Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Minimum Wage

Economics / Wages Jun 29, 2017 - 11:56 AM GMT

By: Submissions

Economics

John Dunham writes: What a difference a day makes.  Just this month, a group of researchers at the University of Washington (UW) released a working paper outlining how a $13 per hour minimum wage for restaurant workers in Seattle has led to exactly the opposite effects that proponents predicted.

According to the team at UW, which was funded by the City of Seattle, a 37 percent increase in Seattle’s mandatory minimum wage for restaurant employees resulted in a decrease of working hours for these employees of about 9 percent, and an overall loss in income of $125 per month.  This is significant because the minimum wage increase, which was promoted as a way to help lower-wage workers, actually cost those same workers about $1,500 per year on average.


This is nothing new to economists like me who have studied the economic impact behind minimum wage hikes.  These increases lead to a reduction in jobs and an increase in prices.  In fact, when we examined a potential minimum wage increase on the food retail industry in New Jersey, we found very similar results to the researchers in Seattle.  Our analysis suggested that a 79 percent increase in New Jersey’s minimum wage (to $15 per hour) would reduce employment in the grocery industry by 7.8 percent, or roughly 17 million fewer work hours.  This now seems to be a very modest forecast when one looks at the Seattle numbers.

What the Seattle study does not examine however, is how statutory minimum wages increases really harm everyone in a community.  This omission really shows how far policy debates have veered away from the economic principles that are used by proponents to justify them.  In the case of mandatory minimum wages, the entire debate has revolved around how they impact overall employment or more specifically employment of low-wage workers.  While this is an important question to understand, what the debate has ignored is the effect on those who actually pay for the higher wage floor.

Many industries are impacted by high statutory minimum wages.  This includes in particular the restaurant industry, the retail grocery industry, the personal care industry and the building maintenance industry.  All of these are extremely competitive sectors of the economy, and all provide what economists call “normal goods.”  In other words, when the price of a restaurant meal, or a box of cookies, or a landscaping job increases, the demand falls.  It is through this mechanism that high minimum wages reduce overall employment.  If a restaurant sells less meals, it needs fewer employees.  If a grocer sells fewer carrots or cans of coffee, it needs fewer checkers and stockers.

The key element that is ignored in studies of employment is the very fact that high wage floors will increase the price of goods and services.  Prices paid by consumers go up with no corresponding increase in quality or service so this is simply a dead-weight loss to all consumers, including minimum wage earners.  When we examined the effect in New Jersey, we found that the price tag of a $15 mandatory minimum wage would be nearly $294 million per year – and that is just for groceries. Even more troubling is that senior citizens, many of whom are on fixed incomes, would bear 40 percent of these increased costs to the tune of nearly $125 million.

In the case of grocery retailers in New Jersey, the potential $15 mandatory minimum wage would have an overall cost of about $644.3 million dollars.  This will be paid for by both workers (who lose their jobs) and consumers, with about 54.3 percent of the costs being borne by workers, and the remaining 45.7 percent by consumers. 

The bottom line from both the UW analysis and our own, is that regulations like mandatory wage floors cost a lot more money than they can ever generate in benefits. 

By John Dunham,

John Dunham & Associates

John Dunham & Associates is an economic consulting firm based in New York City that specializes in examining the economics of taxes and regulatory policy.

John Dunham is the President of John Dunham & Associates. John specializes in the economics of how public policy issues affect products and services. He has conducted hundreds of studies on taxes and reg­ulation. Dunham is regularly consulted by Reuters and other media covering business and economics, and his work has been reported in national broad­cast and print news outlets. His research has been published in a number of refereed journals including Economic Inquiry.

© 2017 Copyright John Dunham - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in