Tuesday, June 10, 2014

Why Seattle's Minimum Wage Hike Might Not Cost Jobs

Catherine Rampell has a naive and one can only say ignorant  blog post celebrating Seattle, Washington's bold $15 an hour "minimum wage experiment." Ms. Rampell treats the move as a positivist experiment "whose effects on workers, businesses and the local economy are unknowable. Anyone who claims otherwise is either lying or misguided." Here she surely overstates her case.

Though one cannot say with quantitative specificity the precise reduction in employment and production and increases in selling prices that such a wage hike will produce, one can know for certain that if the wage is truly above the market wage, there will fewer people hired than there would be without the law. That this has been demonstrated by both economic theory and history has been made clear by an outstanding study by Richard K. Vedder and Lowell E. Gallaway. They further document that not only does increasing the minimum wage above the market wage reduce employment, it also contributes to poverty rather than reducing it because it keeps the lowest skilled workers out of the labor market. By the way, if firms could easily get buy with fewer workers, why are they not doing this already?

It remains true, however, that job losses from such a drastic mandatory wage increase might not be as numerous as we might thing. This is because there are ways to adjust compensation to workers . What is often forgotten in debates over the minimum wage is that compensation for labor takes more forms than monetary wages. Depending on the employer, compensation could include vacation, health insurance, discounted meals, free drinks or any number of additional perks.

As an indicator for what might happen in Seattle, some have looked at the early fall-out of the SeaTac minimum wage that increased to $15 an hour for some hotels and restaurants at the beginning of the year. One hotel restaurant has closed, and work that used to be done by minimum wage employees is now being done by salaried managers. Some parking lots are adding surcharges on parking spaces near the airport. Some firms are hoping to offset increased labor costs with a reduction in advertising.

Assunta Ng writing for the Northwest Asian Weekly reports that a hotel workers she interviewed were surprised that their employers for whom they worked reduced various benefits to offset the increased mandatory wage. They are earning a higher hourly monetary wage, however, they lost their 401k, health insurance, a paid holiday, vacation time, free food, free parking, and the ability to work overtime. Restaurant workers bring in smaller tips. The bottom line is what the minimum wage giveth, the minimum wage taketh away.

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