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One of the questions of economics teaches you to ask is ‘compared to what?’ Someone might tell you that a job paying $10 an hour is bad, but any reasonable…
Last week, I wrote about 4 ways employers respond to minimum wage laws besides laying off workers. One way is to cut hours rather than workers.
Hiking minimum wages makes labor more expensive. When people think about the consequences of this, they often expect to see job losses as a result. This may happen, or it may not. The mistake those folks are making is to think that ‘labor’, shown on the horizontal axis on the graph below, means ‘number of workers’. It doesn’t. It just means labor. So, in response to a hike in the price of labor owing to a minimum wage increase, employers will buy less labor, but this may not mean hiring fewer workers. It might mean buying less labor from the same amount workers: cutting hours, rather than jobs.
Bernie Sanders – Do as I say, not as I do
An example of this comes from an unexpected place. The office of Senator Bernie Sanders (I-Vt.).
He has been a vocal leader in the campaign for an increase in the minimum wage to $15 an hour. In January this year, he said
Just a few short years ago, we were told that raising the minimum wage to $15 an hour was ‘radical.’ But a grassroots movement of millions of workers throughout this country refused to take ‘no’ for an answer. It is not a radical idea to say a job should lift you out of poverty, not keep you in it. The current $7.25 an hour federal minimum wage is a starvation wage. It must be increased to a living wage of $15 an hour
Fine words. But Sen. Sanders likes talking about a $15 an hour minimum wage more than he likes actually paying it. In the last week, it emerged that the field staff working on Sen. Sanders’ presidential campaign earn $36,000 a year. This would be above minimum wage on a standard workweek, but Sanders field personnel say they’re actually working about 60 hours a week — for an hourly wage of $13.
Sen. Sanders’ initial response to this revelation of his hypocrisy was to attack the whistle-blowers. Then he went and behaved exactly as those ‘Econ 101′ supply and demand graphs predicted he would. At the higher price – $15 an hour – he cut the amount of labor he bought. This weekend, Sen Sanders’ announced that he will cut staffers’ hours so that they are effectively paid $15 an hour. They will get more free time, but no extra money.
According to Newsweek, one Sanders staffer wrote “I am struggling financially to do my job, and in my state, we’ve already had 4 people quit in the past 4 weeks because of financial struggles”. Another said they needed a raise “because I need to be able to feed myself.”
These people aren’t helped by this wage hike from $13 to $15 an hour if cuts in their hours offset this. Instead, they will have to dedicate the extra free time to finding a second job. It is these actual consequences, not the stated intentions, by which we should judge public policy.
John Phelan is an economist at the Center of the American Experiment.