Minimally Convincing

by | Jul 6, 2017

Minimally Convincing

by | Jul 6, 2017

Two high-quality studies of the disemployment effects of the minimum wage are getting a lot of attention.  The first looks at Seattle.  Punchline:

This paper evaluates the wage, employment, and hours effects of the first and second phase-in of the Seattle Minimum Wage Ordinance, which raised the minimum wage from $9.47 to $11 per hour in 2015 and to $13 per hour in 2016. Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.

The second looks at Denmark.  Punchline:

On average, the hourly wage rate jumps up by 40 percent when individuals turn eighteen years old. Employment (extensive margin) falls by 33 percent and total labor input (extensive and intensive margin) decreases by around 45 percent, leaving the aggregate wage payment nearly unchanged. Data on flows into and out of employment show that the drop in employment is driven almost entirely by job loss when individuals turn 18 years old.

These look like careful studies to me.  But if I were a pro-minimum wage activist, neither would deter me.  As I confessed before the empirics were in:

If I were sympathetic to the minimum wage, I’d insist, “The worst the experiments will show is that high minimum wages hurt employment in individual cities.  That wouldn’t be too surprising, because it’s easy for firms and workers to move in and out of cities.  The experiments will shed little light on state-level minimum wages, and essentially no light on federal minimum wages.”

In other words, I’d channel Ayn Rand villain Ivy Starnes:

She made a short, nasty, snippy little speech in which she said that the plan had failed because the rest of the country had not accepted it, that a single community could not succeed in the midst of a selfish, greedy world – and that the plan was a noble ideal, but human nature was not good enough for it.

The same goes, of course, for a group-specific minimum wage.  If I favored the minimum wage, I’d look at the Danish results and say:

“Fine, high minimum wages hurt employment for workers in the critical age category.  So what?  It only shows that when some workers are poorly protected, firms prefer to hire them.  The experiments shed little light on comprehensive minimum wages that protect everyone.  Plus, Denmark is a small country of 6M people.  If Denmark’s minimum wage hurts low-skill Danes, we need a pan-European minimum wage, not deregulation.”

What if the studies had come out the other way?

Read the rest at the Library of Economics and Liberty.

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