Over the past several months, we’ve highlighted a number of economic studies analyzing the potential negative impact, in terms of job losses, that may be expected to result from the state-mandated minimum wage hikes that are currently being implemented around the country.
One such study came from the American Action Forum (AAF) and estimated that 2.6 million jobs will be lost around the country over the next several years as states phase-in minimum wage hikes that have already been passed (see “State Minimum Wage Hikes Already Passed Into Law Expected To Cost 2.6 Million Jobs, New Study Finds”).Here were a few of the key takeaways:
- In isolation, the minimum wage increases in 2017 will cost 383,000 jobs;
- The entire minimum wage increases currently phasing-in will cost over 2.6 million jobs; and
- Each job lost only leads to an extra $6,900 in total wage earnings across all workers.
After running a lot of really complicated math using complex equations that most of us stupid people just wouldn’t understand, these studies ultimately come down to a simple economic premise: elasticity of demand (a.k.a. ‘the higher shit is priced the less people will buy of it’ rule).In fact, the AAF analysis even summarized their study by saying that each 10% increase in wages results in an proximate 0.3% – 0.5% decline in net job growth…a rule which they used to conclude the following:
While proposals to raise the minimum wage are well intended, it is important to consider the negative labor market consequences. Meer & West (2015) find that raising the minimum wage reduces job creation. Specifically, they find that a 10 percent increase in the real minimum wage is associated with a 0.3 to 0.5 percentage-point decline in the net job growth rate. As a result, three years later employment becomes 0.7 percent lower than it would have been absent the minimum wage increase.
While the Meer & West (2015) findings may not seem very problematic, when taking into account the magnitude of the minimum wage increases and the number of states implementing new laws, the negative labor market consequences add up. Let’s first examine the minimum wage hikes of 2017 in isolation, without considering previous or future minimum wage increases under the new state laws.
Leave A Comment