by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
WNCN reported on an unthinking protest seeking to skyrocket the state minimum wage to $15 per hour by 2024.
Knowing there are net negative effects is clearly within the mainstream of economic thinking on the minimum wage. Yet here’s a protest and a news item that both avoid what really ought to the elephant in the room.
The closest WNCN came was to cite:
A report last year by the nonprofit Economic Policy Institute found that raising the minimum wage to $15 per hour by 2024 would directly affect nearly 1.1 million workers in North Carolina, with an additional 605,000 being indirectly affected. That accounts for about 39 percent of the state’s workforce.
“Affect”? How would it affect? Readers are left to assume that means all the affected workers would magically get raises. The EPI report states as much:
Directly affected workers would see their wages rise as the new minimum wage rate will exceed their current hourly pay. Indirectly affected workers have a wage rate just above the new minimum wage (between the new minimum wage and 115 percent of the new minimum). They would receive a raise as employer pay scales are adjusted upward to reflect the new minimum wage.
Utter foolishness. The remaining workers would have higher pay. But many who are affected would be left with no pay at all.
To believe otherwise, you’d have to think that demand curves don’t slope downwards, at least not for labor in North Carolina. I can almost excuse a reporter for not understanding the economic implications, but what about the Economic Policy Institute? Is the word “Economic” used merely to modify the term “Policy?” (Maybe so, since the report isn’t from an economist looking at the effects of changes on the margin, but someone credentialed in the field of public policy.)
Perhaps that explains why he would assume everyone would get a wage increase and no one would lose a job. But that’s not the only way the minimum wage would affect people, and there are many things the minimum wage cannot do. As I explained for our policy position on the minimum wage:
Compassionate or not, raising the minimum wage hurts the very people it’s supposed to help: the poorest, the least skilled, and the disadvantaged. All a higher minimum wage can do is make it more expensive to employ low-level workers. It can’t increase the skill level of any worker. It can’t expand payrolls. It can’t keep the work hours offered by employers the same after the increase as before. It certainly can’t make automation less price-competitive (not with human labor suddenly becoming much more expensive). Finally, it can’t make employers stay in business despite sharply rising labor prices.
Economists studying the effects of raising the minimum wage in North Carolina find it would disemploy large numbers of North Carolinians. A recent study published in the Journal of Labor Research found that raising the minimum wage to $10.10/hr. (a far cry from $15/hr.) found it could cost nearly 50,000 jobs in North Carolina.
Research from the Heritage Foundation estimated that raising the minimum wage all the way to $15/hr. would cost over 330,000 jobs in North Carolina by 2021.
A working paper from the National Bureau of Economic Research on the effects of a minimum wage increase found “significant, negative effects on the employment and income growth of targeted workers.” The higher minimum wage kept low-income workers from accumulating work experience, made it harder for them to earn income, and limited their upward income mobility, even to rise just to the lower middle class.
Again, this is mainstream economics, not some controversial item on the fringe. The negative effects of minimum-wage increases on the poorest and least skilled should feature prominently in every news report on the issue. People need to know.