Mark Perry’s remarks at American Experiment’s minimum wage forum


Update: Minnesota Public Radio covered the event, listen to its report here: “How would $15 minimum wage affect workers?”

Thanks to the Center for the American Experiment for the opportunity to participate today. As a native of the Twin Cities, I feel especially fortunate to be here. What’s not so fortunate is that we’re here debating a topic that has actually been settled science in economics for several hundred years. Generally, the first thing we teach on the first day of Econ 101 is that if you raise the price of a good or service, you’ll reduce the demand for that good or service. Including unskilled workers.

I’m sure that everybody here understands perfectly that if the tickets for today’s luncheon had been priced at $60 instead of $30, there would be fewer people in the audience.

And yet we’re here today debating whether or not a similar doubling of the minimum wage, at least in some cities and states to $15 an hour, would have a similar negative effect on the number of unskilled workers employed. And of course it would.

Think of it this way: Suppose the government imposed a $15,500 annual tax on employers per full time unskilled worker. Is there any doubt that that level of tax — $15,500 per employee — would reduce employment opportunities for unskilled workers? Of course there’s no doubt, and that’s the exact same outcome as an increase in the minimum wage from $7.25 to $15 an hour – it would be like a $15,500 tax + payroll taxes on employers for each full-time minimum wage worker. And that would be a disaster for both unskilled workers and the employers who hire them.

This is not rocket science, it’s simple, first-day ECON 101. Given the strong support for the minimum wage among the general public, I feel obligated to issue an apology on behalf of my profession. Economists have obviously failed to educate the general public about basic economic principles. A public educated in basic economics would be just as skeptical of minimum wage laws as they would hopefully be skeptical of proposed legislation that would attempt to repeal or ignore the Law of Gravity for political purposes.

So we’re not here today because of economics – which is settled science when it comes to the overall negative effects of minimum wage laws – we’re here today because of politics.

The economist Thomas Sowell said it best: The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it.

The first lesson of politics, says Sowell, is to ignore the First Lesson of Economics.

So we’re here today because politicians and minimum wage advocates choose to ignore the laws and lessons of economics. And once we move from the world of economics, which is grounded in a systematic rigorous framework of analysis, and based on economic logic, reason and theory, and into the fantasy world of politics, we are then exposed to the real dangers of perverse public policies in a world divorced from economic reality.

In that fantasy world, we suddenly went from a proposal for a $10.10 an hour minimum wage in 2014 to proposals for a $15 an hour wage in recent years. Obama said that 10-10 was easy to remember, but then we suddenly went to $15 an hour, almost a 50% increase with no justification other than that $15 is also an easy number to remember.

But here’s the critical question that is never addressed by minimum wage advocates: Why $15 an hour and not $14 or $16 or $50? There is NEVER any explanation like: We’ve analyzed labor markets, we’ve taken all relevant factors into account, and after rigorous mathematical modeling and cost-benefit analysis, we’ve determined that $15 an hour, and NOT $14.90 or $15.10 an hour is the optimal federal minimum wage.

That never happens. Whether it’s $10.10 or $15, it’s always completely arbitrary and non-scientific. And therefore guaranteed to inflict great harm on unskilled workers and the employers who hire them!

Let’s talk about the harm that a minimum wage is guaranteed to cause by looking at what the law can’t do, because it’s what this type of government price control cannot do that makes it very bad public policy.

Here are 15 things that a $15 minimum wage law does not and cannot do:

  1. It does not raise unskilled workers’ productivity or their value to an employer to accompany the 100% increase in wages that employers are forced to pay unskilled workers.
  2. It does not guarantee that a single new job will be created, and in fact a minimum wage law outlaws them; and outlawed jobs are the inevitable result.
  3. It cannot stop employers from reducing the number of low-skilled workers they employ.
  4. It cannot stop employers from reducing the number of weekly work hours assigned to employees at the higher wage.
  5. It cannot stop employers from hiring fewer unskilled workers in the future following a minimum wage hike.
  6. It cannot stop firms from investing in labor-saving technologies like self-ordering kiosks following a minimum wage hike.
  7. It cannot stop firms from decreasing the amount of on-the-job training provided to unskilled workers.
  8. It cannot stop firms from reducing or eliminating workers’ non-monetary fringe benefits.
  9. It cannot stop firms from adjusting (to the disadvantage of workers) other “non-wage attributes” of jobs including: the strictness of work demands, flexibility in scheduling, and upward mobility.
  10. It cannot stop firms from discriminating against low-skilled workers and substituting higher-skilled workers. In fact, the minimum wage law is a law that forces employers to discriminate against workers who have low skills.
  11. It cannot stop firms from discriminating against minority groups.
  12. It cannot stop firms from making location and expansion decisions that avoid geographic areas that have high minimum wages. Example: Buffalo Wild Wings decision to avoid expansion in cities like Seattle with $15 an hour minimum wage laws.
  13. It cannot stop firms from closing down or contracting their operations (and eliminating jobs) following a minimum wage hike.
  14. It cannot stop entrepreneurs and potential small business owners from deciding to not start new businesses, or to not expand their current businesses because of the higher labor costs from government-mandated minimum wages.
  15. It cannot stop manufacturing firms from outsourcing production overseas and it cannot stop service-sector firms from outsourcing call centers overseas.

Those 15 outcomes, and there are certainly more, represent the many ways that employers will respond to a $15 minimum wage to offset the increase in labor costs mandated by government fiat – and all of those responses disadvantage unskilled workers and reduce employment opportunities.

We can all agree that what we want is for as many Americans as possible to have GOOD JOBS, jobs that pay well and allow workers to live a good life. We can also agree that before you can get a good job, you first need A job, and those first jobs are almost always entry-level jobs.

If we wanted to design a perverse public policy that would minimize employment opportunities for unskilled, entry-level workers, and prevent as many of them as possible from finding their first job, an entry-level job that would put them on the path to eventually getting a really good job, we might propose a $15 an hour minimum wage law. That would guarantee that entry level jobs would be eliminated, and the higher the minimum wage, the more jobs that would be eliminated (see Henry Payne cartoons above).

On the other hand, if we want to maximize employment opportunities for as many Americans as possible, especially the most vulnerable among us (the unskilled, the poor, and minorities), we should NOT erect artificial barriers that will deny employment opportunities to those Americans, and we shouldn’t be outlawing jobs with minimum wage laws. Rather, we should allow market-determined wages to prevail, because we know from ECON 101 that market wages will maximize employment opportunities, while government-mandated wages are guaranteed to reduce employment opportunities.

In closing, remember that the real minimum wage is always zero, because that is the wage that thousands, possibly millions of workers will receive following a government-mandated $15 minimum wage, because they will either lose their jobs or fail to find jobs when they enter the labor force. That’s a very cruel public policy, and I urge the city of Minneapolis and the citizens of Minneapolis and Minnesota to reject that form of cruelty, a cruelty that would inflict the most harm on the most vulnerable and disadvantaged among us.

Bonus Venn Diagram: