The Law Of Unintended Consequences At Work

One of the political discussion of late has focused on the minimum wage. What it is, what it should be, and should it be raised. One thing that is often not considered in the debate is who are the people who work at minimum wage jobs.

The Pew Research Center reported in 2014:

Perhaps surprisingly, not very many people earn minimum wage, and they make up a smaller share of the workforce than they used to. According to the Bureau of Labor Statistics, last year 1.532 million hourly workers earned the federal minimum of $7.25 an hour; nearly 1.8 million more earned less than that because they fell under one of several exemptions (tipped employees, full-time students, certain disabled workers and others), for a total of 3.3 million hourly workers at or below the federal minimum.

That group represents 4.3% of the nation’s 75.9 million hourly-paid workers and 2.6% of all wage and salary workers. In 1979, when the BLS began regularly studying minimum-wage workers, they represented 13.4% of hourly workers and 7.9% of all wage and salary workers. (Bear in mind that the 3.3 million figure doesn’t include salaried workers, although BLS says relatively few salaried workers are paid at what would translate into below-minimum hourly rates. Also, 23 states, as well as the District of Columbia, have higher minimum wages than the federal standard; people who earned the state minimum wage in those jurisdictions aren’t included in the 3.3 million total.)

People at or below the federal minimum are:

  • Disproportionately young: 50.4% are ages 16 to 24; 24% are teenagers (ages 16 to 19).
  • Mostly (77%) white; nearly half are white women.
  • Largely part-time workers (64% of the total).

Often minimum-wage jobs represent an opportunity for someone with little experience or job skills to enter the workforce. Minimum wage jobs teach workers to show up on time, be responsible employees, and be reliable employees. These are skills that are valued at all levels of employment.

So what happens when you raise the minimum wage? On Friday, Investor’s Business Daily posted an article on the subject.

The article reports:

 

  • IBD’s Jed Graham surveyed six big U.S. cities that hiked the minimum wage in 2015 and found they took a serious jobs hit. “Wherever cities implemented big minimum-wage hikes to $10 an hour or more last year, the latest data through December show that job creation downshifted to the slowest pace in at least five years,” Graham wrote.
  • During the 1970s, Congress forced Puerto Rico to adopt the U.S. federal minimum wage. The result, according to a 1992 study by economists Alida Castillo-Freeman and Richard Freeman: “Imposing the U.S.-level minimum reduced total island employment by 8%-10%.” So Puerto Rico lost 1 out of every 11 jobs to the minimum wage.
  • A study by the American Enterprise Institute looked at Seattle’s recent minimum wage hike. After it began phasing in a series of hikes in 2014, Seattle lost 10,000 jobs between just September and November, and its unemployment rate jumped a full percentage point. As AEI economist Mark Perry notes, Seattle’s minimum wage hike from $9.32 an hour to $15 an hour amounts to a $11,360 tax on every minimum wage job.
  • A 2014 Congressional Budget Office study estimated that raising the federal minimum wage from $7.25 an hour to just $10.10 an hour would kill half a million jobs. Worst of all, those who suffer most are the young, minorities and those with little education or training.

The article at Investor’s Business Daily focused on Carl’s Jr. and Hardee’s CEO Andy Puzder, who has begun to automate his restaurants. Because the minimum wage has increased, his expenses have gone up, and he has used technology to keep expenses down.

Before anyone gets all up in arms about this, I would like to introduce a little history into the discussion. Back in the days of dinosaurs, I attended school in New York City. My family did not have a lot of money, but I did not have the option of taking lunch to school every day. We were expected to use our one hour lunchtime to find a place to buy and eat lunch near the school [which was located in the Pam Am Building (now the Met Life Building)]. Because my allowance was small, I often ate at the automat. I would put in 35¢ and get a ham and cheese sandwich. I would put in 10¢ and get a carton of milk. If I was feeling rich, I would spend 20¢ or so on a piece of pie or cake. No one was screaming about automation then. The automat eventually disappeared from the scene, but I am not sure why. It was a great place to eat lunch.

At any rate, actions have consequences. When you raise the minimum raise past the skill level of certain jobs, you eliminate people from the work place–generally those with limited skills or limited experience. Those are the people who with a little training and experience could go on to get good jobs that pay more than minimum wage. In trying to help them by raising their wages, you are actually preventing them from getting the foot in the door that they need to become successful.