In my latest column for AIER, I discuss some of the reasons why the conclusions of the current research into the actual employment effect of minimum-wage impositions are more ambiguous than a cursory knowledge of ECON 101 suggests they should be . A slice:
Employers in countries in which minimum wages have existed for many years have adjusted their business plans not only to the existence of minimum wages, but also to the likelihood that minimum wages will rise. In the United States, the current national minimum wage was first imposed in 1938 by the Fair Labor Standards Act. Starting off at $0.25 per hour, it has since been raised 22 times, an average of once every 44 months. This minimum wage is now $7.25 per hour.
Because this minimum wage has been around, without pause, for 80 years, because it is routinely increased, and because there is no realistic prospect of its being repealed, employers make their business plans accordingly. No firm today in the United States uses a production process as heavily reliant on low-skilled workers as some of these processes would be absent a minimum wage. Knowing of the existence both of the minimum wage and of the likelihood that it will be raised in the not-too-distant future, employers use more labor-saving machinery and fewer low-skilled workers than they would use otherwise.
So it’s no surprise that some researchers fail to detect any resulting decrease in employment whenever the minimum wage is increased. The negative employment effects of the minimum wage were already built into the structure of the American economy. Indeed, when this undeniably correct prediction of economics is understood, it is not too much to say that the most surprising fact about the many modern empirical studies of minimum wages is that any of them find that hikes in minimum wages continue to have statistically significant negative employment effects.
Despite some commentary to the contrary, empirical studies of the employment effects of minimum wages do not come close to proving that minimum wages don’t harm many of the people most minimum-wage supporters wish to help: low-skilled workers.