Minimum Wage

The Negative Consequences of Raising D.C.'s Minimum Wage

Good intentions and unintended effects.

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Fast food
Dreamstime

In November 2016, District of Columbia voters may get a chance to vote on a proposal to raise the hourly minimum wage to $15. If approved, the measure would lift D.C.'s minimum wage to be on a par with those in such liberal cities as Seattle, San Francisco, and Los Angeles. But though the $4.50 jump from its current level might help a few workers, it would hurt many others, alongside consumers and businesses in some parts of the city.

On the surface, this might seem like a way to increase the standard of living for lower-income workers in the district, but in reality, the policy would most likely backfire. For instance, research by economists David Neumark of the University of California, Irvine, William Wascher of the Federal Reserve Board, and Mark Schweitzer of the Federal Reserve Bank of Cleveland shows that minimum wages increase poverty—and hence poverty reduction shouldn't be expected as a benefit of raising the minimum wage. That's because, contrary to common belief, the relationship between low wages and poverty is extremely weak.

As Neumark—who has done extensive research on the issue—explains, "the principal sources of an individual's higher earnings are more schooling and the accumulation of experience and skills in the labor market," both of which are discouraged by increases in the minimum wage. Though an increase raises the wages of some people, it also reduces employment of young and low-skilled people. The Congressional Budget Office calculated that an increase in the federal minimum wage from its current level, $7.25 an hour, to $10.10 per hour would cost about 500,000 jobs.

The negative consequences are also worse when unemployment is high; hence, not all D.C. neighborhoods would be similarly affected. Economist Salim Furth of the Heritage Foundation explained to me: "It's easy for the lobbyists and economists of D.C. to forget that a quarter of the city is very poor and poorly served by its government. A $15 (minimum wage) would raise prices in Georgetown, but in Congress Heights, it would shutter shops altogether." Georgetown is in Ward 2, where the unemployment rate is below 5 percent. Congress Heights is part of Ward 8, where unemployment is 13.4 percent.

Furth said: "The people most likely to lose their jobs are those in professions where there is no successful business model that includes high wages. In D.C., 18,000 people work in professions where most workers earn less than $10 an hour. That includes parking lot attendants, shampooers and a lot of food service workers."

Consumers would be affected, too, as businesses push the extra cost onto them. Considering how sensitive they are to price changes, it might further hurt employment.

Fast-food workers might stand to lose the most from the hike. Using peer-reviewed research, James Sherk, Furth's labor economist colleague, estimates that a $15 minimum wage would cause a 36 percent drop in hours worked in fast-food chains. His estimate is based on a national average and is not restricted to a high-cost city such as D.C. He told me, "I would expect a smaller effect in D.C., as $15 an hour will be less of a proportionate increase than it will be in, say, Louisville, Kentucky."

To make matters worse, Sherk explained, "a $15-an-hour minimum wage in D.C. would force many less skilled D.C. residents to look for work outside the city or not work at all." He added, "Businesses will not pay workers more than the value they produce."

As the debate about the effects of minimum wage policies continues, the evidence seems to point to their long-term negative consequences. But often, politicians don't care. After all, when you raise the minimum wage, you can point to someone whose earnings just got a boost, whereas it is difficult to see the negative effects on workers who couldn't get jobs or saw their hours cut because of the policy. Unfortunately, many D.C. residents could find themselves among the unseen victims if the voters approve this raise.

© Copyright 2015 by Creators Syndicate Inc.

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  1. So… forget raising the minimum wage, just bring down the cost of education.

    1. … by ending the de facto state monopoly in education? I could get behind that. Poor communities have the most to gain from, say, a school voucher or other system that would let them pull their kids out of the prison sorting facilities the teacher unions call schools on their invoices.

      1. This, government is the reason education is so expensive.

        Note: I tried to include arrows indicating the comment above. But received this message. “Your comment does not appear to be written in an English script. Please comment in English.”

        Why does reason discriminate against Wingdings?

        1. #WingdingsMatter

          1. Racist
            #BlackWingdingsMatter

  2. This would actually work if we stopped expanding the economy. We keep adding in ‘new’ workers expecting there to be meaningful employment for everyone. Which cannot happen.

    1. There could be employment for everyone – the qualifier “meaningful” and the fact that it has no set definition is a large part of the problem. Not everyone has the same set of skills and abilities. When someone has less to offer that person would be paid less if that person is hired at all.

    2. Andre Leonard|7.30.15 @ 8:02AM|#
      “This would actually work if we stopped expanding the economy. We keep adding in ‘new’ workers expecting there to be meaningful employment for everyone. Which cannot happen.”

      Thank you for playing!
      What is the prize for today’s “Mr. Malthus” award, Jan?

  3. The minimum wage for DC should be raised to 16 Trillion Dollars an hour. Anyone who disagrees is just heartless and cruel. Once this is done unemployment will disappear overnight.

    1. Ok, but only payable in Special DC dollars. Which will only be issued in 1, 5 & 20 Trillion DC Dollar notes to keep it all simple.

      1. Zimbabwe approves!

        1. Wait…was that racist?

        2. I actually have a couple of $100 Billion bills from Reserve Bank of Zimbabwe. Bought them as a joke, 3 for $9 US.

          On thi bill itself is printed:

          Issue date: 1st July 2008

          The expiration date is also printed on the bill “on or before 31st December 2008.”

          Inflation was that bad…

          1. So just out of curiousity, how badly did you get dudded buying them for $3 each? I assume something like $2.90 per bill?

  4. It’s probably not best to quote economists from the Federal Reserve in support of your argument, but anyway?

    Even those who might nominally see their pay rate increase probably won’t actually benefit from the minimum wage increase in the long run, because their hours will be cut, resulting in their net income staying about the same. Also, since prices will increase accordingly, their buying power will go down, which will mean they’ll be worse off than they were before. So no, nobody wins from a minimum wage hike except for union bosses and politicians.

    1. Actually, I think most mainstream people would be more impressed by economists from the Federal Reserve. It’s only us crazy radicals who think there’s something wrong with the Fed and want to end it.

  5. As a resident of DC, I applaud this effort to convert to fully automated food services

  6. Eh, I don’t think it’s so clear cut. And moreover, I think the argument is viewed differently based on whether or not you think McDs or other big companies can and will take a hit on profits. If companies would accept lower profits (they won’t) then I think I see where higher min. wage people come from.

    I’ll also leave this here. Backed by some kind of stats, it kinda refutes things listed here- http://www.dol.gov/minwage/mythbuster.htm
    Again- this is predicated on 10.10 an hour it seems (going straight to 15/hour would be ridiculous) but it does at least present another view.

    1. A government site in support of more government intrusion into the marketplace? What a SHOCKER! Does it bother anyone else when people cite “studies” but fail to link them?

      Both this Reason article and the dol.gov page are guilty of this, but at least the Reason article gave me some author names so I can actually look up the research.

    2. It takes alot of nerve to post a link from the US Dept of Labor to bolster your case here. Do you think that will be persuasive to anyone here? (Aside from the real derpsters like Tony, et. al)

      1. http://cepr.net/documents/publ…..013-02.pdf
        http://www.washingtonpost.com/…..imum-wage/

        At work and don’t have time to find better sources but anecdotally, I don’t think this issue is NEAR as clear cut as people make it out to be (on both sides.)

        1. Issues in economics are hardly ever clear cut. I read a decent amount of that CEPR study and I’ve always had one major issue with it – it almost exclusively addresses whether or not workers are fired (thus rapidly increasing the unemployment rate) instead of whether less workers are hired (a much slower long-term effect on the unemployment rate).

          Its pretty well accepted that modest increases in the minimum wage don’t cause unemployment for workers that are already employed. But I’d like to see more studies on the minimum wage’s effect on the hiring of additional employees as well as its effect on existing employee’s benefits and hours – specifically the youth.

          1. They have 1 paragraph in which they rely entirely on other studies to support their view that a raise in the minimum wage does not result in benefit cuts.

            More importantly, they find that minimum wage increases actually cause cuts and/or delays in more experienced worker’s wages. I suppose this is the intended effect though, in the name of “equality”.

            Regardless – it’s still an interesting (and pretty good) study.

            “In the traditional discussion of the minimum wage, economists have focused on how these costs affect employment outcomes, but employers have many other channels of adjustment. Employers can reduce hours, non-wage benefits, or training. Employers can also shift the composition toward higher skilled workers, cut pay to more highly paid workers, take action to increase worker productivity (from reorganizing production to increasing training), increase prices to consumers, or simply accept a smaller profit margin. Workers may also respond to the higher wage by working harder on the job. But, probably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.”

            1. “Workers may also respond to the higher wage by working harder on the job.”

              Hahahahahahaha. Yeah, that’s going to happen, right. The reason the guy at McDonalds never gets my Big Mac right is because he’s underpaid, sure.

              1. I missed that!
                Yep, it’s unicorns for Flowingwords!

              2. What they really mean is that businesses may respond by expecting more from their employees. Of course, not all employees will be willing or able to become more productive, merely because they’re asked to, and may end up losing their jobs, but what the hey! They’re a small sacrifice for the betterment of, well, of whoever allegedly benefits from the wage increase.

                1. macsnafu nailed it – but in the paper they conclude their very short discussion in this topic with “…to my knowledge, there are no studies testing for efficiency wage effects in connection with the U.S. minimum wage.”

                  They place almost no emphasis on the idea that raising wages improves employee performance – which is absolutely appropriate.

              3. If you actually read the paper, you’d note that they found that there is little research into that area. They don’t find that people necessarily work harder when they’re paid more. It’s mentioned in the conclusion because they looked into it, but it’s not emphasized as an actual outcome of minimum wage increases.

    3. Flowingwords213|7.30.15 @ 9:26AM|#
      “…I think the argument is viewed differently based on whether or not you think McDs or other big companies can and will take a hit on profits…”

      I think you’re an ignoramus.

      1. Thanks for such a worthy contribution to the discussion.

        1. “Thanks for such a worthy contribution to the discussion.”

          Oh, no! Thank you!
          For repeating the same damn pack of lefty lies we read every time the subject comes up. You expect something other than be called what you are? Well, don’t be an ignoramus.
          Just as a hint, bozo, no Micky D’s *can’t* take a hit, because the stockholders (meaning YOUR retirement funds) won’t let it, but don’t let facts get in the way of lefty stupidity!

          1. Sevo – you should read the study posted above. It’s on relatively sound economic footing. I have some issues with it (that I’ve noted above), but it does bring up some interesting points. Variables in economics rarely have a linear relationship… the study shows that although modest increases in the minimum wage may not cause an immediate increase in unemployment, they do cause cuts/delays in more productive employee’s wages as well as less employee turnover.

            My main issue is that these studies never directly address the minimum wage’s effect on hiring people newly entering the workforce (young teens).

            1. “My main issue is that these studies never directly address the minimum wage’s effect on hiring people newly entering the workforce (young teens).”

              Do you expect companies now forced to pay more than they wish for labor are somehow going to hire more un-skilled labor?
              Are you looking for a study that tells us unicorn farts will provide energy in the future?
              Here: http://papers.ssrn.com/sol3/pa….._id=225288
              “In contrast, estimates based on the payroll data suggest that the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group. This decrease is statistically significant at the five-percent level and implies an elasticity of employment with respect to the minimum wage of -0.24.”

              Aslo: http://consultingbyrpm.com/blo…..-wage.html
              “So Paul Krugman et al. are telling us that the empirical literature shows that minimum wage laws don’t have a discernible impact on teen unemployment. Yet another right-winger myth flushed down the toilet.

              I went and looked at the paper Krugman says documents this fact.”

              1. There are a lot of conflicting studies out there on this point. There’s plenty of evidence that employment is affected by minimum wage — the debate is how much, which groups and in what ways. The costs of modest increases in the minimum wage are likely to be absorbed by workers earning above the minimum wage as well as consumers paying increased prices in addition to less hiring and layoffs.

                Instead of being an asshat that believes that all things in economics are black and white — you ought to consider all empirical evidence, including that which contradicts your bias view. We know that minimum wage increases cause some level of increase in unemployment, but its not a 1:1 relationship.

              2. Also sevo – you mischaracterized my statement. I expect that there is negative relationship between hiring new entrants (young teens) and a higher minimum wage.

                In fact, I believe this is where most of the cost of minimum wage increases is borne – by young teens who never get a job in the first place. Thus, I wish there were more studies on it so that we could show the damage minimum wages do to our youth that need to gain labor skills before adulthood.

                1. Mr. Flanders|7.30.15 @ 3:30PM|#
                  “Also sevo – you mischaracterized my statement. I expect that there is negative relationship between hiring new entrants (young teens) and a higher minimum wage.”
                  You are correct; my apologies.

          2. Go fuck yourself. Simply put.
            At least argue with a sense of knowledge and yearning for truth.

            1. Flowingwords213|7.30.15 @ 12:43PM|#
              “Go fuck yourself. Simply put.”

              Poor, poor lefty, called on bullshit. What a shame!
              Fuck off, slaver.

              1. Sevo, you get really rude when you forget to take your meds.

                1. No, I get really rude reading the same damn lefty lies for the nth time.

    4. Why does the company’s profits have anything to do with whether or not they will hire someone? If a worker is productive enough to be worth the wages they have to pay, they’ll hire him. If a worker isn’t productive enough, they won’t. Businesses aren’t charities, and their profits have little to do with the actual hiring decisions.

    5. Or try this: You buy some product on a regular basis, and one day you find the price of the product has increased. How do you react? Do you stop buying it, buy it less often, look for another place you can buy the same product cheaper, look for an alternative product that is cheaper, buy less of something else so you can keep buying the same product at the higher price, or something else?

      Businesses “buy” labor, and the minimum wage laws say how much they have to pay for it. Businesses faced with a minimum wage increase are in the same situation as you are when the price of a product you buy goes up.

      Simple.Cause.And.Effect.

      Naturally, you and businesses have more than one option you can choose, so what’s not so clearcut is the actual result. Regardless of which option is chosen, however, you and the businesses are worse off, not better off.

      Do you need a study, or a dozen studies, to tell you that higher prices on products you buy make you worse off?

      1. Cause and effect doesn’t apply when it comes to feelz. Don’t you care about the poor? Income inequality, the GOP hates the poor, ad nauseam.

        1. Yes, I’m well aware of “good intentions” and all that crap, but I’m tired of it. We should call them out on this stupidity and blame *them* for wanting to hurt the poor and the unskilled. They’re the ones supporting disastrous government policies.
          We’re the ones with the good intentions, and the right policies to actually help the poor, not them.

          1. People do, but they don’t care. The worst part of the “feelz” argument is that you are probably being intelligent, logical, and can even SHOW how it actually helps to not do it their way, but all they have to say is “see! We want to give you MORE money because you deserve it..” and all the people scream yay to them and boo to you. It’s incredibly frustrating on several levels.You just can’t fight against that.

            After their failed idea tanks you even stand up and say “see, that’s why I said to do it the other way” and it’s your fault the idea tanked because you didn’t believe in it enough or commit to it or your negativity needle punctured the balloon of awesome and caused bad karma for everyone else….asshole..

            1. Progs are notorious for throwing good money after bad.

    6. You done goofed, @Flowingwords213

      Nothing brings out the invective and ad hom on this site more than a reasonable and well-worded argument for a non-libertarian position. You need to swallow *all* of the Kool Aid, including the little glass shards at the bottom, or get the hell out of here.

      1. No, he goofed by pretending to be rational and objective. And what argument did he actually make?

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    1. That’s a pretty attractive offer lisa, but I’m not going to accept a penny less than $8,597 a month.

  8. I think it might be wiser to support these cities doing this.

    1) I’d rather have cities doing this than doing it nationally.

    2) It would be useful to let people see what would really happen.

    People who say it won’t have much of an effect rely on a few studies where the wage increase was not very high. We need some bigger increases to really let people feel the pain.

    Basically, too many young people grew up without knowing socialism sucks. They need to touch the hot stove.

    1. “Basically, too many young people grew up without knowing socialism sucks. They need to touch the hot stove.”

      Your mistake here is assuming that when people touch the hot stove they will admit that socialism is what burned them. I think all of us here know that true lefties will NEVER admit their ideology is wrong, they will just double down on it when things go poorly. That’s why I don’t like the fact that the cities are doing this; as much as I subscribe to the “laboratories of democracy” idea with regard to states (and cities/counties/etc.) I am not optimistic that when these $15/hr experiments fail that anyone will actually learn from the experiments and change their views.

      1. “I think all of us here know that true lefties will NEVER admit their ideology is wrong, they will just double down on it when things go poorly.”

        See Flowingwords, above:
        “Workers may also respond to the higher wage by working harder on the job.”
        I think this is non-sarc, but it’s hard to believe.

  9. I propose that government pass “minimum prices” on everyday products. Let’s say, for example, that no one can sell a gallon of milk for less than $10. Surely that would be a boon for the milk industry, because nobody would cut back on buying milk because of the higher price, would they? What? They would? Shocking! So why is *anybody* with half a brain surprised that raising the price of labor would result in cutting back on the purchase of labor??

    The result is only unclear to people who think with their asses instead of their brains!

    1. I think USDA does set a floor price for milk. Am I incorrect?

      1. Yes, there are price supports for milk, although they obviously aren’t as high as $10/gallon. I was just trying to think of an easy example to work with.

        1. But then they would have to make soymilk $11/gallon to prevent unfair competition.

  10. The main argument against the minimum wage hinges on job losses outweighing the benefits of wage increases. While logic suggests an increase in unemployment, even this point appears doubtful as the number of economists who believe the minimum wage increases unemployment dropped precipitously from 90% to 45.6% in just two decades (American Economic Association). But it’s a really small minority if you factor out economists who are funded by low-wage corporate interests.

    1. So, when the price of eggs go up, do you keep buying the same amount of eggs? No? Then why do you think that when the price of labor goes up, businesses will keep buying the same amount of labor?

      Why do you hate poor people and unskilled workers? 😉

      1. Why do you hate competition?

        Artificially decreasing demand for unskilled labor will make unskilled laborers compete harder.

        Imagine a sea of illegal immigrants working your plantation with real zeal. If they know they are on the chopping block they will work that much harder.

        Competition naturally improves quality.

  11. “…minimum wages increase poverty…”

    Minimum wage not only increases poverty, it a increases crime – including murder. Minimum wage prevents ghetto teenagers from getting their first job – which means they never get any job and causing many to turn to a life of crime. Crime, for each ghetto youth, starts low, just like wages, but increases as the ‘offender’ grows older, often graduating to the ultimate crime.

  12. Be fair. This proposal (which undoubtedly will pass, given that “something for nothing” is the unofficial DC motto) will do wonders for retail businesses in adjacent counties (those that don’t make the same mistake themselves, anyway).

    1. At which time they will promptly make sure *everyone* changes it because “level playing field”

      1. “level playing field” = drag everybody down to the lowest common denominator?

  13. This article would be improved by actual data. George Holy War Bush said the exact same thing in between calling for the death sentence for pot pushers, overturning Roe v. Wade, changing the Constitution to ban certain types of fuel and demanding war in the Middle East. Surely in the intervening quarter-century some hard data has emerged to back the proposition or demolish it, no? Has not a better argument emerged than “bureaucratic studies indicate”?

  14. I used to work in fast food. . . for minimum wage. . . it sucked rancid ballsweat.

    I vowed to make a change – I went out, and whined and cried and bitched and moaned and protested and picketed and demanded that SOMEONE use their guns to force my employer to give me a raise!

    Oh, wait – that wasn’t me, that was the whiny entitled cunts you read about, and/or watch on youtube.

    What I did, was learn a more marketable set of skills, and turn those new skills into a job that pays considerably more than MW. Haven’t worked in fast food, or for MW, since – no whining, no guns, no pickets. . .

    1. Amen. 20 years ago I had a minimum wage job. Then demonstrated I could read a blueprint. Got $2/hr raise. Never would have gotten the job in the first place at the higher wage.

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  16. Let’s call this an experiment. Maybe they should make it $20/hr just to be sure there are measurable results. There should be careful observation of the DC economy before and after the increase. If it turns out that very few people are harmed, then it’s something that should happen nationwide. If, on the other hand, businesses close and there is a significant rise in unemployment we will, hopefully, come to the conclusion that it wasn’t such a hot idea. An economics lesson for the masses. Bring it on.

  17. Wrong! As usual. Look at the actual experiment that has been carried out in Seattle, where unemployment has actually gone down, as have more money in their pockets and to spend–creating demand, which is good for both business and employment. In DC, where so much of the economy is based on the service industry, and where tourism is very important, we’re highly unlikely to see a drop in demand for valet parking, hotel maids, or fast food employees. Prices for consumers may go up a bit, but these will be more than offset by higher wages. If middle class young people can no longer take these jobs away from heads of families, no one will weep except the teens themselves.

    1. According to what I just read on Forbes, you’re right, unemployment has gone down since the minimum wage was raised–all negative consequences were apparently avoided or absorbed. Consequently, I suggest Seattle raise the minimum wage to $50.

  18. Many ‘permanent’ minimum wage workers actually make $12-$30+ an hour
    by Richard Rider

    One aspect that is overlooked in the “minimum wage” brouhaha is that a significant segment of those who STAY at the minimum wage level (not just start, but STAY) actually make $12-$30+ an hour. That’s because, especially in several states such as CA and WA, a full minimum wage must be paid to ALL employees — including “tip” employees. Waiters, busboys, valets, hotel room cleaners, casino employees, etc. make much — often MOST — of their living off tips.

    In most other states, these job categories often can be paid a reduced minimum wage — understanding that their total compensation includes tips. Not so in California.
    http://www.dol.gov/whd/state/tipped.htm

    In most other states, the “minimum wage” requirement can be met by tips collected. Again, not so in California. It’s minimum wage PLUS tips.
    http://www.dir.ca.gov/dlse/FAQ_MinimumWage.htm

  19. (continued)
    Because these employees make so much in tips, they will NEVER be paid more than the mandated minimum wage. Nor should they be. Most decent “tip” jobs are coveted positions. As long as many qualified people seek these job openings, no employer is going to pay higher than the required minimum wage.

    For others in straight wage jobs who start out at the minimum wage, about 2/3 receive pay raises by the end of the year (assuming they work out as new employees, gaining “soft skills” that make them reliable workers). Among the 2/3 who get a pay increase that first year, the median average salary gain for such workers is 24%.

    The closer to full-time the entry worker is, the better the chances that they will develop skills quicker and receive raises faster. Minimum wage is seldom a permanent compensation position — except for “tip” employees and some part-timers.
    http://www.heritage.org/resear…..ortunities

    In CA, being a waiter, bartender, valet or casino dealer can be a surprisingly desirable job — as more and more college grads are discovering. This results in a “misallocation of labor” — overqualified people holding semi-skilled jobs (okay, dealing IS a skilled job!). This distortion also “crowds out” job opportunities for folks who normally would qualify for such employment, increasing long term unemployment among the less educated.

    A higher minimum wage will only increase this distortion.

  20. Politicians should stop to consider that the world needs ditch-diggers too. Paying more to the least really does nothing to lift the least out of being poor. The more just cost more and is still out of their reach.

  21. Another aspect of increasing the minimum wage to $15 is that it would place workers now receiving
    welfare benefits above the poverty level and they would lose their housing, food and child care allowances. It happened to workers in Seattle who are now begging employers to cut their hours.

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