I’ve spent all 12 of my years teaching economics arguing that minimum wage laws hurt many workers, especially the minimum wage and young workers, because too many will lose their jobs or lose hours. Yes, if you keep your job and don’t lose hours, you’ll be better off, but otherwise, watch out!
So Professor Mark Perry’s blog, Carpe Diem, has this post today about the minimum wage in Minnesota:

From the article “Restauranteurs Wrestle With State’s Minimum Wage Hike to $9.04,” about the January 1 increase in Washington state’s minimum wage to $9.04 per hour, the highest state minimum wage in the country and almost $2 more per hour than the $7.25 national minimum wage:

“Some restaurants will increase prices. Others will reduce the hours of employees on minimum wage. And others will find cost savings elsewhere.

For Chad Mackay, president and chief operating officer of the Mackay Restaurant Group, the minimum wage hike computes to an additional annual cost of around $50,000 for his company’s five restaurants.

Mackay says he will reduce the scheduled hours for servers by starting shifts later and phasing them out earlier at the end of the evening.

“The increase in the minimum wage is one of these things that there’s a real financial cost,” Mackay said. “We don’t just sit back and take it. We have to run labor tighter.”

At Joey in Bellevue, like at Mackay Group restaurants, employee hours will be reduced to adjust for the difference.

“We are already making adjustments on how many people we are staffing at the beginning of the year because business is slower during that time,” said Nick Rehse, a shift leader and bartender at Joey. “We make adjustments to dial down the hours.”

MP: This example provides evidence that minimum wage workers are not necessarily better off with a higher minimum wage. With a reduction in hours thanks to that pesky downward-sloping demand curve for restaurant labor, minimum wage restaurant workers might actually see their weekly earnings go down, not up. And it also provides an example of how the number of workers employed might not be significantly reduced following an increase in the minimum wage, even when there could be a significant reduction in hours worked. Therefore, minimum wage workers could be made worse off with an increase in the minimum wage from reduced hours and income, even if it doesn’t show up as an increase in the unemployment rate.

Advertisements