Meer On Minimum Wage

David Henderson posts a thoughtful draft op-ed by Jonathan Meer on minimum wages. Two talents of  great economists are to recognize that averages hide big differences among people, and to imagine all the avenues of substitution and unintended effects of a regulation. The oped excels:

Substitution:

when the minimum wage is raised, employers offset increased labor costs by reducing benefits like the generosity of health insurance. Other benefits, like free parking or flexibility in scheduling, are more difficult to measure but are also likely to be cut back. Employers will likely expect more work effort when they are forced to pay more, changing the nature of jobs. And in the longer run, economists have found that employers shift towards automation and expecting customers to do more things themselves– reducing job growth in ways that aren’t always obvious. This damage takes time to be seen, which is one reason minimum wage hikes, like rent control, often seem appealing. 

Who gets jobs?

When debate focuses on the total number of jobs lost or gained, it hides this potentially nasty distribution of the benefits: a recent college graduate with a barista job may get a few more dollars an hour, but the high school dropout finds it harder to get and keep a job. ...

The teenage children of well-off families, earning money to buy video games, are treated the same as single moms struggling to get by. When wages are set at an artificially high rate, why should an employer take a risk on the single mother who needs the occasional shift off to take her kids to the doctor? The kid from a disadvantaged background who needs some direction on how to treat customers appropriately? Or the recently released felon trying to work his way back into the community? Why should employers bother with them when there are plenty of lower-risk people who are willing to work at those artificially high wages? 

Assorted comments, especially to dispel the usual you-just-don't-care-you-want-profits-for-big-business calumnies:

It will get much worse in the next recession...Those at the margins of the workforce will be left further behind. Low-wage jobs aren’t easy, don’t pay well, and are rarely fun. But not being able to find work at all is far worse.

Despite the lowest unemployment rates in decades, only 39% of adults without a high school degree had a full-time job in 2018 – and among young African-Americans dropouts, it’s a shocking 26%. It’s hard to believe that the best way to help them find work and start climbing the job ladder is to put the first rung out of reach, making it difficult for them to find work and driving them to illegal employment with few protections.

 We should never minimize the struggles of low-income families to get ahead. But good intentions are no substitute for good policy. Minimum wage proponents mean well, but the unintended consequences hurt the worst-off the most.

Jonathan isn't just making this up as us bloggers tend to do. He points to "The Minimum Wage, Fringe Benefits, and Worker Welfare, with Jeffrey Clemens and Lisa B. Kahn

...state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance. Effects are largest among workers in very low-paying occupations, 

and Dropouts Need Not Apply: The Minimum Wage and Skill Upgrading

workers employed in low-paying jobs are older and less likely to be high school dropouts following a minimum wage hike.... job ads in low-wage occupations are more likely to require a high school diploma following a minimum wage hike,

Related, Zachary S. Fone, Joseph J. Sabia, Resul Cesur find exactly the predicted substitution into criminal activity

find that raising the minimum wage increases property crime arrests among those ages 16-to-24, with an estimated elasticity of 0.2. This result is strongest in counties with over 100,000 residents and persists when we use longitudinal data to isolate workers for whom minimum wages bind. Our estimates suggest that a $15 Federal minimum wage could generate criminal externality costs of nearly $2.4 billion. 

Hat tip to David Henderson, who posted the draft oped and a link to the excellent Jonathan Meer - James Galbraith debate, and to the indefatigable Marginal Revolution. I saw an early draft of the oped, and hoped Meer would be able to publish it, at least somewhere like WSJ. It's not too late! 

from The Grumpy Economist http://bit.ly/2OY5F8W