Saturday, December 06, 2014

Please Don’t Price Low-Skilled Workers Out of Jobs

Please Don’t Price Low-Skilled Workers Out of Jobs

The economic reasons against raising the minimum wage are too many to rehearse in a short letter. So bear with me as I focus on what I believe is the most important of the reasons: raising the minimum wage will harm the very people who I know you seek to help.

Employers of minimum-wage workers almost all operate in highly competitive industries, such as retail food service, cleaning services, and lawn-care services. These industries have at least three characteristics that make a minimum-wage hike not only especially unlikely to result in higher incomes for low-skilled workers, but actually to reduce to zero the incomes of workers who can least afford to suffer such an economic calamity.

First, profit margins in the industries that use lots of low-skilled workers generally are razor thin. So there’s no way that mandated higher labor costs can be absorbed by these employers – that is, there is no way that the costs of a higher minimum wage will be paid for exclusively, or even largely, by employers.

Second, many of the tasks performed by low-skilled workers are manual and rote and, hence, are especially easy to mechanize. Third, many of these tasks are of such low value to consumers that they are readily avoided if the cost of their performance rises significantly. The incidence of such mechanization and avoidance will increase with the costs of employing human workers. For example, some fast-food restaurants are now experimenting with computers that allow customers to place orders and pay without the assistance of cashiers. And just a few weeks ago I stayed at a hotel in Manhattan that gives extra awards points to guests who stay for multiple nights and who agree to forgo daily maid service.

The result of this reality is that a government-enforced hike in the cost of employing low-skilled workers will cast many of the lowest-skilled workers indefinitely into unemployment lines. These workers’ pay will fall to $0. Worse, they will be denied opportunities to gain work experience. The ranks of people lacking skills and experience – and hope – will swell.

I know, Dave, that you mean well. I know also that some ‘experts’ assure you that studies exist that contradict the economic analysis that I summarize above. But for every empirical study that denies the negative consequences of minimum-wage legislation, I can show you several top-flight studies that confirm that these negative consequences are real.

So in light of the dueling empirics on this matter, I suggest that common sense combined with human decency counsel against raising the minimum wage. If (as is the case) the empirical evidence drawn from a multi-trillion-dollar, complex, and ever-changing economy doesn’t overwhelmingly contradict the fundamental economic proposition that raising employers’ cost of hiring low-skilled workers will prompt employers to more strictly economize on the number of such workers they hire, then to nevertheless forcibly increase employers’ costs of hiring low-skilled workers is to unjustifiably put in greater peril the most economically vulnerable people in our society.

I would be happy to testify, in Richmond, in much more detail on both the theoretical and empirical case against raising the minimum wage. Such a policy is, despite its fine-sounding name and the excellent intentions of you and many other of its proponents, profoundly if invisibly anti-poor and anti-minority.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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