Perhaps the greatest example that good policymaking intentions go awry is the minimum wage. Proponents of increasing the minimum wage argue that doing so will help the poor. If we could snap our fingers and make the poor suddenly rich, there would be no reason to object. Unfortunately, in a world of scarce resources, this is not a possibility. The minimum wage actually tends to make many poor workers worse off and increases unemployment. A recent study on California minimum wage increases demonstrates that fact (yet again).
Professors Jeffrey Clemens, Jonathan Meer, and Olivia Edwards recently put out a working paper for the National Bureau of Economic Research (NBER) that demonstrates some adverse effects of minimum wage laws.
The paper covers California’s 2023 law, which enacted a $20 minimum wage for restaurants that had at least 60 locations in the US. This was a significant increase from the fast food minimum wage for California, which had been $16 (though some localities had higher minimum wages). They examine the impact of the law on employment and find:
Fast food employment in California had declined by 2.64 percent, whereas employment in non-minimum-wage-intensive industries had increased by 0.58 percent. This contrasts with the rest of the United States, where fast food restaurant employment had increased marginally while employment in all non-minimum-wage-intensive industries had risen by one percent. …
This result is another nail in the coffin for minimum wage arguments. As recently as 2022, a survey of research on the effects of the minimum wage was conducted. Authors David Neumark and Peter Shirley found, “there is a clear preponderance of negative estimates in the literature.”
What’s behind this consistent trend? Basic economics. When governments set a minimum wage above what businesses are paying, it has two primary effects:
-An increase in the number of people who want to work (due to the higher wage) -A decrease in the number of workers businesses want to pay (as they are more expensive) …
Like voters, populist politicians — Democrat and Republican — may desire to improve the well-being of the poor, but the laws of economics and the attendant research confirm again and again that an increase in the minimum wage is terrible for the poor. For at least some — perhaps 18,000 in California — it takes away their opportunity to make any money at all.
Unfortunately, politicians have an incentive to ignore economic laws in favor of nice-sounding slogans about improving the lives of the least advantaged. Austrian economist Ludwig von Mises famously pointed out the role of the economist as an empirical counterweight:
It is impossible to understand the history of economic thought if one does not pay attention to the fact that economics as such is a challenge to the conceit of those in power. An economist can never be a favorite of autocrats and demagogues. With them he is always the mischief-maker.
Economic evidence should serve as a valuable prophylactic against the utopian visions of politicians.
An actual quantitative study of the effects of the *minimum wage laws on actual people! What a refreshing review of facts that the politicians are very likely to just flat out ignore. When you raise the price of labor you cut the demand for labor and cutting demand for labor means that there are people not hired and people that are newly unemployed as well as businesses going out of business. What a great bargain for all concerned!! The politicians can virtue signal, the entrepreneurs can leave the field and the employees can just suffer.
This is directly related to this post; #1059820