What’s a better solution — higher wages at the cost of jobs, or more jobs with lower wages? If you’re interested in seeing more people working, the latter is the better option. But it’s not just about the number of jobs. That’s why several economists question the logic of the “Fight for $15” movement or other minimum wage arguments.
“While boosting wages for workers is critical, helping workers retain their jobs and stay on the income ladder makes more sense for the economy.”
That’s what economist Aparna Mathur says in a recent article on wage hikes. Even the nonpartisan Congressional Budget Office found that raising the federal minimum wage to $10.10 per hour could result in the loss of 500,000 jobs.
Mathur notes that several localities aim to increase the minimum wage in the next few years, and warns that the people who are going to feel the impact are the very workers who would benefit from not being paid a mandated minimum wage.
Most policies of any kind involve trade-offs, and minimum wage hikes are no exception. When the government mandates that employers must pay minimum wage workers more — i.e., the hike is not because of any increases in productivity or skills — employers will strategize about how to recover the added costs. Can they pass them on to their customers? Should they invest more in automation? And of course: Should they decrease the size of the work force?
Mathur acknowledges disagreement in the economic models on the impact of minimum wages. It’s more than just the number of jobs available, the minimum wage is a variable with major reverberations to the overall economy and how work is conducted.
She points to the results of a major recent study by New York University. The study found that raising the minimum wage had a small impact on the overall drop in hiring, but a much greater impact on the amount of work each worker is doing.
Hours worked fell sharply, with reductions as large as 3% across all workers and 25% for the lowest-wage jobs. Presumably, the study’s authors wrote, some of the reduction was caused by employers economizing on labor. However, they also wrote, hours worked also likely fell because employers hired more productive workers.
And what’s the outcome for managing less productive employees? Automation, of course. The dreaded “robots.”
Many stores and fast-food restaurants are already planning this transformation. For example, McDonald’s plans to move away from cashiers to touch-screen kiosks nationwide and to allow mobile ordering rather than pay an employee $15 an hour to bag French fries. Wendy’s is considering a similar move. Walmart already is automating many positions that employ hourly workers.
Mathur says if government policy really wants to help low-wage workers, it could try more creative approaches, like the Earned Income Tax Credit program.
A targeted program with no risk of job loss, the EITC has been proven to lift people out of poverty, and it is the best way to boost incomes for poor households.”
At the same time, encouraging upgraded skills for workers through greater investments in on-the-job training and paid apprenticeship programs for younger workers would allow for greater upward mobility even for workers starting off in minimum wage jobs.
While boosting wages for workers is critical, helping workers retain their jobs and enabling them to move up the income ladder is even better. The risk of job loss that comes with a minimum wage hike threatens the ability of these workers to get on that ladder. States that are on track to approve such an increase should proceed with tremendous caution.
