Minimum wages cause unemployment

[one...two...tree 2,762]

In my basic econ classes I usually use minimum wages as an example of bad government policy. I tell the class that a binding price floor in the labor market will create a surplus of workers (unemployment). I go on to explain that the situation is worse than that, because the likely victims of this unemployment are those for whom the minimum wage is binding--low-skilled and teen workers. In other words, minimum wages cause unemployment among those they are intended to help.

But any good economist knows that there is plenty of evidence to contradict this. As a reader asked in a past discussion we had on minimum wages:

...are you all essentially ignoring all of the work by David Card that suggests that in many cases minimum wage increases do not have large employment effects?

My gut reaction was always, well, yes, because price floors have to cause surpluses. It's just intuitive and it seems that the evidence is just hiding. Well, it's hiding no longer. Respected labor economist David Neumark, in today's Wall Street Journal, writes:

Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence -- from scores of studies, using data mainly from the U.S. but also from many other countries -- clearly shows that minimum wages reduceemployment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.

Yep, I knew it all along.

http://www.env-econ.net/2009/06/minimum-wa...employment.html

[mawilson 2,133]

You know what else creates a surplus of workers (unemployment)?

Illegals.

[one...two...tree 2,762]

You know what else creates a surplus of workers (unemployment)?

Illegals.

Wait, there's more...

The contradictory evidence should not be surprising. The minimum wages may not affect employment because the price floor may not be binding! And, even if it is binding, it matters how the price floor (or increase in the price floor) relates to the alternatives. Therefore, in some cases, a binding minimum wage may have no impact on employment.

So it would be wrong to say the minimum wage always leads to unemployment, and questionable to say it is bad policy if the measuring stick is raising the wages of low-wage workers without negative impacts on employment. It would redistribute wealth (via price maybe), but that's not surprising since all policy redistributes wealth/benefits in some manner.

As one prominant economist said, at the low levels of the min wage, the debate is now primarily ideological.

[Niels Bohr 72]

I doubt minimum wage cause unemployment. Most people will work regardless of minimum wage. Heck, they'll work for $2/hour.

[mawilson 2,133]

I would say the minimum wage leads to unemployment among American citizens and

has no impact on businesses because they have an unlimited supply of undocumented

workers who will work for less.

I doubt minimum wage cause unemployment. Most people will work regardless of minimum wage. Heck, they'll work for $2/hour.

"Most people" won't work for $2/hour.

[Niels Bohr 72]

Then face the unemployment. Muwhahahaha. Americans are so cocky with wanting to get high wage.

[one...two...tree 2,762]

Without a minimum wage, prices would fall and we'd have deflation....the last thing this economy needs.

[BishopMnA 0]

Then face the unemployment. Muwhahahaha. Americans are so cocky with wanting to get high wage.

I really never understood what all the fuss was about minimum wage. For crying out loud...minimum wage is for TEENAGERS to have enough money to buy gas and movie tickets so they can take their dates out on a weekend.

Minimum wage should never be intended for Adults!

#######...to end all the minimum wage 'debates'...make minimum wage applicable only to people under 21 years of age (or still in college)...for everyone else...grow up, move out of your parent's basement, and get a real job! Sheesh!

Peace ;-)

MarkNAAm

[Niels Bohr 72]

They are for teenagers. However, they are also for people who want to work in retail. Retail hire all sorts of people from all walks of life.

[one...two...tree 2,762]

Then face the unemployment. Muwhahahaha. Americans are so cocky with wanting to get high wage.

I really never understood what all the fuss was about minimum wage. For crying out loud...minimum wage is for TEENAGERS to have enough money to buy gas and movie tickets so they can take their dates out on a weekend.

Minimum wage should never be intended for Adults!

#######...to end all the minimum wage 'debates'...make minimum wage applicable only to people under 21 years of age (or still in college)...for everyone else...grow up, move out of your parent's basement, and get a real job! Sheesh!

Peace ;-)

MarkNAAm

Mark, it has an effect on the market of pushing other wages up, which benefits most workers except for top percentage wage earners. It is distributive. While the Right talk about progressive tax as redistributive, they ignore the reality that suppressing lower end wages is also distributive.

[alienlovechild 75]

Worthless article as it explains nothing about how or why the minimum wage creates more jobs than allowing the market free float wages. If the minimum wage was doubled or tripled it most certainly lead to higher unemployment. This wouldn't apply to the underground cash economy.

[mRx 16]

Without a minimum wage, prices would fall and we'd have deflation....the last thing this economy needs.

Actually, it's the first thing this economy needs, Steven.

Preventing prices from falling to their actual market values (wages included), will only prolong the recession. That should've been the fundamental lesson learned during the Great Depression. Hoover and FDR diligently attacked the necessary recession by enacting wage floors and price ceilings. They didn't work then, they won't work now.

[rooster 1]

Do you really want to know what leads to higher unemployment?

LAZY MOTHERFVCKERS who think they are too good to work for that pitance!!!

[mRx 16]

Worthless article as it explains nothing about how or why the minimum wage creates more jobs than allowing the market free float wages. If the minimum wage was doubled or tripled it most certainly lead to higher unemployment. This wouldn't apply to the underground cash economy.

The article explains how minimum wages increase unemployment, not creates job.

The underground cash economy exists only because minimum wage laws exist.

Combatting under-the-table payments is futile. The government may have better luck attempting to prevent the sun from rising each morning.

Do you really want to know what leads to higher unemployment?

LAZY MOTHERFVCKERS who think they are too good to work for that pitance!!!

B.S.

[ready4ONE 5,400]