The Cato Institute’s Michael Chapman has a long essay on the likely impact of California’s $20 fast-food minimum wage. A substantial part of it is drawn from Ryan Bourne’s new book The War on Prices. The article is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Per the terms of that license, I verify that I have only excerpted the article and have made no alterations. Here’s the introduction:
The minimum wage for most fast-food workers in California went up to $20 per hour in April. Since then—no surprise—thousands of workers have lost their jobs and menu prices have risen. Coincidentally, a new book by the Cato Institute, The War on Prices, devotes two chapters to the destructive effects of minimum wage laws. Lawmakers in California and nationwide should read it if they really want to enact policies that help people.
Photo from Cato article. Published here under Creative Commons license cited in the text.
The book includes essays from notable economists. First up, Jeffrey Clemens focuses in non-quantity adjustments in the labor market. This dovetails with my previous article that discusses similar behavior in response to international economic sanctions (Reminder: thanks to @Prune602). From the Cato article:
The first, an essay by economist Jeffrey Clemens, details how firms adjust to higher mandated wage floors in ways beyond simply cutting jobs. Yes, despite claims to the contrary, the evidence still suggests overall that raising wages by government fiat can result in “substantial job losses, especially for the least-skilled, least-experienced, and least productive workers,” writes Clemens. But he confirms other ways firms often adapt to higher mandated wage rates to keep their employment costs from rising.
They can trim “fringe benefits,” such as health insurance, paid leave, and pension accounts. They also might forestall improvements or safety upgrades. Or they can sweat workers harder, micromanage their schedules, or substitute inexperienced workers for more experienced staff.
Or, as I noted in a recent article, the owner (and probably family members) can substitute their labor for some of the employees’ hours. Advantage: they get paid $0.00 per hour.
Next up, Joseph J. Sabia:
In the second essay, San Diego State University Economics Department Chairman Joseph J. Sabia explains why “minimum wages are an ineffective and inefficient anti-poverty tool.” Although poverty reduction has been a stated rationale for increasing minimum wages since FDRʼs federal law in 1938, Sabia shows that less than 10 percent of individuals in poverty are minimum wage workers.
That sounds familiar. Let’s see … Ah, yes. I wrote this ten years ago, focusing on the minimum wage.
Photo from Cato article. Published here under Creative Commons license cited in the text.
David Neumark cited the work of Richard Burkhauser and Joseph Sabia on poverty and the minimum wage. Same Joseph Sabia.
Finally, Mr. Chapman offers this conclusion:
Itʼs all a reminder that controlling prices doesnʼt change the underlying economic pressures in the labor market. Control one price—the hourly wage rate—and other margins adjust. In Californiaʼs case, raising the minimum wage means fewer work opportunities for the young and unskilled and higher prices for fast food consumers.
This is more confirmation that, as The War on Prices documents, minimum wage laws only deliver “symbolic hope to the working poor” and “risk leaving many of the nationʼs most vulnerable worse off.”
