Will raising the minimum wage cause job creators to lay off employees?

Basic economics: when you raise the price of something, people buy less of it
Basic economics: if you raise the price, then people will buy less of it

Right now, all the candidates for President from the Democrat party are competing with one another to see who can buy the most votes using taxpayer money. One popular Democrat policy to buy votes is to raise the minimum wage. Democrats reason that minimum wage increases are great, because workers will have more money to buy stuff. What could go wrong?

Well, I want to talk about this policy from a theoretical point of view, then give an example of how it works in practice.

Abstract from a National Bureau of Economic Research study:

We estimate the minimum wage’s effects on low-skilled workers’ employment and income trajectories. Our approach exploits two dimensions of the data we analyze. First, we compare workers in states that were bound by recent increases in the federal minimum wage to workers in states that were not. Second, we use 12 months of baseline data to divide low-skilled workers into a “target” group, whose baseline wage rates were directly affected, and a “within-state control” group with slightly higher baseline wage rates. Over three subsequent years, we find that binding minimum wage increases had significant, negative effects on the employment and income growth of targeted workers.

[…]Over the late 2000s, the average effective minimum wage rose by 30 percent across the United States. We estimate that these minimum wage increases reduced the national employment-to-population ratio by 0.7 percentage point.

That comes out to 1.4 million workers who lost their jobs, thanks to minimum wage mandates.

Why does it hurt young and unskilled workers most? Because those workers don’t produce as much as older, more experienced workers. So, if all the salaries go up, employers keep the most experienced employees and lay off the youngest, and least experienced employees. This is why the youth unemployment rates of socialist countries in Europe are so much higher than the overall unemployment rate. And just to be clear, minorities are disproportionately harmed by minimum wage laws, since they are the ones who are often trying to move up through those entry-level jobs.

Here’s an example of how this works in reality, from San Francisco, a Democrat-run city.

ABC News reports:

San Francisco’s minimum wage is currently $11.05 an hour. By July of 2018, the minimum wage in San Francisco will be $15 an hour. That increase is forcing Borderlands Bookstore to write its last chapter now.

[…]Borderlands was turning a small profit, about $3,000 last year. Then voters approved a hike in the minimum wage, a gradual rise from $10.75 up to $15 an hour.

“And by 2018 we’ll be losing about $25,000 a year,” he said.

It’s an unexpected plot twist for loyal customers.

“You know, I voted for the measure as well, the minimum wage measure,” customer Edward Vallecillo said. “It’s not something that I thought would affect certain specific small businesses. I feel sad.”

That was in 2018, but strangely enough, Democrat voters haven’t learned their lesson. They still think you can vote people more money, and not ask where the money is coming from.

Shawn sent me this story about Seattle, another Democrat-run city.

Excerpt:

Restaurants Unlimited, a Seattle-based chain with restaurant locations in 47 US cities, announced on Sunday it was seeking Chapter 11 protection, citing “progressive” wage laws.

The company, which has operated since the Lyndon Johnson Administration, said rising labor costs—part of a national trend of government-mandated minimum increases—were part of its decision.

“Over the past three years, the company’s profitability has been significantly impacted by progressive wage laws along the Pacific coast that have increased the minimum wage,” Chief Restructuring Officer David Bagley said in court filings, The Seattle Times reports. “As a large employer in the Seattle metro market, for instance, the company was one of the first in the market to be forced to institute wage hikes.”

[…]BLS data show that New York City experienced its sharpest decline in restaurant jobs since 9/11 following its passage of a $15 minimum wage law. In California, a local newspaper recently detailed how an entire business district virtually disappeared following the city’s aggressive minimum wage push.

Restaurants Unlimited’s announcement came a day before the Congressional Budget Office released a report estimating that a House bill designed to raise the federal minimum wage to $15 an hour would cost 1.3 million jobs.

Now, you might say to me “But Wintery, Democrats are the party of the little guy, why would they vote for something that would leave workers unemployed?” And there are two answers to that. First, Americans who work for a living tend to not look to the government for support. Second, Americans who work for a living tend to dislike when their taxes are raised to pay for people who aren’t working. Democrats are the party of higher taxes and bigger government. They always oppose letting people keep what they earn, and they always want the government to take free market solutions to health care, etc. so they can use the provision of health care to buy votes. So for them, kicking 1.3 million people out of work is a benefit.

When it comes to economics, we know what works. Trump cut taxes, and unemployment for all races is at a record low. If you want to reverse that, and have more people unemployed, living off taxpayer’s, then vote for Democrats.

6 thoughts on “Will raising the minimum wage cause job creators to lay off employees?”

  1. The real solution is to raise how much a person can make as a sustainable income before gov’t starts to collect income tax. Put thr base rate to around 25 grand a year or more per person and it would leave money in people’s pockets.

    At two thousand a month or less you can barely pay rent utilities and bills in most places and don’t need to be paying high rates of taxes to the government

    But that means less money in gov’t coffers if they can’t tax the poor into submission

    Like

  2. Thomas Sowell has written just about all that needs to be written on this and related topics. Walter E. Williams, another economist generally of a conservative and libertarian stripe, is also a go-to for this. (One of the most disgusting things I heard a leftist utter was to refer to Sowell as “Uncle Tom” Sowell.)

    Liked by 1 person

    1. Don’t you know? If you’re a Lefty and you’re losing (or have already lost) the argument, play the race card.
      Most of the time, this will make your opponents flee in terror.
      If they don’t, then change the subject.

      Like

  3. Yes. Raising the minimum wage will cause layoffs. The cost of good and services will skyrocket so that those people making $20 or $25 an hour will see their cost of living go up, albeit without the corresponding pay bump that the minimum wage earners received which caused it all.

    Result? Bye bye, middle class! Everyone except (maybe?) the UMC and super wealthy will suddenly become equally poor and struggling

    Liked by 1 person

  4. When I was first looking for work, I wanted to find something so I could have extra money in my pocket, buy things I wanted, and have a little freedom. I didn’t mind having to buy my own clothing, for then, I could purchase the clothing I wanted to wear, which I did. Since minimum wages weren’t too high, I could find jobs without having many skills as yet.
    The higher the wages, the more competition there will be, for employers are going to have to find higher skilled workers for those jobs who can justify the higher salary. Like one friend discovered, when asked why he doesn’t garner more money, the employer explained because they can find many people who could do his job. But for those starting out, this gives them opportunities to gain skills and experience, later looking for higher paying jobs. Careers.
    Economics is simple. Our youth need to learn this, which should be coming from the parents. Want more money, gain the skills and education employers are looking for. One can even talk with employers, ask what skills they’re looking for, then set about gaining those skills.
    Again, it’s simple economics. If I’m selling cupcakes and ice tea in the garage at home, and people are buying, if I sell enough, I make money, but must reinvest for product. If I have a friend helping, he or she can only make money, or make more money, if she or he can encourage more customer purchases. If I have to pay him/her more, I can only do so by selling more product or charging more money, which might result in less customers, then fire my friend.

    Liked by 1 person

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