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Not to Mention that the Origin of the U.S. Minimum Wage Had Nothing to Do with ‘Fairness’

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Here’s a letter to the New York Times:

Arindrajit Dube makes a strong case for minimum-wage legislation (“The Minimum We Can Do [2],” Nov. 30) – but it’s not strong enough.  Here are two (of many) weaknesses in his case.

The first is Prof. Dube’s dismissal of David Neumark’s and William Wascher’s research – empirical research that consistently shows that higher minimum wages reduce low-skilled workers’ employment options.  Prof. Dube claims that the higher unemployment that Neumark and Wascher attribute to minimum wages is in fact the result of long-run secular trends in the decline of low-wage employment – trends that are independent of minimum-wage legislation.  But on pages 10-15 of the very paper by Neumark, Wascher, and J.M. Ian Salas* that Prof. Dube links to in his essay, these scholars explicitly do consider carefully the trends that Prof. Dube accuses them of ignoring.  And they still find that minimum-wage legislation significantly shrinks the employment options of low-skilled workers.

The second weakness is Prof. Dube’s argument that “If McDonald’s is required to pay a higher wage, fewer of its workers will leave to take other jobs.  This means fewer vacancies at McDonald’s, and it means other employers are more likely to fill their job openings from the ranks of the unemployed – both of which can help keep unemployment down.”

Forget that this argument undermines a pet assertion of minimum-wage proponents, namely, that employers have monopsony power over low-skilled workers.  (Monopsonist employers do not routinely lose workers to other employers.)  Instead recognize that Prof. Dube overlooks the fact that when the turnover rate of McDonald’s employees is high, then McDonald’s restaurants themselves “are more likely to fill their job openings from the ranks of the unemployed.”  In other words, Prof. Dube’s conclusion that employment is buoyed when McDonald’s rate of worker turnover falls reflects his failure to recognize that, while a lower turnover rate at McDonald’s might indeed cause other employers to hire more new workers from the ranks of the unemployed, it will also cause McDonald’s to hire fewer such workers – thus offsetting the increased hiring by other employers.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

BABY WITH THE BATHWATER? [3]” NBER Working Paper 18681 (January 2013).