Shock News! Increasing Minimum Wage Increases Unemployment!

I know this will come as a real shock to our regular readers, but it turns out that increasing minimum wage doesn’t actually help the poor very much. It just increases the workload on fewer employees. In other words, it stimulates unemployment:

The study published by the National Bureau of Economic Research found that minimum wage increases reduced employment opportunities for low-skilled workers by nearly 6 points during the Great Recession.

“This period’s full set of minimum wage increases reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points,” the study says. . . .

Workers with less than a high school education were hardest hit; unemployment and labor participation has lingered as a problem despite national economic recovery. The labor participation for young, low-skilled workers fell from 40 to 28 percent between 2006 and 2009 and remained far behind other workers.

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Was there anyone that didn’t expect this? I know people are very stupid in this country. But sometimes the depth and thoroughness of that stupidity still surprises me. This is not complicated.

Let’s begin by considering any random restaurant. It brings in a set amount of money. It has a set amount of costs. The only reason it would increase any of those costs would be on the prospect of increased income. For instance, it might increase its advertising budget to try to increase sales. Otherwise, any additional costs affect profitability. Most businesses that offer minimum-wage jobs already have a fairly narrow profit margin. If minimum wage hikes eat up an already narrow profit margin, the result will be closed businesses and fewer jobs:

The restaurant industry overall is a low-margin business that doesn’t have much spare cash in the till. The average profit margin for the whole industry is just 2.4%, according to Capital IQ, and that’s down from 3.2% in 2009, which is when the recession ended.

So increasing payroll costs even by a little would actually destroy most restaurants. Resulting in? You guessed it—lower employment.

For the most part, wages are set by businesses rather carefully. The only real way for a low-income worker to move ahead in the world is for that worker to move on to a better job. Minimum-wage jobs are meant to provide weekend mad money for teenagers. They’re not designed to provide a living for families.


from Last Resistance

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