# Minimum wage = less jobs? **URL:** \ **Category:** Factual Questions\ **Created:** [May 1, 2006, 6:51pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983 "2006-05-01T18:51:21Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![ShortBus](https://avatars.discourse-cdn.com/v4/letter/s/2bfe46/32.png) [@ShortBus](https://boards.straightdope.com/u/ShortBus)\ **Post date:** [May 1, 2006, 6:51pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/1 "2006-05-01T18:51:21Z")
Everytime that minimum wage laws become a hot button topic again, the most common response from conservatives is: Bob Business Owner needs to hire some general help. He can afford to pay $10/hr. William Worker and Larry Laborer are both willing to work for for $5/mr. Great! Two new jobs have just been created. However, if the state passes a minimum wage law that states that Bob must pay at least $7/hr, he can only afford to hire William. Larry is still jobless, and most likely has to continue live off of public assistance even though he’d be happy to work for $5/hr. Ergo, minimum wage laws are harmful to both the working class and to the tax-paying middle class. I’m posting this in “General Questions” and not “Great Debates” because I’m not interested in eveyone’s opinions (though, not that you all aren’t insightful). I want to know if there exists any rigously scrutinized, scientifically valid studies that either prove or disprove this assertion. In some ways it makes sense, but in other ways it seems like Republican hand-waving, using nebulous macroeconomic theory. ---
**Author:** ![ShibbOleth](https://avatars.discourse-cdn.com/v4/letter/s/848f3c/32.png) [@ShibbOleth](https://boards.straightdope.com/u/ShibbOleth)\ **Post date:** [May 1, 2006, 6:53pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/2 "2006-05-01T18:53:58Z")
Fewer jobs? ---
**Author:** ![saoirse](https://avatars.discourse-cdn.com/v4/letter/s/5daacb/32.png) [@saoirse](https://boards.straightdope.com/u/saoirse)\ **Post date:** [May 1, 2006, 7:06pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/3 "2006-05-01T19:06:48Z")
I’m afraid this may be better as a Great Debate. The studies I read showed that raising the minimum wage did not have much effect on unemployment. William takes the extra money he would get and spends it at the bowling alley. Pretty soon the Bowling Alley needs help, and hires Larry to help out Paul Proletarian, who now has more work than he can do in a shift. Now if there’s no minimum wage, perhaps William and Larry work for Bob and Paul is at the Bowling Alley. But then someone comes by who’ll work for $4 and hour. In fact they get undercut by someone who’ll do it for $3 and hour. That leaves no spare money for bowling, but a job’s a job. Now Larry, Paul and William are all out of a job. Anyway, there are conservative models on this, and studies to show how right their position is, I don’t doubt. ---
**Author:** ![DanBlather](https://avatars.discourse-cdn.com/v4/letter/d/f4b2a3/32.png) [@DanBlather](https://boards.straightdope.com/u/DanBlather)\ **Post date:** [May 1, 2006, 7:15pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/4 "2006-05-01T19:15:53Z")
The question is why can Bob business owner only afford $10? Even if he had to raise the cost of his goods/services, his competitors would have to do the same. If he has a fixed margin (not uncommon) he might actually make more money. Suppose McDonalds had to raise proces 20%; how much business would they lose if their competitors did the same? The actual answer has to do with elasticity of demand, marginal propensity to spend, and other factors that are difficult to quantify and predict. ---
**Author:** ![XJETGIRLX](https://avatars.discourse-cdn.com/v4/letter/x/9fc29f/32.png) [@XJETGIRLX](https://boards.straightdope.com/u/XJETGIRLX)\ **Post date:** [May 1, 2006, 7:25pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/5 "2006-05-01T19:25:31Z")
> [@ShibbOleth](#): > > Fewer jobs? Thank you. That was hurting my brain. ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [May 1, 2006, 7:27pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/6 "2006-05-01T19:27:28Z")
The thing is your analysis is that Bob the Business Owner will pay the workers he needs the maximum he is willing/able to. Thats not necessarily the case. If he can pay the two laborers $15/hr but is only paying them $10/hr combined, he can raise their wage to $15 and remain profitable. Assuming thats the case, then instituting a minimum wage will do nothing more than redirect the profits of the business to the workers. Its not that simple either, but thats basically the jist of what a minimum wage hopes to accomplish. If Bob the business owner truely can’t afford the new wage then yes, theoretically he cuts a job or goes out of business. What happens in reality is that Bob the business owner hires two illegal immigrants for below minimum wage. ---
**Author:** ![Ludovic](https://avatars.discourse-cdn.com/v4/letter/l/7ab992/32.png) [@Ludovic](https://boards.straightdope.com/u/Ludovic)\ **Post date:** [May 1, 2006, 7:38pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/7 "2006-05-01T19:38:15Z")
There’s psychological factors that go beyond mathematically-rigorous calculations in play in both the raising/instituting minimum wage situation AND the dropping-minimum-wage-altogether scenarios. If minimum wage were suddenly increased to, say, $10 an hour, we would see people put out of work, no question. However, some of them would be removed because the owners _think_ they can’t afford them, even if they can (just like people whine about a $1 raise in the price of a gallon of gas, when in the vast majority of situations, gas is not the majority of the cost of a car.) And if minimum wage were dropped altogether, we’d have business owners complaining of the lack of good workers when they only want to pay said workers $2 an hour, and not registering that they need to pay a wage that will attract good workers. We need to think about both of these factors, as they have genuine economic consequences even when the logic behind them is faulty. Not only might they produce unemployment/poverty, they can also contribute to sub-par economic performance in general in society via non-ideal use of economic resources. ---
**Author:** ![Freddy\_the\_Pig](https://avatars.discourse-cdn.com/v4/letter/f/a587f6/32.png) [@Freddy\_the\_Pig](https://boards.straightdope.com/u/Freddy_the_Pig)\ **Post date:** [May 1, 2006, 7:51pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/8 "2006-05-01T19:51:56Z")
> [@ShortBus](#): > > In some ways it makes sense, but in other ways it seems like Republican hand-waving, using nebulous macroeconomic theory. The belief that an increase in price makes the quantity of a good (in this case, labor) supplied increase and the quantity demanded decrease is a matter of **micro** -economics, not macro. And rather than being “nebulous” “Republican hand-waving”, this belief has been the foundation of microeconomics for more than 150 years. ---
**Author:** ![bup](https://avatars.discourse-cdn.com/v4/letter/b/6bbea6/32.png) [@bup](https://boards.straightdope.com/u/bup)\ **Post date:** [May 1, 2006, 7:53pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/9 "2006-05-01T19:53:12Z")
> [@treis](#): > > If Bob the business owner truely can’t afford the new wage then yes, theoretically he cuts a job or goes out of business. What happens in reality is that Bob the business owner hires two illegal immigrants for below minimum wage. Well, as pointed out, what really happens is the cost of the new salaries gets passed along in price increases - Bob remains competitive because all businesses had to bear this new cost. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [May 1, 2006, 7:57pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/10 "2006-05-01T19:57:55Z")
Back to the OP’s actual question: > [@ShortBus](#): > > I want to know if there exists any rigously scrutinized, scientifically valid studies that either prove or disprove this assertion. AFAICT, no. Legally mandated wage floors and their economic effects are a very ramified and complicated subject, and I don’t see how there could be any single study that conclusively either proves or disproves a statement as broad as “minimum wage increases cause job losses.” However, the Economic Policy Institute did a [briefing paper](http://www.epinet.org/content.cfm/briefingpapers_bp150) in 2004 that surveyed the results of more narrowly targeted research on various state minimum wage policies and employment levels. (Note that EPI is frequently described as having a pro-labor bias, but I haven’t come across any substantive refutations of this article in particular.) The author summarizes: > [@](#): > > Looking at the descriptive statistics, there is no reason to believe that minimum wage increases are the cause of labor market distress in the Northwest, or elsewhere. But should we expect them to be? > > The claim that higher minimum wages are the reason for labor market problems in the Northwest is an extreme version of a particular economic theory, namely that mandatory minimum wages cause employers to reduce the number of employees they hire. This assertion is based on an overly simple model that assumes that wages are set in the marketplace the same way as the price for tee-shirts or bananas.15 When applied to the real world of low-wage work, this model makes several unrealistic assumptions, including: > > Workers and employers have many options available to choose from. > > Employers do not incur cost when hiring and firing. > > Workers can enter the job market, leave the job market, change jobs, or get fired without incurring loss. > > All employers have perfect knowledge of the productivity and ability of all workers. > > All workers have perfect knowledge of the options available and the tastes and needs of all employers. > > Each worker’s productivity is identical and all workers work to their full potential without the need for guidance or supervision. > > From the standpoint of an economist, this can be a useful way to simplify thinking about labor markets. However, it is far less useful for policy makers weighing a minimum wage increase. While the “competitive model” may be an apt descriptor of the job market faced by some workers under some conditions, it fails to account for realistic situations. As Alan Manning, an economist from the London School of Economics puts it: > > What happens if an employer cuts wages by one cent? Much of labor economics is built on the assumption that all the workers will quit immediately (Manning 2003, p. 3). > > Clearly, Manning’s scenario is not likely to happen. An alternative, more realistic model of the low-wage labor market states that: > > Employers have power to set wages because workers incur substantial personal cost during unemployment. > > Employers exercise that power by paying their employees less than what they would earn in a truly competitive market. > > By paying lower wages, employers may cause higher turnover and incur higher costs to recruit, train, and supervise their workers. > > While these assumptions may seem like common sense to the average worker, economists have only recently begun to incorporate them into analyses of low-wage labor markets. Using these assumptions, an increase in the minimum wage may not have a substantial impact on employment (and may even increase employment over some ranges) because workers are being paid less than what they are really worth economically to the firm. Rather than cause job loss, minimum wage increases would therefore correct a market imbalance by forcing employers to pay a fair wage. And by decreasing recruitment, training, and supervisions costs, increases to the minimum wage may not have a substantial impact on the cost of doing business for employers. > > […] > > The most famous studies regarding the impact of the minimum wage on employment are a set of three studies that analyzed the impact of the New Jersey minimum wage increase in 1992. The 1992 increase in the New Jersey minimum wage created fecund ground for economic research for a number of reasons. First, the increase occurred during a stagnant labor market, making it unlikely that the disemployment effects of the increase were swamped by a growing economy. Second, there was a natural experimental situation because the economy of New Jersey is closely linked to the economy of eastern Pennsylvania, where the minimum wage did not increase. Finally, a series of political events lessened the probability that employers were preparing for the minimum wage increase ahead of time (Card and Krueger 1994, p. 773). > > These studies of New Jersey and Pennsylvania are particularly important because instead of using broad aggregate data, they use data collected at the firm level. In addition, these are the studies most frequently cited in the public policy debate. Taken as a whole, the evidence from these studies clearly shows that the minimum wage increase in New Jersey did not yield the negative effects predicted by some. Yet opponents of minimum wage increases continue to focus on the one study that did claim to find a negative impact, despite the fact that highly questionable data render such a claim fatally flawed. The studies reaching the opposite conclusion, however, are based on data of much higher quality. […] > > Based solely on their own research—using highly questionable data—Neumark and Wascher concluded that the minimum wage had a negative impact on employment. They did, however, acknowledge that many of their results are not statistically significant. Even more telling, after reviewing the results of the second Card and Krueger study that used government data and combining that with their own findings, Neumark and Wascher hedge by saying that they can only decisively conclude that “New Jersey’s minimum wage increase did not raise fast-food employment in that state” (Neumark and Wascher 2000, p. 1,391). From the point of view of a voter or policy maker, this is not an indictment of increased state minimum wages because the rationale for raising the minimum wage is improving the lives of minimum wage workers, not increasing employment at fast-food establishments. > > Ultimately, the difference between the final Neumark and Wascher conclusion and that of Card and Krueger may be of interest to labor economists and statisticians, but not to low-wage workers and policy makers. Even if, based on Neumark’s and Wascher’s research, the suggestion of “a small positive effect” is removed from Card and Krueger’s findings, the evidence still suggests that states can raise minimum wages without hurting employment in fast-food restaurants. That being the case, it is even more difficult to believe that a state’s minimum wage can be the cause of statewide labor market distress in industries far less affected by minimum wages than the fast-food industry. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [May 1, 2006, 8:18pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/11 "2006-05-01T20:18:37Z")
> [@ShortBus](#): > > I’m posting this in “General Questions” and not “Great Debates” because I’m not interested in eveyone’s opinions (though, not that you all aren’t insightful). I want to know if there exists any rigously scrutinized, scientifically valid studies that either prove or disprove this assertion. In some ways it makes sense, but in other ways it seems like Republican hand-waving, using nebulous macroeconomic theory. It’s not a Republican or Democrat thing. It’s a basic MICROeconomics thing - as in you should be able to find it in any basic Econ book. [http://en.wikipedia.org/wiki/Supply\_and\_demand](http://en.wikipedia.org/wiki/Supply_and_demand) Basically increasing wages causes firms to do a couple things - hire fewer workers, increase prices to pass some of the costs along or turn to the ‘black market’ to hire either cheap illegals or pay workers under the table. The increase in wages may or may not stimulate growth in other areas of the economy. To me it completely makes sense. It’s called the Law of Unintended Consequences. Emotionally it’s satisfying to set a minimum wage law with the intent of making sure everyone gets a fair wage. But in economics there is no free lunch so there must be a cost associated with setting that wage. ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [May 1, 2006, 8:28pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/12 "2006-05-01T20:28:15Z")
> [@bup](#): > > Well, as pointed out, what really happens is the cost of the new salaries gets passed along in price increases - Bob remains competitive because all businesses had to bear this new cost. No, that doesn’t necessarily happen. Price is determined by supply and demand. Assuming demand is constant (which I am not sure is a valid assumption), that means price is determined by supply. It would seem that becuase your labor goes up, that your supply cost goes up, therefore your price goes up but thats not necessarily the case. You can’t simply raise your price and sell the same units to make up for your lost profits. If a company could just raise prices they would have done so already. What might happen when you increase the labor price, is that machines/equipment to speed up production become the best choice. In other words, a response to increased labor cost could be to buy machines, ramp up production, lower prices, and work on volume. That way you cut down on the cost of labor per product, and make up the machine investment through higher volume. The company’s profits will go down compared to pre-minimum wage laws but lets look at this situation. We have the same number of people employed, more product on the market, and lower prices at the expense owner profits. Thats not what I would call a bad situation. It is true that higher wages put some industries out of business, but thats just what happens. I don’t think anyone is crying about the lack of elevator men. Some industries can send their work overseas, and still other industries hire illegal immigrants. A minimum wage does create problems, but typically those problems are solved through other means. ---
**Author:** ![treis](https://avatars.discourse-cdn.com/v4/letter/t/bc79bd/32.png) [@treis](https://boards.straightdope.com/u/treis)\ **Post date:** [May 1, 2006, 8:30pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/13 "2006-05-01T20:30:04Z")
> [@msmith537](#): > > Basically increasing wages causes firms to do a couple things - hire fewer workers, increase prices to pass some of the costs along or turn to the ‘black market’ to hire either cheap illegals or pay workers under the table. The increase in wages may or may not stimulate growth in other areas of the economy. Thats not true, there are other options than what you list. ---
**Author:** ![saoirse](https://avatars.discourse-cdn.com/v4/letter/s/5daacb/32.png) [@saoirse](https://boards.straightdope.com/u/saoirse)\ **Post date:** [May 1, 2006, 8:31pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/14 "2006-05-01T20:31:48Z")
> [@treis](#): > > It is true that higher wages put some industries out of business, but thats just what happens. I don’t think anyone is crying about the lack of elevator men. Some industries can send their work overseas, and still other industries hire illegal immigrants. A minimum wage does create problems, but typically those problems are solved through other means. I was going to add that it forces companies to be less labor-intensive. Push a button, and the elevator deivers you to your floor, perfectly lined up with the shaftway entrance, so you don’t have to step up or down. So no more elevator operators, except in the House of Representatives. ---
**Author:** ![Bill\_Door](https://avatars.discourse-cdn.com/v4/letter/b/50afbb/32.png) [@Bill\_Door](https://boards.straightdope.com/u/Bill_Door)\ **Post date:** [May 1, 2006, 9:58pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/15 "2006-05-01T21:58:43Z")
What kind of a crappy businessman is Bob? The question he should, and would be asking in any business I have ever worked in is not “How much can I pay?”, but rather “How many do I need?” If he needs two workers, he’ll hire two, and if the minimum wage goes up he’ll raise prices to compensate. If he needs only one, he’s not hiring two, no matter how cheap they are. What’s the extra guy going to do, watch? ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [May 1, 2006, 10:22pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/16 "2006-05-01T22:22:22Z")
> [@msmith537](#): > > It’s a basic MICROeconomics thing - as in you should be able to find it in any basic Econ book. However, the trouble with simple basic principles, such as the economic law of supply and demand, is that they’re often **too** simple to adequately explain real-life situation that have complicating features. For example, the fact that the acceleration due to gravity is a constant independent of mass is a simple basic principle of physics. It implies that objects of different mass should fall in the same time. However, this simple basic principle doesn’t adequately explain how objects fall in our everyday experience, where they are affected by air resistance. Similarly, the simple basic principle of supply and demand predicts that if the price of labor goes up, the demand for labor will go down. However, in the real world, labor markets are very complicated things, differing in many respects from the ideal perfect competitive market. Things happen in real-life markets that simple basic economic principles, by themselves, don’t adequately explain. By the way, is anybody else interested in trying to answer the question that the OP actually asked, about the existence of scientifically valid studies on this issue? I posted what seemed to be the most relevant information I could find, but I’d be curious to know if there actually exists a more comprehensive study that attempts to resolve this issue definitively. ---
**Author:** ![Osip](https://avatars.discourse-cdn.com/v4/letter/o/4491bb/32.png) [@Osip](https://boards.straightdope.com/u/Osip)\ **Post date:** [May 1, 2006, 10:35pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/17 "2006-05-01T22:35:16Z")
You can also look at two articles :[http://www.gmu.edu/departments/economics/wew/articles/06/folly.html](http://www.gmu.edu/departments/economics/wew/articles/06/folly.html) and : [http://www.gmu.edu/departments/economics/wew/articles/05/wage.html](http://www.gmu.edu/departments/economics/wew/articles/05/wage.html) They are by Walter E Willams Economics professor at George Mason University He by the way is against raising the Minimum wage. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [May 1, 2006, 11:29pm UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/18 "2006-05-01T23:29:21Z")
Actually, **Osip** , those Walter Williams articles are press releases that are essentially opinion pieces, not “scientifically valid studies” such as the OP asked about. Nor do they contain references to such studies, unfortunately. ---
**Author:** ![saoirse](https://avatars.discourse-cdn.com/v4/letter/s/5daacb/32.png) [@saoirse](https://boards.straightdope.com/u/saoirse)\ **Post date:** [May 2, 2006, 12:20am UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/19 "2006-05-02T00:20:48Z")
> [@Osip](#): > > They are by Walter E Willams Economics professor at George Mason University > > He by the way is against raising the Minimum wage. No, he’s against _having_ a minimum wage. Williams believes in the concept of pure capitalism. He has said that the reason the Volga River is as polluted as the Cuyahoga was fifty years ago is government regulation, for example. If he can direct you to a source, he can be useful to this discussion. He is not source himself, though. ---
**Author:** ![ShortBus](https://avatars.discourse-cdn.com/v4/letter/s/2bfe46/32.png) [@ShortBus](https://boards.straightdope.com/u/ShortBus)\ **Post date:** [May 2, 2006, 6:39am UTC](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983/20 "2006-05-02T06:39:13Z")
Kimstu (and others), thanks for pointing in the right direction and for addressing my question. [Next page](https://boards.straightdope.com/t/minimum-wage-less-jobs/354983.md?page=2)