Higher Minimum Wage Laws Have Resulted in Higher Unemployment Rates?

One of the most astounding things that I let slip to my students is that I believe that minimum wage causes higher unemployment. They usually just shrug that off as some sort of crazy thing that I must be joking about- in fact, if you ever utter in usual society a statement similar to that you'll get the same sort of looks. After all, how in the world could raising the cost to hire employees ever lead to less employees being hired?

It's actually a fairly simple concept though. If you have a job that is low-skill, such as a stock boy or sales staff in the mall or something, they likely bring in little revenue themselves. I mean, you need people stocking and straightening shelves and you need sales staff in malls and in big box stores, but each one individually will bring you such little additional revenue that you have to be careful how many you hire as a business.

Let's say you run a store in the mall, and you budget $50/hour for 'sales staff'- you know, people who can greet people as they come in the door, fold clothes, help out customers, look good in their clothes and thereby encourage others to buy them, etc. If you pay each one $5/hour, you could hire 10 sales staff and gain your store a reputation for great customer service and help and presentation. These employees have few real skills- in fact, since they are willing to work for that pay, it is likely they are the group with the fewest job skills- and so their pay is in line with what they provide. They will gain experience and soon command a higher salary. If no one is willing to work for $5/hour, then you'll have to offer more money, until you attract someone who willingly accepts employment at the amount you offer.

But let's say some do-gooder government bureaucrat making 100K/year comes along and thinks that it isn't fair that you are only getting paid the amount that you and your employer both voluntarily agreed upon. This person decides that everyone should now be paid $10/hour, and then pats themselves on the back for making the lives of all of these low-skilled laborers better. The store owner now has a choice- increase the amount of money that they budget for 'sales staff' or hire less people. If they just let their store slip a little in looks, have less staff available for help, automate some of the things that people did better, and not have friendly greeters, business will suffer- but so will the competitors too, so the only real loser will be all of society. If they instead just keep their 'sales staff' budget at $50 and simply cut back the number of employees who work, those employees will have to work harder and there will be more demands on their skill level, but that's okay- there are plenty of people willing to work for $10 hour. Our good businessman now fires all 10 people, re-hires 5 new people with more skills (probably older people with degrees in useless subjects), and moves forward with a store that is lesser than before.

The end result of raising minimum wage in this theoretical exercise will result in higher unemployment, especially in those groups with lower skill levels, and stores that are less appealing.

I don't have any hard data on whether stores are less appealing today than they were back in the old days- myself, I think that it is, with more 'self-checkout' operations, less helpful staff, less personal service, and stores that are less straight and clean.

I do have hard data on unemployment rates, especially unemployment rates with those with lower skill levels. The overall unemployment rate in the United States is now 9.2%, and according to a recent Wall Street Journal article:

Only 24% of teens, one in four, have jobs, compared to 42% as recently as the summer of 2001. The nearby chart chronicles the teen employment percentage over time, including the notable plunge in the last decade. So instead of learning valuable job skills—getting out of bed before noon, showing up on time, being courteous to customers, operating a cash register or fork lift—millions of kids will spend the summer playing computer games or hanging out.

But Congress has also contributed by passing one of the most ill-timed minimum wage increases in history. One of the first acts of the gone-but-not-forgotten Nancy Pelosi ascendancy was to raise the minimum wage in stages to $7.25 an hour in 2009 from $5.15 in 2007. Even liberals ought to understand that raising the cost of hiring the young and unskilled while employers are slashing payrolls is loopy economics.

So, there you go- raising the minimum wage did result in higher unemployment, especially in low-skill job areas. Nancy Pelosi and the liberals in Congress who voted to increase the minimum wage might be shocked to learn that their policies have led to a black teen jobless rate of 41.6%, but I'm not. A higher minimum wage forced on businesses by government equals higher unemployment.

H/T Conservative Hideout.