Proposed Minimum Wage Increase Triggers Job Loss Scare Stories

My last post pulled together some figures on whom the President’s proposed minimum wage increase would help. It seems fair to ask whether it would cause harms.

The answer is a resounding “yes” from Congressional Republicans and the best-known organizations that claim to represent small business interests.

First off, we’re told that a minimum wage increase will cause job losses.

“When you raise the price of employment, guess what happens. You get less of it,” said House Majority Leader John Boehner, assuring the press that the President’s proposal would be dead on arrival.

He then reverted to another well-worn argument against minimum wage increases. They make it harder for workers with few or no marketable skills to get hired. So these workers can’t “acquire the skills they need to climb that ladder” to the American Dream.

“Workers must bring at least as much value to the firm as they are paid, ” says the National Federation of Independent Businesses. So businesses won’t hire people who need on-the-job-training before they can do what they were hired for.

Both the job loss and the no-skill worker argument appeal to common sense. But we need more than that here.

Fortunately, we’ve got scads of economic research on the jobs loss issue — much of it focused on teenagers and/or low-wage fast food jobs.

A recent, very wonkish review concludes that the effect of a minimum wage increase on jobs is somewhere around zero, as this extracted graph shows. Not the end of the economists’ back-and-forth on this, of course.

Some suggest that a minimum wage increase could actually create jobs because affected workers and their families would spend most, if not all their extra income. Basically the same effect as stimulus spending, but without (horrors!) an increase in the deficit.

Analyzing the impacts of an earlier, more generous proposal, the Economic Policy Institute found that it would create about 100,000 new jobs during the phase-in period.

On the other hand, we’ve got assurances that jobs won’t be lost in part because employers will “improve efficiency.” They may, for example, raise performance standards, e.g., require faster and better task completion and/or impose more tasks.

I’ve got a hard time seeing how, in the long run, this response wouldn’t, at the very least, put a drag on new job creation — perhaps even lead employers to conclude that they needn’t replace all the workers who move on or get fired because they can’t meet the new demands.

Or maybe a minimum wage increase wouldn’t make much difference here, since we know that employers are already doing their best to manage with as few workers as possible.

In any event, businesses have other options. Some may decide to pass part of their additional labor costs on to consumers.

This has also been cited as a harm to minimum wage workers, who, of course, would have the hardest time coping with price increases.

The Center for American Progress debunks this version of the harm-those-intended-to-help argument. A price increase of at most 0.18% would pay for the entire hike in labor costs, according to its number-crunching.

Businesses could instead absorb the cost by accepting a slightly lower profit margin, CAP says.

Or — less radical idea — they might find, as some already have, that the higher wage pays for itself because it reduces turnover and motivates employees to work as hard and smart as they can.

The bottom line is that employers en masse aren’t going to shrink their workforces if a minimum wage increase passes. Small businesses aren’t going to tank. Low-income people will still be able to afford Big Macs.

But how much low-income workers would benefit in the long run depends on responses we can’t predict.

What we can predict is that about 18 million would benefit right now — 3 million or so more if the federal tip credit wage got a reasonable boost as well.

2 Responses to Proposed Minimum Wage Increase Triggers Job Loss Scare Stories

  1. […] doesn’t stop there, however, as some who are fond of this meme […]

  2. […] also heard for I don’t know how long the scare stories about job losses, due not only to restaurant closings, but staffing reductions. Yet restaurant job growth has […]

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