A Note On the Empirics of Minimum-Wage Studies

by Don Boudreaux on October 29, 2014

in Complexity & Emergence, Data, Seen and Unseen, Work

Bill Hill (who has no Facebook account), after reading this post, asks a sensible question.  I’ll paraphrase his question.  (Mr. Hill: If I paraphrase mistakenly, do let me know ASAP.)

You [Boudreaux] say that minimum-wage legislation blocks the creation or discovery of economic opportunities that might well, had there been no such legislation, employed many low-skilled workers.  That claim might be true.  But even so, why would not empirical studies of changes in the minimum wage, and of differences in minimum-wages across political jurisdictions, fail to pick up these disemployment effects?

The answer is that such legislation likely blocks the creation or discovery of kinds of enterprises that differ greatly from existing enterprises in their mixes of labor and capital.  In particular, it’s plausible (although not certain) that, absent minimum-wage legislation or any significant threat of such legislation being enacted, entrepreneurs would experiment with enterprises using lots of low-skilled labor relative to other inputs.  For example, (and I here just speculate, because I’m no entrepreneur), a firm might arise that uses legions of low-skilled workers to deliver advertising fliers door to door, or uses legions of low-skilled workers to canvas neighborhoods offering to do light gardening work.

But because we are burdened by minimum-wage legislation, and have been burdened by it for so long now without any reasonable prospect of its repeal, no one bothers even to think along the lines of creating such enterprises.  The enterprises that are created are ones that are reasonably well-equipped to deal with minimum-wage legislation – which is one reason why the (relatively) small changes and differences in such legislation do not register larger disemployment effects in the empirical studies (and why such effects are sometimes impossible even to detect).


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