ECON 101: As the relevant time-horizon increases, so does the elasticity of demand.
Update. Well, as Glenn points out in the comments, we only had to wait a few more days for evidence to emerge against Seattle’s minimum wage.
When Seattle officials voted three years ago to incrementally boost the city’s minimum wage up to $15 an hour, they’d hoped to improve the lives of low-income workers. Yet according to a major new study that could force economists to reassess past research on the issue, the hike has had the opposite effect.
The city is gradually increasing the hourly minimum to $15 over several years. Already, though, some employers have not been able to afford the increased minimums. They’ve cut their payrolls, putting off new hiring, reducing hours or letting their workers go, the study found.
The costs to low-wage workers in Seattle outweighed the benefits by a ratio of three to one, according to the study, conducted by a group of economists at the University of Washington who were commissioned by the city. The study, published as a working paper Monday by the National Bureau of Economic Research, has not yet been peer reviewed.
Yeah, I’m not sure it’s literally true that the paper ‘has not yet been peer reviewed.’ NBER is the most prestigious working paper series in economics, and although I don’t know for sure, I would guess that they do peer review their papers. That at least has been my personal experience with less prestigious working paper series. In any event, NBER does not publish crap, and this study is in fact state of the art.
[W]hile employment overall did not change, that was because employers replaced low-paying jobs with high-paying jobs. The number of workers making over $19 an hour increased abruptly, while the number making less than that amount declined, Vigdor and his colleagues found.
Vigdor said that restaurateurs in Seattle — along with other employers — responded to the minimum wage by hiring more skilled and experienced workers, who might be able to produce more revenue for their firms in the same amount of time.
That hypothesis has worrisome implications for less skilled workers. While there those with more ability might be paid more, junior workers might be losing an opportunity to work their way up. “Basically, what we’re doing is we’re removing the bottom rung of the ladder,” Vigdor said.
This result explains the seeming paradox of why Big Labor devotes enormous resources to lobbying in favor of increasing the minimum wage when unionized workers already earn far more than the minimum. Since wages of union members are not directly constrained by the legal minimum, why should Big Labor be so concerned with raising the wages of others? The answer is that, in accordance with the results of the aforementioned study, a higher minimum wage gives employers the incentive to replace a number of unskilled workers with a smaller number of skilled workers. This increases the demand for skilled workers, increasing their wages and job security, at the expense of unskilled workers.
The minimum wage hurts precisely those people it is supposedly intended to help. That’s because helping the poor is never the real motivation for imposing a minimum wage. That’s just the excuse used to obscure the real–and far less noble–motive.