This post was inspired by this quotation below from Murray Rothbard (from his 1988 article “Outlawing Jobs: The Minimum Wage” featured on CD here in 2013), which made me think about what a $15 an hour minimum wage law can, and cannot, do:
In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.
A. Here is what the $15 an hour minimum wage law can do: For any firms that decide to employ unskilled, low-skilled, and limited-experienced workers, they must pay them a mandated minimum hourly wage of $15 according to government fiat.
B. Here is what a $15 minimum wage law does not and cannot do:
1. It does not guarantee that a single new job will be created.
2. It cannot stop employers from reducing the number of low-skilled workers they employ at the new $15 government-mandated minimum wage.
3. It cannot stop employers from reducing the number of weekly work hours assigned to employees at the new $15 an hour minimum wage.
4. It cannot stop employers from hiring fewer unskilled and low-skilled workers in the future following a minimum wage hike to $15 an hour.
5. It cannot stop firms from investing in labor-saving technologies and automation like self-ordering kiosks following a minimum wage hike to $15 an hour.
6. It cannot stop firms from decreasing the amount of on-the-job training provided to unskilled and limited-experienced workers following an increase in the minimum wage to $15 an hour.
7. It cannot stop firms from reducing or eliminating low-skilled workers’ non-monetary fringe benefits following a mandated increase in the monetary minimum hourly wage to $15 that might include: free or reduced cost uniforms, free or reduced cost meals at restaurants, free or reduced cost merchandise at retailers, health insurance, tuition reimbursement, and company-sponsored outings, picnics and holiday parties.
8. It cannot stop firms from adjusting (to the disadvantage of workers) other “non-wage attributes” of jobs offered to low-skilled workers following an increase in the minimum wage to $15 an hour including: the extent and strictness of work demands, flexibility in scheduling, kindness, consideration and amiability in the workplace, upward mobility, lockers for workers, transportation (or transportation allowances) for workers, the quality of air conditioning and lighting, the number, quality, and cleanliness of restrooms for use by workers, and workplace comfort and workplace safety.
9. It cannot stop firms from discriminating against low-skilled workers and substituting higher-skilled workers following a minimum wage hike to $15.
10. It cannot stop firms from discriminating against minority groups following an increase in the minimum wage to $15 an hour.
11. It cannot stop firms from making location and expansion decisions that avoid geographic areas (states and cities) that have $15 an hour minimum wages.
12. It cannot stop firms from closing down or contracting their operations (and eliminating jobs) following a minimum wage hike to $15 an hour.
13. It cannot stop entrepreneurs and potential small business owners from deciding to not start new businesses, or to not expand their current businesses, because of the $15 an hour minimum wage.
14. It cannot stop manufacturing firms from outsourcing production overseas following an increase in the minimum wage to $15 an hour.
15. It cannot stop service-sector firms from outsourcing operations like customer service call centers overseas following an increase in the minimum wage to $15 an hour.
Bottom Line: A $15 an hour minimum wage does one thing very effectively: it forces employers to pay $15 an hour for any low-skilled workers they hire, and therefore makes it illegal for low-skilled workers to accept jobs that pay an hourly wage below the government-mandated minimum. The defects and limitations of the $15 an hour minimum wage can be seen by looking at what a $15 an hour minimum wage cannot do; that is, by looking at the inevitable outcomes that a mandated minimum wage cannot prevent or stop from happening. Fifteen of those outcomes from a $15 an hour minimum wage are listed above that represent the many ways that employers can and will respond to a $15 an hour minimum wage to offset the increase in labor costs mandated by government fiat. Perhaps there are more.
Update: Here’s a related bonus quotation from Thomas Sowell:
Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they either lose their jobs or fail to find jobs when they enter the labor force.
Mark J. Perry is concurrently a scholar at AEI and a professor of economics and finance at the University of Michigan’s Flint campus. He is best known as the creator and editor of the popular economics blog Carpe Diem. At AEI, Perry writes about economic and financial issues for American.com and the AEIdeas blog.