Who’d a-Thunk It?

by Don Boudreaux on August 14, 2017

in Reality Is Not Optional, Seen and Unseen, Work

We study the effect of minimum wage increases on employment in automatable jobs – jobs in which employers may find it easier to substitute machines for people – focusing on low-skilled workers from whom such substitution may be spurred by minimum wage increases. Based on CPS data from 1980-2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become unemployed. The average effects mask significant heterogeneity by industry and demographic group, including substantive adverse effects for older, low-skilled workers in manufacturing. The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.

That’s the abstract of a new paper by Grace Lordan and David Neumark, titled “People Versus Machines: The Impact of Minimum Wages on Automatable Jobs.”  (emphasis added)

Reality is not optional and the law of demand holds for low-skilled labor no less than it holds for kumquats, for yoga instruction, and for high-quality jewelry.  Indeed, the law of demand is universal.  Therefore, government diktats requiring all workers to insist on being paid at least some minimum hourly wage from employers will cause the quantities of any given kind of low-skilled labor demanded by employers to be fewer than these quantities would be in the absence of such diktats.

Minimum-wage proponents fancy themselves to be champions of the poor, but these fancies are belied by the reality that minimum wages reduce the employment prospects of the very people that well-meaning minimum-wage proponents intend to help.

(HT Frank Stephenson)


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