Higher minimum wage

Posted on January 11, 2007 | 3 Comments

An argument I’ve made poorly in comments at some of the economics blogs I read has finally been backed up, at least anectdotally by a story linked to by Mark Thoma out of Washington State.
Briefly, if a higher minimum wage leads to higher-quality workers (whether previously uninterested adults or just better teenagers), the predicted negative effects on employment and business may actually not materialize. This is important because despite what the more ideologue economists will tell you (based on theory), there’s actually little real-world evidence that increases in the minimum wage actually increase unemployment.
Just a quick hit for the people getting tired of All Wal-Mart, All The Time.

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3 Responses to Higher minimum wage

  1. AC | January 11, 2007 at 2:04 pm |

    I agree that there’s little evidence that _modest_ increases in the minimum wage hurt employment (or anything else).
    Given that only 2.4% of the Washington state work force works for minimum wage (according to the article), even Washington’s “high” minimum wage can’t be too far above the market clearing price. It sounds like there’s some gap, but Washington’s minimum wage seems to be in the “modest” category.
    Here’s the “idealogue” position (Posner at http://www.becker-posner-blog.com/archives/2006/11/):
    “[F]orcing employers to pay employees an above-market wage will result in (1) higher prices for the goods or services produced by the employers, which will have the same effect as a tax on the consumers of those goods or services, (2) higher wages for those minimum-wage employees whose employers decide to retain them and pay the mandated new wage, and (3) less employment of marginal workers, that is, of workers paid less than the imposed minimum.”
    The article confirms (1). The pizza joint discussed in the article raised prices. It just didn’t raise them very much — which supports the point that modest mw increases don’t have much effect.
    (2) is self-evident.
    (3) The article cites a study by a Wash. state economist who said 97% of minimum wage earners were better off. I’m trying to find this study, but I wonder if this means that minimum wage employment declined by as much as 3%. Also, I wonder whether the influx of workers from Idaho has displaced low-skilled, less productive workers on the Washington side of the border.
    Otherwise, the article doesn’t really discuss employment rates among the low-skilled.
    The new minimum wage will have zero or nearly zero effect in places like Washington, CA, NY, MA. It will affect a large chunk of the population in places like Mississippi (and apparently Idaho). It will be interesting to see whether there is any detectable effect on prices or employment in these states.
    Yikes, this comment is 5 times longer than your post.

  2. M1EK | January 12, 2007 at 9:24 am |

    Any argument which rests on the market-clearing price is too simplistic, I think. After all, the whole point of this anectdote was that the higher minimum FORCED on Washington businesses resulted in NEW labor supply which didn’t previously exist (cross-border in this case; in my own anectdotal arguments, it would be adults or higher-quality teenagers for whom the old wage wasn’t ‘worth working for’).

  3. ed | January 12, 2007 at 6:30 pm |

    Hi M1EK -
    This is off topice but I randomly found your blog tonight doing a search on Northcross stuff. I have been reading your posts and am blown away by how informed you are and the great points you are making about the city. I wanted to let you know that RG4N.org has a “survey” up to gauge people’s beliefs about the Northcross/Wal Mart thing. I have it on pretty good authority that they are trying to skew the sample to get a lopsided result, and I wanted to locate some blogs that took a more balanced view of the issue. Anyway, I urge you to take it and maybe do a post about it. The survey instrument itself is biased but not ludicrously so, if a nonbiased group was administering it you could actually get some valuable info out of it. Anyway, FYI, sorry to contact you like this but I didn’t see you email on the site. Your blog is bookmarked now . . .

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