Minimum Wage Job Losses

As I noted on 18 July, the minimum wage increased to $7.25 on 24 July 2009. On the 24th of July, I heard on Fox News that some studies showed no loss of jobs due to minimum wage increases and some showed small job losses. I am sure that job losses result and I can see why they are hard to document.

First, they do not occur where the state laws already require as high a wage rate or higher than the new federal rate. Any losses that were going to occur in those locations will have already occurred.

Second, aside from a small number of severely intelligence-challenged and perhaps some with other disabilities, most people employed at the minimum wage are young and not well-educated. They are also either going to quickly lose their jobs because they are terrible employees or they are going to quickly learn enough to be given a raise. In other words, most minimum wage earners are on trial and in training. An increase in the minimum wage while they are in this status is generally going to have a small effect on the individual. If he looks bad, he may be fired a few days earlier. If he looks promising, the employer already has some investment in him in training and is likely to give him the minimum wage as opposed to firing him. He was soon going to get it anyway or was soon going to surpass it anyway. But, these effects on the already employed are hard to detect, since the only loss of jobs effect was maybe laying off a poor worker a few days earlier than he was likely to be let go anyway.

So, where is the effect? In many cases, the employer still needs to train people, so he is likely to start some people off at the higher minimum wage anyway. But, he is also very likely to be more selective. He will be less willing to give a chance to someone who does not initially present himself well or who has a previously unpromising employment record, but who now claims to have learned to take work seriously. The number of people given training will drop and the quality of those selected must be more assured. This means fewer second chances and less willingness to take a chance on kids from inner city rough neighborhoods. There is no other rational response to a minimum wage increase.

So, the main effect of a minimum wage increase is a decrease in new jobs created, a decrease in opportunities for uneducated kids from rough neighborhoods, and a decrease in the employment of people with severe disabilities. There are few changes due to people actually losing a job, except perhaps those with severe disabilities.