David R. Henderson  

More Evidence on Worker Opposition to Minimum Wage

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Pizza shop worker Devin Jeran was excited about the raise that was coming his way thanks to Seattle's new $15 an hour minimum wage law. Or at least he was until he found out that it would cost him his job.

Jeran will only see a bigger paycheck until August when his boss has to shut down her Z Pizza location, putting him and his 11 co-workers out of work, Q13 Fox reported.

He said that while the law was being discussed all he heard about was how the mandatory minimum wage increase would make life better for him, but that doesn't seem to be the case.

"If that's the truth, I don't think that's very apparent. People like me are finding themselves in a tougher situation than ever," he told the TV station.


This is from Ashley Dobson, "Pizza shop worker loves Seattle's new $15 minimum wage, until he finds out that it cost him his job."

This helps make the point I made in my recent post that we can't expect low wage workers to be good economic theorists, just as we can't expect most people to be good economic theorists. This minimum wage increase had to smack Devin Jeran in the face before he started thinking about it. And, truth be told, we still don't know that he opposes the minimum wage increase.

The fact is that many people hold on to their views even despite the evidence. My father, to his dying day, believed in Canada's Medicare system even though that system prevented him from getting some needed surgery and, in desperation, he took an overdose of sleeping pills to put himself out of his misery. (Fortunately, the pills didn't "work" and other things did: his situation got worse and so he rose on the priority list for surgery and had 9 good year afterwards. I wrote about this in Making Great Decisions in Business and Life.)

Robin Hanson often writes that "politics is not about policy" and he's basically right. He gets pushback, partly, I believe, but only partly, because that quote does not recognize nuance. If he said, "For the vast majority of people, politics is not about policy," he would be correct.


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COMMENTS (14 to date)
Pajser writes:

Lets assume I am 25 years old unqualified worker, who can realistically work only the least paid jobs and I plan to work until 65. This is how I would think:

1. Without minimum wage, I can expect to work 38 years for $9 per hour. I will be unemployed two of these 40 years, i.e. 5%. My total income will be 342 * number of working hours in a year + welfare for 2 years.

2. With minimum wage, I can expect to work 36 years for $10 per hour. I will be unemployed twice longer - four years, i.e. 10%. My total income will be 360 * number of working hours in a year + welfare for 4 years.

In that case, I'm better with minimum wage. Now, I'm unqualified worker and my expectations are only guesses. Professional economists should be able to provide more accurate numbers. Anyone to bite the bullet?

MikeP writes:

Professional economists should be able to provide more accurate numbers. Anyone to bite the bullet?

I'll provide a more accurate number: $15, not $10.

Xenophon writes:

@Pajser:

I’m glad to see that you showed an increase in unemployment with the higher minimum wage. Whether it’s the “right” change in expectation or not, good for you for including it!

That said, your sample analysis leaves out several other important issues:
1: Workers at the minimum wage who are sufficiently diligent to remain employed (note the important caveat!) rarely remain at the minimum wage for long. Not only does their successful experience demonstrate that they are reliable enough to be worth a higher wage, they also learn additional skills and so become more qualified than they were before. So we expect to see wages rising somewhat over time due to improved productivity.
2: Minimum wage workers who lose their jobs due to an increase in the minimum wage clearly cannot learn the aforementioned on-the-job skills whilst they are unemployed. Similarly, while they are unemployed they cannot demonstrate their reliabilyt, and so cannot benefit from signalling their superiority to many other equally-unskilled but less-reliable workers.
3: Time value of money! Higher wages in a year (or ten) are worth less than wages today. Being locked out of work today has much higher impact than a hypothetical better wage in two years.

I make no effort to quantify any of these effects. I’m sure other readers can suggest other issues.

R Richard Schweitzer writes:

Well, I suppose there are some limits to what can be expected of (or from) rational expectations.

Or maybe from expecting rational expectations.

Foobarista writes:

There's a bunch of similar articles about various businesses in SF.

That said, the jobs will just shift to the underground economy, but sadly that economy isn't friendly to people who have legal status like this "random white guy". Note that it isn't likely to be existing businesses that go to the underground economy and hire "undocumented" workers paid in cash, but new businesses that replace the law-abiding ones.

So, it'll be welfare and video games for this guy.

Brian writes:

Pajser,

This is a good attempt at illustrating why a minimum wage might be beneficial for low-wage workers, but your estimate for increased unemployment is too low. Data from the U.S. from recent minimum wage increases suggest that a 10% increase leads to 10 - 15% increase in the jobless rate for low-income workers, meaning your worker loses an extra 4 - 6 years of income. That would put them at 320 - 340, not at 360, though welfare would reduce the the losses somewhat.

DougT writes:

When politics become tribal, it is impossible to change one's politics without changing one's tribe. Fran Liebowitz noted: "Peoples' ... opinions seem to them like themselves. When that happens (and it has happened) people can't change their minds. If you are identified by your opinions -- if that is the very basis of yourself -- how can you change your mind?" -- Ruminator Magazine, August/September 2005. (from Wikiquote)

Jon Murphy writes:

@pasjer

In your two scenarios, why do you assume the number of hours worked in a year stays the same between the two?

khodge writes:

The problem is less with economics understanding than with a basic refusal to acknowledge what is frequently discussed about start-up businesses: half of all businesses fail within their first 4 years.

Very few businesses have a magic pool of "profits" that keeps pouring in year after year. The only real failure in economic understanding is that, if the economy is in the tank (e.g. houses being foreclosed at a record rate, friends unable to find jobs) then marginal businesses are not going to survive.

There is a failure, of course, to understand that, regardless of the markup, there are expenses besides costs of goods that need to be paid.

James writes:

Pajser,

Your imagined scenario differs from reality in too many ways. Most significantly, any worker capable of learning on the job could easily be earning more than the minimum wage before their first year in the workforce is up.

The only way your scenario is realistic is if the worker is just not capable of learning on the job for whatever reason. Such a worker will be especially undesirable as an employee and would experience a far more severe disemployment effect than the average worker.

Yancey Ward writes:

[Comment removed for rudeness.--Econlib Ed.]

Hazel Meade writes:

I suspect many mom wage workers suffer from overconfidence. They realize that somebody will get laid off, but they assume it won't be them. Just like everyone assume they won't get cancer or be the one to die in a car accident.

Floccina writes:

I am against minimum wages but the effects should be less after some period of time. Some businesses will fail allowing the remaining to raise prices.

Gene Williams writes:

How about a $15 minimum wage for workers aged 25-67 and no minimum wage for folks outside that range? It would be a powerful incentive to hire young people and get them into the workforce. If by age 25 you are still worth less than $15 per hour it would be a wonderful time to reassess your life.

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