Wednesday, January 7, 2015

Is the Minimum Wage Helpful?

Though on-farm employment has fallen dramatically through the decades as technology has made us more efficient, the agricultural industry as a whole is still dependent on blue-collar work to build equipment, manufacture inputs, and harvest manual-labor-intensive crops. This reliance on blue-collar work implies that the ag industry is likely greatly affected by policies directed at affecting labor markets.

Don Boudreaux has had a string of posts recently on his blog regarding the effects of the minimum wage. Additionally, last February Bob Murphy wrote a short article reviewing the most recent academic literature on the topic. Though the minimum wage is very popular, professional economists are (typically) more careful about what they say about the effects of the minimum wage on the lowest-skilled workers in the economy.

The President's call for a $10.10 minimum wage certainly sparked the interest of economists. The Congressional Budget Office estimated last February that this increase in the minimum wage would result in the loss of some 500,000 jobs. While they are quick to point out that this is only 0.3% of jobs in the economy, I doubt many of us would want to be one of the 500,000. Combine this result with the fact that minimum wage hurts those with the lowest productivity (including teenagers), and you have the potential for some negative long-term effects on job skills for a lot of people. Since young people and those in their prime working years are leaving the workforce in droves during this "slow recovery," I can't imagine creating more hurdles for employment is a good thing.

Those in favor of the minimum wage can deflect criticism by suggesting that small increases implemented slowly won't cause very many job losses. They can make theoretical arguments about market failures corrected by the minimum wage. Ultimately, though, as Bob points out in his review article, increases in the minimum wage are detrimental to the growth rate of employment. This suggests far more pernicious consequences than just kicking some teenagers out of their grocery store jobs. After all, businesses are always doing what they can to minimize their costs (all other things equal).

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