Does The Minimum Wage Increase Unemployment?
Jim Blair

I think it more accurate to say that a higher minimum wage would be expected to reduce employment rather than to increase unemployment. Not exactly the same thing. It is not so much that current workers are fired when the minimum wage is raised, but that jobs are phased out. And things that formerly were done by employees are switched over to machines or to "do it your self".

Like self-service gas stations, Laundromats, or people who answer the phone being replaced by "If you want sales, press number one..." Someone suggested shoe shine stands. They were common when I was young but lately I seldom see one, but I see lots of machines with a buffer and rotating brush that people use to shine their own shoes. See my web page file "How the Minimum Wage Cost My Job" in the economics section under 'Minimum Wage' for another example. The logic is obvious: some jobs that would be profitable at the lower wage would not be at the higher.

For empirical evidence, look at the fraction of the population who worked at paying jobs: it increased during the time when the minimum wage did not increase (and so dropped in real terms) from 1980 until recently.

Or look at other countries: fraction of population with jobs vs minimum wage.

Did you see the October figures from the Bureau of Labor Statistics? They were reported in the papers on Friday, Oct 3. The tone was upbeat because the stock market went up, because the report reduced fear that the Federal Reserve would raise interest rates.

But the employment numbers are interesting. Jobs increased by 100,000 in September. Sounds good? Well the average increase had been 254,000 per month from January through July. But in August the increase dropped to 138,000. The drop in August could be in anticipation of the minimum wage increase that was scheduled to take effect at the start of the next month.

All these numbers are "corrected" for things like the effects of the UPS strike and students returning to school, so the drop of 270,000 in "expected" new jobs over the last two months is described as "unexpected". For political reasons, the BLS cannot associate a decline in new jobs with an increase in the minimum wage, but they can correct for other factors, such as seasonal changes and strikes.

Could it possibly be related to the minimum wage increase?

It is in the range of the predicted job loss already, and just in two months.

But that all depends on your predisposition. Some would claim that the "job loss" is because of NAFTA. Or random variation.

And some claim that this is not a "job loss" at all, just "job gains" that did not happen.

But what about increased demand?

You could say:

"No allowances have been made for the increase in consumption by workers who have just received a raise, and whose marginal rate of consumption is very nearly 100%. This will drive up demand for minimum-wage workers in the fast-food sector, for example."

But the "increase in demand resulting from higher wages", as applied to a minimum wage increase (as compared to wage increases resulting from productivity gains), ASSUMES that there are not corresponding reductions in jobs, and that the money paid in higher wages did not come from somewhere else. Like higher prices.

So explain to me how creating 270,000 fewer jobs than expected in the past two months will increase demand? And you say, not only increase demand, but increase demand for fast food. Does this mean that you think that minimum wage workers eat out more than other people? Even when they don't find a job? Or even when they do?

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