I didn’t hear was any empirical evidence that backs up this claim.

The group is led by Steve Copley, a United Methodist pastor. One reporter at the briefing asked him to respond to the argument that raising the minimum wage will force layoffs because businesses will be able to afford labor. Copley said:

We have some studies that have shown throughout the country where this has occurred over the decades that, that really does not happen much. You see very few if any layoffs and in fact in some places you’ve seen, because of increased productivity and many other factors, you see an uptick for business. So, actually studies show, that that’s…is not really what happens.

Another reporter asked Copley how he determined that $8.50 was the best minimum wage for Arkansas. “Was it just arrived at by looking at the $10 federal proposal? Was there any research done or does it just kind of look like a good number?,” he asked. Copley said:

Well, I mean, you do some research, ummm…we had access to a poll which supported — there were about 72% Arkansans that would be supportive of an $8.50 increase.

Another reporter asked why Copley had taken interest in this cause. Was it families struggling? The Arkansas economy? Copley answered:

Well, when you interact with folks and you see — you do that kind of math. If they’re getting $15,000 a year and you start doing that math. $5,600 a year for groceries, $3,600 for rent — and all that would be minimum. Where’s the paycheck? It’s gone and folks are suffering and so that’s why we think it needs to go up.

Finally, a reporter asked Copley if he thought raising the minimum wage would help the job market. He responded:

I understand there’s a lot of dynamics, but I think yeah, folks who are sitting on go and feel a sense of hopelessness and look out and see ‘Well, $15,000, it’s going to be hard for me to live even if I get a job.’ It gives some incentive. An incentive to go out and work and hopefully gives a boost to the economy as well.

The Democrat-Gazette is reporting today that the group’s plan would gradually increase the minimum wage — from $6.25 to $7.50 on Jan. 1, 2015; to $8 on Jan. 1, 2016; and to $8.50 on Jan. 1, 2017. This raises several questions, like: If the need for raising the minimum wage is so dire, why wait until 2017 to go to $8.50? If it will have a positive impact on the economy, as Copley says, why not do it immediately?

Furthermore, why should Arkansas stop at a $8.50 minimum wage? Wouldn’t $10 an hour be better? Or how about $100 per hour? Isn’t $100 per hour better than $10 per hour?

There are numerous problems with Copley’s arguments — I can’t possibly refute them all in one blog post. But suffice it to say: raising the minimum wage isn’t all roses.

Raising the minimum wage does force layoffs because labor becomes too expensive. The increased labor costs lead to higher consumer prices and causes fewer sales, which means that fewer workers are needed. One of my favorite labor economists, Walter Williams, put it this way:

Among academic economists, there is little or no debate over the unemployment effects of minimum wages. Our only debate is the magnitude of unemployment.

As labor becomes more expensive, businesses are forced to cut less productive employees (presumably the ones the minimum wage is intended to help) and consolidate responsibilities onto more productive employees. Richard W. Rahn says this has a disproportionate negative impact on young people:

The least educated and least skilled tend to lose their jobs. Teenagers, particularly black teenagers, are the hardest hit, with a current unemployment rate of almost 40 percent, roughly double that for white teenagers. All teenagers have an unemployment rate more than triple for that of adults.

And that’s not just Rahn’s opinion. Antony Davies and James R. Harrigan have some more stats:

In a bizarre twist, raising the minimum wage hurts the very people it aims to help. National employment data from 1975 through 2012 show that on average, a 10 percent increase in the minimum wage has been followed by no change in employment among college-educated workers, a half-percentage point increase in unemployment for those with high school diplomas, and a one percentage point increase in unemployment for those without high school diplomas.

Copley and his allies in the minimum wage fight can continue to “hope” that their efforts will spur the economy, but hope isn’t math. Factual analysis (which is to say, reality) paints a much different picture: raising the minimum wage makes job opportunities more scarce, because it makes labor more expensive. In short, raising the minimum wage is cruelty disguised as compassion.

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5 thoughts on “Minimum Wage, Maximum Suffering

  • Scott

    Well, the increased price of labor has brought us automated tellers (remember when there used to be 6-10 tellers at any bank?) and self checkout lines at the grocery store (remember when grocery stores would have dozens of checkers and dozens more baggers working at the same time during the busy hours on weekends?). Further increasing the price of labor will lead to things like self-ordering kiosks at restaurants and more and more floor cleaning handled by autonomous robots (vacuuming, scrubbing, etc.)
    Raising the minimum wage causes inflation, which eats any gains made by the minimum wage workers, but the workers currently making just more than minimum wage suffer even more as they don’t get a raise and still have to deal with inflation.

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  • David Edwards

    As a conservative, I may be speaking a little different than my colleagues, but please think this through. I am against ALL government subsidies – including corporate and entitlements. There are many companies that receive government subsidies as well as have minimum wage workers who are also on food stamps. I propose a phased in approach of a lower minimum wage for youth/young adult workers from 16 to 21, and a higher minimum wage for adult workers. Plus, a staged and simultaneous reduction of food stamps along with an increase of the minimum wage. This would shift the redistribution of wealth from being run and (mis)managed by the government and instead by default force it on the private sector.
    I await your comments…

  • Scott

    Why would a reduction in entitlements require an increase in the minimum wage? Maybe we should let people discover that they need to learn marketable skills to make a living rather than expecting to support a family asking if somebody wants to super size their combo meal.

  • Joe Cordes

    I would like to know how a conservative can rationalize continued use of government policy control of the private market to dictate wage (or price) control to accomplish any end. We are in Wonderland it seems, when a conversation can be had regarding “the level” of control that a government can have over private transactions such as a wage arrangement between an employer and employee. If we have lost the ability to argue that no level of government has any authority whatsoever to dictate the value of work and free association, we are truly lost.


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