As the price of labor goes up employers buy less
A core argument of advocates for higher legal minimum wages is that the increase in the price of labor which they propose will not to lead to a fall in the quantity of labor bought. Perhaps employers will pass the cost on to their customers in the form of higher prices or maybe they will cover it out of their (lower) profits.
Empirical evidence shows that this is not the case. The labor market in the Twin Cities is offering a further example.
In a story titled “Twin Cities area retailers weigh shorter hours to cope with high labor costs this holiday season,” the Star Tribune notes that:
Every holiday season brings challenges to find new employees, but this year Twin Cities retailers are struggling to pay them as well. Payroll costs have ballooned over the past year because of mandatory minimum wage hikes, benefits additions and increased wage competition.
To absorb the rising costs, local retailers are reassessing their staffing levels and may shorten some store hours during a shopping season that makes up a large chunk of their annual sales.
In other words, as the price of labor is increased — in part by hikes in minimum wages — employers are looking to buy less labor.
In Minneapolis and St. Paul, [Candyland owner Brenda] Lamb has seen mandated minimum wages continue to rise this year, with St. Paul increasing to $13 for small businesses and $15 for large shops and Minneapolis upping its minimum wage to $14.50 for small businesses and $15.19 for larger companies.
Lamb said the added business cost has been difficult to swallow, especially when she has to pay more than she wants for younger employees just starting who lack experience and sometimes the commitment to consistently show up for work, she said. She said politicians should leave benefits and wage improvement decisions up to employers.
“Small businesses, they are damaging them incredibly,” Lamb said. “It should be our decision.”