Taking their cue from Seattle, cities and states are implementing minimum wage increases all over the country. Late last year, voters in Washington approved an increase in the statewide minimum wage that will raise it to $13.50 per hour by 2020. Three other states have also approved increases, including the typically conservative Arizona, where by 2020 the minimum wage will increase to $12 per hour.
Yet such policies rely on a fundamental abridgment of employer and employee freedom, leading to an abridgment of opportunity, in turn.
In a new study published by the National Bureau of Economic Research, we see a strong affirmation of that general principle. Commissioned by the city of Seattle to gauge the effects of the city’s progressive minimum wage increases, the study concludes that for low-wage and entry-level workers the costs of the hike outweigh the benefits by a factor of three to one.
The results seem to confirm what conservative economists have long said about artificial minimum wage hikes. Namely, that the group who is supposed to benefit most — those on the low end of the wage spectrum — end up instead with lower wages or lost jobs. But while the paper may not prove this conclusively, it’s likely to have an impact not only on Seattle, but on other states and cities considering proposed increases to the minimum.
The new research seems to conflict with some past studies on the effects of the minimum wage on employment rates. One such study, published in 1994 by David Card and Alan B. Krueger in The American Economic Review, compared employment changes in fast-food restaurants between New Jersey and Pennsylvania while New Jersey enacted an increase. Card and Krueger concluded that particular hike, from $4.25 to $5.05 (almost 19%), had no negative effect on employment rates.
However, according to Max Ehrenfreund, the new study finds different results by broadening the scope of the data. “Economists might not readily dismiss the new study as an outlier, however,” Ehrenfreund writes. “The paper published Monday makes use of more detailed data than have been available in past research, drawing on state records of wages and hours for individual employees.”
As the Washington Post reported: “The paper is likely to upend a debate that has continued among economists, politicians, businesses and labor organizers for decades. In particular, the results could exacerbate divisions among Democrats, who are seeking an economic agenda to counter President Trump’s pitches for protectionism, reduced taxes and restrictions on immigration.” For more details on the study, see Joe Carter summary and Dylan Pahman’s commentary.
What these states and cities will ultimately realize is that employers wanting to stay in business only have three options when faced with mandatory minimum wage laws. Either they (1) freeze hiring, causing employment rates to drop; (2) hire employees with higher skill sets, marginalizing teens and entry-level workers from the job market; or (3) increase prices, passing along the costs to the market.
This diminishes freedom from the other end, too, limiting the range of options that are available for the very employees it’s supposed to help. If my retail job in high school had paid $15 an hour, I would have been priced out of the market by someone older and more responsible, with more skills and knowledge. I would have lost that opportunity to learn how to become a bit more responsible myself, all because prices were not allowed to serve as a signal of actual preferences in free and open exchange
Ultimately, aside from its pragmatic effects the most frightening effect of a state-mandated minimum wage is the abridgment of individual liberty it inevitably entails. After all, if I’m willing to work for $10 an hour and the government says that would be illegal, they have essentially taken away my liberty to negotiate for myself.
When the state, which exists to protect the rights of individuals, becomes an agent that inhibits personal liberty, we shouldn’t be surprised that the most vulnerable among us will be the ones who suffer the most.
Image: Fibonacci Blue, Strike and a protest march for a $15 minimum wage in Dinkytown, Color, CC BY 2.0