Hey, But At Least Economists Will Have More Data to Crunch!

by Don Boudreaux on December 30, 2016

in Seen and Unseen, Work

Here’s a letter to the Wall Street Journal:

Reporting on looming increases in state and local minimum wages, you write that “Economists and policy makers are of two views on the costs and benefits of minimum-wage increases.  While the policy puts more money in the pockets of low-wage workers, it also gives employers less incentive to add to their payrolls, leaving some workers behind” (“Minimum Wages Set to Increase in Many States in 2017,” Dec. 30).

That’s not quite correct.  While it’s almost certain that minimum wages reduce firms’ willingness to employ low-skilled workers, it’s by no means certain that “the policy puts more money in the pockets” of these workers.  Most obviously, workers rendered unemployed by minimum wages find their pockets, not swelled, but drained.  Yet even if we lump together all low-skilled workers and (with questionable legitimacy) consider them only as a group, the loss of incomes by workers rendered unemployed might well be greater than the gain in incomes of workers who remain employed at higher minimum wages.  The result would be a net decline in low-skilled workers’ total income (and, hence, a fall in such workers’ consumption spending). Indeed, because each low-skilled job adds relatively little to an employer’s bottom-line, and because these jobs are generally very easy to mechanize, there’s a high likelihood that minimum wages over time cause such a large decrease in the employment of low-skilled workers that these workers’ total income falls.

But regardless of the effect on the overall income of low-skilled workers, the bottom line is, rather than say (as you do), that “About 4.4 million low-wage workers across the country are slated to receive a raise,” you should instead have said “About 4.4 million low-wage workers across the country are slated to be made artificially more costly to employ.”

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


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