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Minimum Wages and Worker Morale and Turnover

One of the worst arguments frequently offered by supporters of minimum-wage legislation is that such legislation actually increases the efficiency of firms’ operations by improving employee morale and reducing employee turnover.  Employers allegedly gain through minimum-wage legislation!  This argument is especially weak because it is never explained why profit-hungry firms operating in highly competitive output markets such as fast-food retailing and lawn-care service must be directed by politicians on how to increase their firms’ profitability.

In fact, minimum-wage legislation is likely to reduce employee morale.  The reason is that minimum-wage legislation makes minimum-wage jobs less pleasant than they would be in the absence of such legislation.  Employers adjust to the requirement of paying a higher minimum wage not only by firing some workers and by not hiring workers that they would otherwise have hired; they adjust also by changing for the worse the non-wage terms of employment for those workers who do remain employed at the higher minimum wage.  Fewer coffee breaks; less tolerance for personal phone calls and texting while on the job; stricter dress codes; dirtier or more hazardous workplaces; demands that workers produce more output per hour – the list is long.  The reduced attractiveness of the non-wage aspects of minimum-wage jobs almost certainly lowers the morale of those employees who remain employed at the minimum wage.

It’s true that minimum-wage legislation might nevertheless reduce employee turnover, but that effect is likely the result of the diminished employment options open to workers who keep their jobs at the minimum wage.  Because minimum-wage legislation results in fewer jobs than otherwise open to low-skilled workers, those workers who are lucky enough to get jobs at the minimum wage are less likely than they would be without minimum-wage legislation to switch jobs.