Water Does Run Down Hill After All

by Don Boudreaux on December 10, 2013

in Myths and Fallacies, Reality Is Not Optional, Work

Here’s a letter to the Washington Post:

Harry Holzer writes about the minimum wage that “The biggest concern among economists is that imposing pay increases on employers will reduce the hiring of low-wage workers and raise unemployment.  But in four decades of research by economists, this appears to be a small or nonexistent effect” (“Use caution in raising the minimum wage,” Dec. 10).  Yet the paper to which Prof. Holzer links for support of his claim finds just the opposite.

The authors of that paper, after surveying the empirical findings of more than 100 studies from around the world, conclude that “the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect.  A sizable majority of the studies surveyed in this monograph give a relatively consistent (although not always statistically significant) indication of negative employment effects of minimum wages.  In addition, among the papers we view as providing the most credible evidence, almost all point to negative employment effects, both for the United States as well as for many other countries.”

Prof. Holzer might defend his claim by saying that the negative employment effects are real yet “small.”  But many of the studies reviewed by the authors of the paper clearly find large negative effects on the job prospects of the very workers meant to be helped by minimum-wage legislation – especially high-school dropouts, teenagers, and black youths.  When these findings are combined with recognition of other ways that employers can also respond to mandated minimum wages – ways such reducing fringe benefits and demanding greater hourly efforts from workers – suggestions that minimum-wage legislation is a boon to low-skilled workers become too incredible to believe.

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

And I promise that I found Chris Edwards’s very similar take – over at Cato@Liberty – only after writing my letter!

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