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As a thought experiment, let’s assume that there is no significant negative relationship between: a) increases in the minimum wage, and b) the number of entry-level jobs for unskilled workers (especially teenagers) working at the minimum wage. Further, let’s assume that increases in the minimum wage have no significant adverse effect on the teenage unemployment rate.
Even if we accept those questionable and unrealistic assumptions above, we cannot therefore conclude that “increases in the minimum wage have no negative effects on unskilled workers.“ Here’s why:
Even if we assume that the same number of unskilled teenage workers are employed after a hike in the minimum wage and there is NO change in the teenage jobless rate (questionable assumptions), there are many OTHER adjustments that employers would make to offset the monetary increase in labor costs, which would make many unskilled workers worse off following an increase in the minimum wage:
1. Fewer hours – Unskilled workers might still be employed following an increase in the minimum wage, but at a reduced number of hours. Full-time workers now become part-time workers, e.g. restaurant workers are now forced to work a split-shift (e.g. 11 a.m. – 2 p.m. and 5 p.m. – 8 p.m.). Therefore, we would expect a negative relationship between: a) increases in the minimum wage and b) the number of hours worked, which wouldn’t be reflected in teenage employment levels (the BLS counts workers as “employed” whether they work 1 hour or 50 hours per week) or the teenage jobless rates.
As an example, suppose an unskilled, entry-level teenage worker is earning the current hourly minimum wage of $7.25, works 40 hours per week and earns $290 per week. After the proposed increase to $9.00 per hour, the employer reduces the worker’s hours to 30 per week, and he or she earns $270 per week, less than before the minimum wage increased.
2. Reduced benefits – Following minimum wage hikes, employers can adjust “total employee compensation” and offset higher monetary wages by reducing fringe benefits such as: a) no longer providing free or discounted uniforms and shifting the cost of uniforms to employees, b) no longer providing free food or food discounts for restaurant employees, c) reducing or eliminating “employee discounts” on the employer’s merchandise, d) eliminating paid holidays, e) eliminating scholarship programs, f) eliminating group discounts available through large companies like McDonald’s, g) eliminating employer sponsored or subsidized health care benefits, h) reducing or eliminating company holiday parties and picnics, etc.
As an example, see the list of benefits here for McDonald’s workers in Canada (I couldn’t find a comparable list for the U.S., but I assume it would be pretty similar), and you’ll see that there are many non-monetary fringe benefits offered to even unskilled, entry-level workers (scholarships, free uniforms, food discounts, profit-sharing, stock purchase plan, insurance, etc.), and those benefits could be reduced following mandated minimum wage increases.
Bottom Line: You can make it illegal for an employer to pay an unskilled worker less than $7.25 or $9.00 per hour, but you can’t legally force private employers to hire entry-level workers at those artificially-high, government-mandated wages, and you can’t prevent employers from reacting to higher minimum wages in ways that hurt unskilled workers like: a) cutting existing workers’ hours or laying them off, b) reducing non-monetary forms of compensation, and c) investing in labor-saving equipment that substitute automation for unskilled workers. Demand curves slope downward, and the market for unskilled workers is no exception. Employers will respond to increases in the minimum wage in many ways that may not show up as an increase in the teenage unemployment rate or a reduction in the number of unskilled workers employed, but those responses will make unskilled entry-level workers significantly worse off.
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