Even if the minimum wage doesn’t reduce employment levels, which is unlikely, it can still make workers worse off

I’ve argued before on CD that saying, or finding empirically, that increases in the minimum wage have no, or minimal, effects on employment levels does not necessarily mean that minimum wage hikes have no negative effects on unskilled and low-skilled workers.

Reason? Government mandated increases in the monetary minimum wage will induce employers to: a) reduce employees’ hours, b) reduce or eliminate overtime hours, and c) reduce or eliminate non-monetary forms of employee compensation including free or reduced cost meals, employee discounts, paid holidays, paid or subsidized parking or transportation, free or reduced cost uniforms, health care benefits, retirement benefits, tuition re-reimbursement, etc. On net, the reduction in hours, overtime, and fringe benefits might actually outweigh the monetary benefits from the increase in the mandated hourly wage, leaving the worker worse off after the increase in the government-mandated wage even though they remain employed. Even if it appears superficially that the minimum wage hike had no, or a minimal, effect on the number of workers employed, the reality could be that many workers, though still employed, are made worse off by the minimum wage due to the secondary effects outlined above.

There is now some anecdotal evidence to support the adverse secondary effects of minimum wage hikes in the wake of the increase in the minimum wage to $15 per hour in the Seattle suburb of SeaTac for certain service industries on January 1 of this year. This article outlines some of the negative impacts the $15 per hour “economic death wish” is having on businesses and employees in SeaTac, and this report from the Asian Weekly is especially illuminating:

While attending an event at a SeaTac hotel last week, I met two women who receive the $15/hour minimum wage. SeaTac has implemented the new law on Jan. 1. I met the women while they were working. One was a waitress and the other was cleaning the hallway.

“Are you happy with the $15 wage?” I asked the full-time cleaning lady. “It sounds good, but it’s not good,” the woman said. “Why?” I asked. “I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added. The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay. What else? I asked. “I have to pay for parking,” she said.

I then asked the part-time waitress, who was part of the catering staff.

“Yes, I’ve got $15 an hour, but all my tips are now much less,” she said. Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. Yes, she used to receive free food and parking. Now, she has to bring her own food and pay for parking.

Bottom Line: Even in cases when the minimum wage doesn’t have adverse effects on employment levels, which is highly unlikely, it most certainly does have adverse, secondary effects on low-skilled workers, as the anecdotal evidence above suggests.



1 June 2014 | 3:34 am – Source: aei-ideas.org
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