Unemployment and the Minimum Wage

by Don Boudreaux on September 18, 2013

in Crony Capitalism, Seen and Unseen, Work

While standard economic theory doesn’t predict that a higher minimum wage will necessarily reduce the number of hours of paid work by low-skilled workers – employers, for example, might adjust to the higher minimum wage exclusively by working all of their low-skilled workers harder – reduced employment for low-skilled workers remains among the most plausible consequences of the adjustments that employers inevitably will make to a rise in the minimum wage.

W.S. Siebert, an economist at the University of Birmingham, has a very nice article in the Summer 2013 issue of Economic Affairs reviewing much recent research on the employment effects of minimum-wage legislation.  This research, in toto, pretty convincingly shows that higher minimum wages promote higher unemployment among low-skilled workers.  Here’s a recent blog post that Prof. Siebert wrote to summarize his article’s findings.  A slice:

In sum, while the UK evidence is thinner due to statistical problems, the research overall points to the minimum wage reducing employment as conventional economic theory predicts. In other words, the minimum wage undermines employment for the least productive whilst raising wages for others. The research also suggests that the workers who benefit are the better-off: where there is high unemployment there is heightened competition for jobs, with the better connected workers rather than the poor finding them. Thus, Ahn et al.’s (2011) research shows that, as the minimum wage increases, there is a shift in employment towards teenagers in families with highly educated heads and away from poorer groups.

My 16-year-old son, Thomas, understands that he is unlikely ever to suffer any direct, negative consequences of minimum-wage legislation.  He correctly understands, in fact, that he’s likely to benefit from such legislation.  The reason is that he’s a well-educated, well-spoken, intelligent, and mentally and physically healthy kid from an upper-middle-class, suburban, highly educated white family.  He will be among the last low-skilled workers to lose, or not to get, a job because of the minimum wage.  Indeed, his starting wage (the legislated minimum) likely will be slightly higher than it would be without the minimum wage.

Thomas’s mother and I – along with Thomas – should actually thank Congress for such legislation, for it makes Thomas (and our households) wealthier than otherwise.  And because we don’t know or see the inner-city teenagers who, because of the minimum wage, do not get jobs, why should we care about them?  They’re faceless.  Strangers.  Congress (with help from the D.C. government) artificially keeps those strangers out of the workforce, thus artificially increasing the demand for the labor services of my son.

Of course, I in fact believe – as do Thomas and his mom – that the benefit he gets because of minimum-wage legislation is utterly unwarranted.  It’s a crime that he (and people like him) benefit at the expense of young people much more in need now than he is of good employment prospects.

How ironic that we relatively wealthy opponents of minimum-wage legislation are routinely accused of being selfish and blind.

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