Minimum Wage Laws Increase Homelessness, New Study Finds

One thing Lang Martinez said he learned after living on the streets of Ventura County, California , was that being homeless was worse than being in prison.

“It’s a different lifestyle. You think prison is bad? No. Prison’s got structure,” Martinez, a former Los Angeles gang member-turned-advocate against homelessness, recently told California Insider. “The streets got what they call rules of engagement.”

Though Martinez agrees with the conventional wisdom that mental illness and drug abuse are the primary catalysts for homelessness, new academic research suggests the picture is more complicated.

A fresh study out of University of California, San Francisco suggests that losing income is the single biggest driver of homelessness — ahead of mental illness, drug addiction, and other causes — the study authors say.

“I think it’s really important to note how [desperate] poor people are, and how much it is their poverty and the high housing costs that are leading to this crisis,” said Margot Kushel, a physician and leader of the UCSF Benioff Homelessness and Housing Initiative, which conducted the study.

California is home to approximately 30% of the entire U.S. homeless population (115,491 people as of 2022 ), and some advocates expressed hope that the new research would “inform a statewide strategy” to combat the problem.

Separate research, however, suggests California’s own policies have exacerbated its homelessness epidemic, including a new paper written by University of California economist Seth J. Hill titled “ Minimum Wages and Homelessness ” published last month.

Utilizing data from the Department of Housing and Urban Development and other sources, Hill examined 100 cities from 2006-2019 to determine the relationship between wage floors and homelessness. The findings are bleak.

“Merging administrative data from HUD to state and local minimum wage laws suggests that minimum wages induce increases in homeless counts,” Hill writes. “When cities raise their minimum wage by 10%, relative homeless counts increase by three to four percent.”

Hill’s paper will not be the last word on the relationship between minimum wage laws and homelessness, but it provides yet more evidence of a stubborn reality minimum wage proponents often overlook: Minimum wage laws often harm the very people they are designed to help.

For decades, it was an all but universally accepted economic gospel that increases in the minimum wage came with adverse trade-offs. Many economists often pointed out these adverse consequences, including job losses, often fell on workers with the least skills and those who were the least valued.

“Among the effects of a minimum wage law, when it is effective, is that many unskilled and inexperienced workers are priced out of a job, when employers do not find them worth what the law specifies,” the economist Thomas Sowell once observed.

This is why even left-leaning publications such as the New York Times, until relatively recently, conceded that using minimum wage laws to combat poverty was an “old, honorable — and fundamentally flawed” idea because it would “price working poor people out of the job market.”

That minimum wage hikes increase unemployment was once hardly a debatable subject among economists, and even today a scouring of the literature shows that a “clear preponderance” of the scientific research shows a job-killing impact.

So in light of this evidence and the more recent UCSF findings, Hill’s conclusion should not surprise us.

“To the extent minimum wages cause disemployment of low skill-workers, the lost job can exacerbate existing economic insecurity and lessen ability to pay for housing,” he writes.

This finding is not just tragic but ironic. Politicians and wage-justice fundamentalists, who take pride in the idea they are fighting poverty by advocating for higher minimum wage laws, are not just costing countless lower-skilled workers jobs. They are actually pushing many of them into homelessness.

Again, this should not be a surprise. Decades ago, the economist Murray Rothbard famously observed the absurdity in the idea that banning jobs was a path to prosperity.

“Remember that the minimum wage law provides no jobs,” Rothbard wrote , “it only outlaws them; and outlawed jobs are the inevitable result.”

This is not to say wage floors are the sole cause of homelessness, which is a subject as complicated as human beings. Lang Martinez is no doubt correct when he says substance abuse and mental illness play a significant role.

But these realities should not overshadow another truth: For many struggling people, a lower-paying job is not “exploitation.” It’s a lifeline.

This article originally appeared on The Washington Examiner. 

Jon Miltimore

Jonathan Miltimore is the Editor at Large of FEE.org at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

Minimum Wage Laws Increase Homelessness, New Study Finds

Debunking the Myth That Minimum Wage Laws Are ‘Progressive’

The minimum wage is a sort of litmus test. And not only for economists. For social justice advocates, too.

Forget, for a moment, the economics of it. In essence, minimum wage legislation imposes compulsory unemployment on the poor, the unskilled, racial minorities, the young, the physically and even more so the mentally handicapped—the very people all men of good will most want to help. Before the advent of this law, the unemployment rate for white middle-aged people and black teens was just about the same. Now, the latter are unemployed at quadruple the rate of the former.

For the moment let’s just discuss the ethics and logic of the minimum wage. I now make you an offer: come work for me: you can wash my car, clean my house, etc. I’ll pay you $3 per hour. If I were serious about this offer, I could go to jail for making it. If you accepted it, you would also be breaking the law, but you would not get more than a slap on the wrist, since the judge would think I was exploiting you. Did I violate anyone’s rights? Did I violate your rights by making you this offer? Hardly.

As we should know from pure logic alone that an offer of employment such as I am now making to you, theoretically (I do not welcome being arrested), cannot help but improve your economic welfare. It is a proposal of an option you simply did not have before I made it. If you reject it, you are no worse off than you otherwise would have been. If you accept it, this job necessarily benefits you, at least ex ante (looking ahead), since, presumably, you had no better alternative than this one. I am your benefactor, not your exploiter.

Now for the economics of it. Some people believe the minimum wage is like a floor; raise it, and pay scales rise, particularly those at the lower end of the economic pyramid. If this were so, why be so modest as to want to raise it, only, to $15 per hour. Why not $1,500 hourly? Then, we would all be rich! We could stop all foreign aid to poor countries. We might just tell them, instead, to install a minimum wage decree at a high level.

No, the minimum wage is more like a barrier over which you have to jump in order to get a job in the first place and then keep it. The higher this hurdle, the harder it is for you to jump over it. Let us return to my offer to you at $3 per hour. Suppose you are very unskilled. Your productivity, the amount of revenue you can add to my bottom line, is only $3 per hour. If I hire you at $15, I’ll lose $12 per hour. Thus, I won’t hire you if I want to maximize profits. If I do so anyway, I will risk bankruptcy. Which is better for you: no wage at all, zero, nada, with this law in place? Or $3 per hour, with no such enactment? Clearly, $3 per hour is better than nothing.

Here are three objections to the foregoing. First, if you were totally unemployed, you might be eligible for welfare; if employed at a low wage, likely not. So the minimum wage, at least with a welfare program, is a benefit to the poor. True enough. But, here, we are not holding fast to ceteris paribus (all else equal) conditions. If we want to clearly see the economic effects of this regulation, we have to hold all else constant. Assume, either, no welfare at all, or, an equal amount of such payments whether on the job or not. Then, we can see clearly that something is better than nothing, and, also, that something plus a welfare payment is greater than nothing plus the same welfare payment.

Second, there is the claim of monopsony, which is a single buyer of labor, or, oligopsony, a situation in which there are only a few employers. This is a divisive concept within the dismal science (economics), which we need not discuss here. But one thing is clear: this applies, if it does at all, only to firms which employ highly skilled workers. For example, the NBA, the NFL, MLB and other such sports teams; to doctors, engineers, lawyers, computer experts, with very narrow specialized skills which can be utilized only by one or a very few companies. But these people earn vast multiples of the $15 per hour many are pushing for. Thus, this objection is not even relevant to our present discussion.

Third, several economists have not been able to find the unemployment effects implied by this directive in their econometric studies. Response: they should look a little harder, probe a bit deeper. They have not done their full homework.

The minimum wage law should not be raised, it should not remain constant, it should not be lowered. It should be ended, forthwith, and salt sowed where once it stood. It’s proponents may have good intentions, but in practice it is a malicious attack on the least of us.

Walter Block

Walter Edward Block is an American economist and anarcho-capitalist theorist who holds the Harold E. Wirth Eminent Scholar Endowed Chair in Economics at the J. A. Butt School of Business at Loyola University New Orleans. He is a member of the FEE Faculty Network.

This article was originally published on FEE.org. Read the original article.

Debunking the Myth That Minimum Wage Laws Are ‘Progressive’

Minimum Wage Hikes Kick in Across the Country—at the Worst Possible Time for Small Businesses

2020 was one of the worst years in modern American history for small businesses. And now, thanks to a wave of minimum wage legislation that kicked in on January 1, things are about to get even worse.

Make no mistake: small business owners are already seriously hurting. 

When state and local governments responded to the outbreak of COVID-19 in the spring with harsh lockdowns and restrictions, businesses were forced to shutter. Many in the restaurant and hospitality industry remain shut down many months later, or were briefly allowed to reopen then shut down again this fall. Meanwhile, much of the taxpayer-financed aid meant to help these businesses was instead captured by big corporations or lost to fraud and waste. 

To add insult to injury, thousands of small businesses were vandalized and looted during the summer unrest after the death of George Floyd. (No, insurance doesn’t eliminate the harm).

At least 100,000 small businesses that were forced to close in 2020 will not reopen, according to Yelp. In a recent survey, almost 60 percent of small business owners said that they don’t expect their enterprise to survive through June 2021.

Many of these same small businesses teetering on the brink of collapse are about to get slapped in the face with surging labor costs. A total of 20 states had minimum wage hikes take effect this month as part of scheduled ramp-ups.

“New Mexico will see the largest jump, adding $1.50 to its hourly minimum and bringing it up to $10.50,” the Hill reports. “Arkansas, California, Illinois and New Jersey will each increase their minimum wages by $1.”

Additionally, many localities have enacted area-specific minimum wage hikes. For example, Flagstaff, Arizona just raised its minimum wage to $15 an hour while Belmont, California just upped its rate to $15.90 an hour.  

These might not sound like massive hikes in absolute terms, but you have to think of it like this. Payroll is often one of the largest expenses small businesses have—and it may have just arbitrarily spiked by 5 to 15 percent.  

The timing here could not be worse. 

“A dramatic increase in the minimum wage even in good economic times has been shown to be harmful,” Employment Policy Institute Managing Director Michael Saltsman said. “In the current climate, for many employers it could be the final nail in the coffin.”

And employees will suffer perhaps just as much as employers. Even though they’re ostensibly meant to uplift workers, increases in the minimum wage always and inevitably hurt more than they help.

Why? A wage is important for the living standards of the worker, but that isn’t its only important aspect. A wage is a price. Prices are essential for order in an economy, so price controls throw markets into chaos.

“By the simplest and most basic economics, a price artificially raised tends to cause more to be supplied and less to be demanded than when prices are left to be determined by supply and demand in a free market,” famed free-market economist Thomas Sowell explained in his book Basic Economics. “The result is a surplus, whether the price that is set artificially high is that of farm produce or labor.”

 “Making it illegal to pay less than a given amount does not make a worker’s productivity worth that amount— and, if it is not, that worker is unlikely to be employed,” Sowell writes. “Unfortunately, the real minimum wage is always zero, regardless of the laws, and that is the wage that many workers receive in the wake of the creation or escalation of a government-mandated minimum wage, because they either lose their jobs or fail to find jobs when they enter the labor force.” 

Thus, as free-market economist Murray Rothbard put it, the minimum wage amounts to outlawing jobs:

“In truth, there is only one way to regard a minimum wage law: it is compulsory unemployment, period. The law says: it is illegal, and therefore criminal, for anyone to hire anyone else below the level of X dollars an hour. This means, plainly and simply, that a large number of free and voluntary wage contracts are now outlawed and hence that there will be a large amount of unemployment. Remember that the minimum wage law provides no jobs; it only outlaws them; and outlawed jobs are the inevitable result.”

 So, it’s no surprise that the nonpartisan Congressional Budget Office projects that a national $15 minimum wage would destroy up to 3.7 million jobs. Of course, these hikes aren’t nationwide, and many aren’t quite up to $15 yet. Nonetheless, struggling small businesses already have so little wiggle room in their budgets and are on the brink of collapse. Thus the negative effect minimum wage hikes have on local economies will be severe.

Of course, there’s little doubt that the legislators who enacted these pre-planned minimum wage hikes hoped to help workers, not put them out of work amid an economic crisis. But the laws of basic economics are unmoved by compassionate hand-wringing—and good intentions never guarantee good results.

Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Opinion Editor at the Foundation for Economic Education.

This article was originally published on FEE.org. Read the original article.

Minimum Wage Hikes Kick in Across the Country—at the Worst Possible Time for Small Businesses

How a Minimum Wage Hurts Those It's Designed to Protect - Foundation for Economic Education

In the final presidential debate, former Vice President Joe Biden gave full support to raising the minimum wage to $15 an hour, even in the midst of the economic downturn caused by the COVID-19 pandemic and the government-induced lockdowns that followed.

President Donald Trump’s complaint was that raising the minimum wage would hurt small businesses as it would raise the cost of labor.

But raising the minimum wage would not just hurt many small businesses who need certain types of labor and don’t have the revenue to pay $15 an hour for it. It would also hurt employees whose labor is simply not worth the increase in price.

I don’t think any of us, regardless of what we think about the minimum wage, genuinely want anyone to be compensated unfairly for their work. Nor do we want to see people not make enough to suit their needs.

Minimum wage laws, however, do not help low-income workers make a living. They actually end up pricing them out of the market in many instances.

Imagine you own a small business – a bar, let’s say – and your bar has recently become the hotspot of your small town. You’ve seen a significant increase in profit over the past year, and you’ve decided to use that extra profit to hire someone to do the job you hate doing the most: cleaning the bathrooms.

You hire Ned. Ned is a low-skilled worker with no high school diploma. However, he is a hard worker and is voluntarily offering his labor for $5 an hour, 10 hours a week. If you pay him $5 an hour, you’d be making the same profits as you were before, except your job would be a lot easier with the extra hand.

Now imagine that the government comes to your bar and demands that you must now pay all your employees no less than $7 an hour.

If you pay Ned $7 an hour, you will be losing an extra $20 dollars a week. That’s around $80 per month and $1,040 per year. If your revenue stays the same – and that’s only if people keep coming to your bar at the rate they currently are – you’ll be making over $1,000 less in profit than you did last year.

Keep in mind, you’re fully capable of cleaning the bathroom yourself. Anyone can clean a bathroom. You just don’t want to do it if you can afford to pay someone else to. Are you going to take the loss or are you just going to clean the bathroom yourself?

Of course, you could up the price of your drinks, but maybe that’s one of the reasons your customers keep coming back – because they feel your drinks are affordable. Raising prices could actually deter customers.

Most people, I’d imagine, would just choose to clean the bathroom themselves. Ned, likely, would lose his job.

Was the government helping Ned? Were they helping you? What about your consumer? No! Not at all!

The government only caused Ned to get laid off. You, now, are going to have to spend your mornings scrubbing that nasty commode! And are your customers going to be able to get a better deal on their beer? No!

Join us in preserving the principles of economic freedom and individual liberty for the rising generation

Let’s assume the government actually wanted to help Ned. Where did they go wrong?

The government was ignorant of basic economics.

They never took into account that the demand for Ned’s labor simply didn’t equate to $7 an hour.

It’s important to understand that employers are consumers of labor and employees are producers of labor. An employee is one who has sold his work (whether that be cleaning your bar’s dirty toilets or designing rockets for SpaceX) to an employer for an agreed upon price.

In any market, the producer is tasked with setting a price that balances the supply and demand of their good or service.

When a price is set below that equilibrium, a shortage is created. Consumers will buy it up too quickly and drain the supply before it can be replenished.

The opposite effect, a surplus, results from setting the price higher than the equilibrium. Most consumers will find the good or service not worth the price. The producer, then, will be unable to sell all of their goods or hours of their services.

That’s exactly what happened to Ned. You – the consumer of Ned’s labor – decided his labor was not worth the extra $1,040 at year. Ned’s labor is at a surplus.

And a surplus in the labor market does not mean abundance. It does not mean a bunch of goodies stored away in some warehouse waiting to be used. It means unemployment.

If it were up to Ned, do you think he would rather offer his labor at $5 an hour and keep his job or offer it at $7 and lose it?

Though the government told you that you could not pay Ned less than $7 an hour, they, in turn, also told Ned that he could not offer his labor at less than $7 an hour. This takes away Ned’s freedom to choose. It takes away his ability to use his labor the way he wants to. Now, unless Ned is able to make his labor worth $7 or more an hour, he will inevitably receive $0.

This obviously won’t happen in every situation. Some small businesses may be willing to reduce profit so they don’t have to let anyone go and many larger businesses can probably afford the increase, but it nevertheless provides incentives for both to let low skilled workers go and either do the jobs themselves or replace them with less expensive alternatives such as machines and computers.

Many who support raising the minimum wage to $15 an hour do so because they truly want something better for other people. But before we make decisions about policy, we must always ask whether or not it is effective at achieving its end goal.

Minimum wage laws price low-skilled workers out of the market, while inviting the government to get more involved in how we sell our own labor. And, to me, neither is desirable.

Will Blakely

Will Blakely is a student at Auburn University studying public relations and political science who hopes to pursue a career in public policy.

This article was originally published on FEE.org. Read the original article.

Politicians Are Well Aware of the Harms of the Minimum Wage

Recently, I came across a rather interesting news report. Republican lawmakers in the US are proposing that the minimum salary firms must pay to their foreign workers, arriving on H1-B visas, be raised from $60,000 to $90,000. This move was backed by large corporations such as Facebook, Microsoft, and Oracle as well as by unions.

Edging Out the Competition

Why are unions and large corporations supporting this measure? Did American workers suddenly decide to show solidarity with their Asian brethren? Did the CEOs of Microsoft, Facebook, and other large corporations deeply introspect and decide to be compassionate towards the less fortunate foreign workers?

Not at all. Large corporations such as Microsoft and Facebook would like to get rid of competition. Their smaller competitors cannot afford to pay the kind of enormous salaries that Microsoft and Facebook do. Therefore, they hire cheaper workers from India. It is also a good deal for the Indian software engineers since even small firms in the US tend to pay better than firms in Bangalore.

By raising the minimum salary requirement, Microsoft, Facebook, and others wish to raise the labor costs of their competitors. While labor would also become more expensive for large corporations, they can absorb the cost, and the benefit of eliminating competition more than makes up for it.

The unions, of course, have a similar incentive. If workers from India and China are not competing with them, they get to demand higher salaries. And politicians understand all of this. In fact, the explicit aim of this legislation is to keep down the number of foreign workers. From the news report itself:

A California congressman, backed by U.S. technology companies, is pushing for the House to consider legislation that would narrow the number of eligible candidates for H-1B visas that are awarded to highly skilled foreign workers.  

Stop Feigning Ignorance

It isn’t as though only Republicans understand the ill effects of the minimum wage. The Democrats are opposing this move, saying that it should be viewed in the larger context of immigration. Clearly, politicians across party lines understand that minimum wage laws create unemployment and, in this case, immigration obstacles.

To all politicians who advocate raising the minimum wage saying that it helps workers, I have a question. Why is it that minimum wage laws do not create unemployment for fast food workers but do so for immigrant workers from India? I won’t hold my breath waiting for an answer.

The plain fact is that minimum wage laws, whether for fast food workers or for migrant ones, are just crony capitalism. I know it, politicians know it, and after reading this article, hopefully everyone knows it.


Jairaj Devadiga


Jairaj Devadiga is an economist who illustrates the importance of property rights and freedom through some interesting real-world cases. When he is not doing research, he enjoys reading about medicine, astronomy, computers, and law among other things. Readers may email him at jairajdevadiga@gmail.com with questions, suggestions, feedback etc.

This article was originally published on FEE.org. Read the original article.

Guess Why Hundreds of Busboys Just Lost Their Jobs

Red Robin, a popular burger chain, will cut jobs at all 570 of its locations because, chief financial officer Guy Constant said, “We need ... to address the labor [cost] increases we’ve seen.”

To put it differently, Red Robin is cutting these jobs because of bad government policy: namely, hikes in the minimum wage. On January 1, some 18 states — from Maine to Hawaii — increased their minimum wage.

Founded in Seattle but headquartered in Colorado, Red Robin hopes to save some $8 million this year by eliminating bussers from their restaurants. (Bussers, or busboys, clear dirty dishes from tables, set tables, and otherwise assist the wait staff.) According to the New York Post, the company saved some $10 million last year after eliminating “expediters,” who plate food in the kitchen.

The Impact of an Increase in Wages

Despite what many people, including policymakers, would argue, this is an altogether painfully predictable response to increased labor costs. It’s basic economics. The “first law of demand” teaches us that when the price of a good or service increases, people will tend to buy fewer units. Conversely, when the price of a good or service decreases, people will tend to buy more. This idea is usually presented no later than chapter 3 in any econ 101 textbook.

 Labor is no exception to this rule. If the cost of employing workers increases, we’d expect companies to hire fewer workers and even to let some go.

Some might say, “Well, why can’t Red Robin just make a smaller profit and stop being greedy?” Consider, however, that pretax profit margins for the restaurant industry typically range between 2 and 6 percent. This means that there isn't a lot of room for error or cost increases before realizing a loss.

Now suppose that a restaurant like Red Robin is operating normally when minimum-wage hikes are imposed. Let’s take Colorado as an example. On January 1, Colorado’s minimum wage increased by about 10 percent—from $9.30 to $10.20 an hour.

Have the workers at the restaurant — the cooks, the servers, or the bussers — acquired any new skills? No! Will they magically become more productive and begin to generate more revenue for their employer as a result of this policy? No! The workers simply become more expensive to employ. So what is a company like Red Robin to do?

One option would be to add a surcharge to customers’ bills to recoup some of the losses from the higher labor costs. This is precisely what happened in San Diego following a minimum-wage increase — much to the chagrin of policymakers and customers alike. Another option would be to increase menu prices — a particularly unpopular move when it comes to luring in customers.

A third alternative would be to fire some staff and make do with a smaller workforce. Restaurants like Chili’s have taken to installing ordering kiosks at its tables, allowing customers to order and pay their tabs without ever having to speak to a waiter. Other restaurants, like McDonald’s and Wendy’s, have also begun to substitute technology for human beings in the form of automated ordering kiosks.

Note that three groups could lose here. First, Red Robin loses. No company likes firing employees, incurring higher costs, or trying to provide the same quality service with fewer workers.

Second, customers may lose through poorer service or higher prices.

And third, workers lose if they find themselves without jobs.

While we may not like the idea of someone trying to live on $5 or even $7 an hour, we can likely all agree that earning a small wage is better than earning nothing at all due to unemployment. It’s easy to vilify restaurants and other companies when they respond to higher costs with layoffs. But it’s important to place the blame where it belongs. In this case, it’s bad policy — not incompetence, not corporate greed — that’s causing people to lose their jobs.

Reprinted from Independent Institute.

Abigail Hall Blanco


Abigail Hall Blanco is a Research Fellow at the Independent Institute and an Assistant Professor of Economics at the University of Tampa. She received her Ph.D. in economics from George Mason University.

Professor Hall is the author of scholarly articles in such journals as Public Choice, Defence and Peace Economics, Advances in Austrian Economics, Review of Austrian Economics, The Independent Review, Atlantic Economic Review, and The Journal of Private Enterprise. And, her popular articles have appeared in Newsweek, The Hill, The Daily Caller, The American Thinker, and the nationally-syndicated McClatchy-Tribune News Service.

She is also the recipient of the William P. Snavley Award for Outstanding Achievement in Graduate Studies, Association of Private Enterprise Young Scholar Award (2013, 2014, 2015), and the Don Lavoie Memorial Essay Competition Award.

Her work includes topics surrounding women's issues in business and the family, civil and economic liberty, the U.S. military and national defense, including, domestic police militarization, arms sales, weapons as foreign aid, and the political economy of military technology.

This article was originally published on FEE.org. Read the original article.

With the Minimum Wage, Who’s the Real Bully?

What do economists predict employers of low-wage workers will do when a government raises the minimum wage by a large amount, say, $2.40 an hour?

An increase in the minimum wage doesn't magically make low-wage workers more productive. So we predict that employers will reduce other components of the compensation package: reduce paid breaks, reduce their contribution to benefits such as health and dental insurance, and reduce other components of the pay package.

The Wisdom of the Coffee Shop

That is exactly what two owners of Tim Hortons coffee shops in Cobourg, Ontario are doing in response to the $2.40 per hour increase in the minimum wage that became law in Ontario on January 1. This is from a Canadian Press news story published in The Globe and Mail, a major national publication based in Toronto:

In a letter dated December 2017, Ron Joyce Jr., son of company co-founder Ron Joyce, and his wife, Jeri Horton-Joyce, who is Tim Hortons' [sic] daughter, told employees at two Tim Hortons restaurants they own in Cobourg, Ont., that as of Jan. 1, they would no longer be entitled to paid breaks, and would have to pay at least half of the cost of their dental and health benefits

The minimum wage in Ontario between October 1, 2017, and December 31, 2017, was $11.60 per hour. As of January 1, it is a whopping $14.00 per hour. In U.S. dollars, as of today, that is $11.20 an hour. (The average hourly wage of workers 15 years of age and over in Ontario in November 2107 was $26.82. So the new higher minimum wage is 52% of the average wage.)

The Inevitable Backlash

And what was Ontario premier Kathleen Wynne's reaction? Was it: "Oops. I blew it. I should have realized that employers would adjust to make it worthwhile to keep hiring their lower-wage and lower-productivity workers?" No. Was it: "I should have also realized that employers and employees are better than me at coming up with the optimal mix of money wages and other benefits?" Again no.

It couldn't have been her fault. Instead, she attacked the employers. The news story continues:

Premier Kathleen Wynne said if Joyce Jr. wants to challenge the Ontario government policy, he should come directly to her and not take it out on his workers

But they didn't challenge the Ontario government policy. Instead, they announced how they were going to comply with it. Ms. Wynne doesn't even get the basic story right.

And what is Wynne saying would have happened if they had "come directly to her?" Is she saying she would have reconsidered the policy? Probably not, given that she also said:

When I read the reports about Ron Joyce, Jr., who is a man whose family founded Tim Hortons, the chain was sold for billions of dollars, and when I read how he was treating his employees, it just felt to me like this was a pretty clear act of bullying

Kathleen Wynne was right to identify the fact of bullying. She was wrong, however, in identifying who engaged in bullying. To know who the bully is, she need only look in the mirror.

H/T Janet Bufton.

Reprinted from the Library of Economics and Liberty

David R. Henderson


David Henderson is a research fellow with the Hoover Institution and an economics professor at the Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, California. He is editor of The Concise Encyclopedia of Economics (Liberty Fund) and blogs at econlib.org.

This article was originally published on FEE.org. Read the original article.

2018’s New Minimum Wages Come with a Cost

In a 2014 letter written by the Economic Policy Institute (EPI) to President Obama and congressional leaders in support of an increase in the federal minimum wage to $10.10 an hour, more than 600 economists apparently agreed with, and endorsed this statement:

Research suggests that a minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.

More recently, EPI endorsed a $15 an hour federal minimum wage and estimated that:

The rising wage floor would generate $144 billion in additional annual wages, which would ripple out to the families of these workers and their communities. Because lower-paid workers spend much of their extra earnings, this injection of wages would help stimulate the economy and spur greater business activity and job growth.

Seems almost like economic magic right? Through a government edict in the form of an artificial price control (minimum wage law), we can stimulate the entire US economy and increase national income, prosperity, and jobs!

And here’s the latest from EPI on the pending increases in state minimum wages next week:

At the beginning of 2018, 18 states will increase their minimum wage, providing more than $5 billion in additional wages to 4.5 million workers across the country. In a majority of these states, minimum wage increases (ranging from $0.35 in Michigan to $1.00 in Maine) are the result of legislation or ballot measures approved by voters in recent years.

According to the narrative of minimum wage advocates like EPI, that $5 billion in additional wages will get spent by low-skilled workers on goods and services, and with the power of a mythical multiplier that spending will ripple through the economy and magically stimulate the entire economy, create jobs, and bring about prosperity!

But here’s a question that never gets asked (or answered) by EPI and minimum wage supporters: Where will the $5 billion in additional wages come from? While thinking about this overlooked question that reveals an important economic fallacy, I was reminded of a similar economic fallacy illustrated by Henry Hazlitt’s famous essay on the broken window, which exposed the economic fallacy of the “blessings of destruction.” Using Henry Hazlitt’s essay as a template (which is actually based on Bastiat’s original essay on the broken window fallacy from 1850), I’ve written a new essay below to expose what might be called the “blessings of the minimum wage fallacy” on the eve of the 18 minimum wage increases scheduled to take place this week.

The Blessing of the Minimum Wage Fallacy

From Henry Hazlitt’s Economics in One Lesson, we learn that “the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence: "The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” Let us begin with a simple illustration: the 18 minimum wage hikes that will take place next Monday on January 1.

As a result of 18 state laws mandating that minimum wage workers will get paid $0.35 (in Michigan) to $1 an hour (in Maine) more on January 1, a young teenage worker named Alex working full-time at a small neighborhood pizza restaurant in Maine would make $160 in additional income every month (ignoring taxes). Alex would spend that additional monthly income of $160 at local merchants on items like food, clothing, footwear, Uber rides, movies, computer games, and electronics items. The local merchants who receive that $160 from Alex’s additional spending now have additional income and profits every week, and they can spend some of that additional income and profits on goods and services. Alex’s additional monthly income, therefore, ripples through the local Maine economy with an amazing multiplier effect that almost magically increases spending and income throughout the local economy.

The pro-minimum wage crowd points to these many positive income effects from Maine’s pending $11 an hour minimum wage and Alex’s additional income, and many might even suggest that a minimum wage far above $11 an hour would create even greater and more positive benefits for workers like Alex and the local merchants who would be the beneficiaries of an even higher minimum wage. For example, EPI suggests that a $15 an hour federal minimum wage would lift wages for 41 million American workers.

But let us take another and closer look at the situation. The minimum wage crowd is at least right in its first conclusion about Alex’s spending, which is just a small part of the much larger $5 billion in additional wages and spending EPI estimates for next year. The public policy of artificially raising wages through government fiat will mean more business and billions of dollars in greater sales revenues for local merchants around the country. The local merchants will be no more unhappy to learn of the magical spending from 18 minimum wage hikes in 2018 than an undertaker to learn of a death.

However, we haven’t yet considered the situation that will now face hundreds of thousands of merchants and small business owners next year, including Alex’s boss – Mrs. Alice Johnson who owns the small pizza restaurant in Bangor where Alex works. As a result of Alex’s good fortune to receive $160 in extra income every month (and nearly $2,000 during the entire year) as a result of government fiat, his boss and sole-proprietor Alice Johnson now has $160 less every month (and $1,920 for the year) because she has to pay Alex out of her own income or profits.

The Johnson family now has to cut back on their household spending by $160 every month that they would have spent on food, clothing, Uber rides, and electronics products at local merchants. Alex’s gain of $160 each month comes at the direct expense of the Johnson family, who are now worse off in the same amount that Alex is made better off. (And if Mrs. Johnson employs more minimum wage workers than just Alex, she and her family are worse off by $160 per month, and $1,920 per year, for each worker.)

If we consider that Alex and the Johnson family are a part of the same local community in Bangor, the community’s income hasn’t changed – rather, there’s only been a transfer of income of $1,920 per year from the Johnson family to Alex; but no net gain in community income, wealth, jobs, or prosperity has been achieved.

For the entire state of Maine, the $80 million in higher wages that EPI’s estimates next year as a result of the $1 an hour increase in the state’s minimum wage have to come from somewhere or someone. And that “somewhere” or “someones” are the thousands of local merchants in Maine like Mrs. Johnson who will be made collectively worse off by $80 million in 2018.

The people in the pro-minimum wage crowd think narrowly of only two affected groups from minimum wage hikes: Alex, the minimum wage worker, and the merchants that gained his business from his artificial increase in income. The minimum wage advocates forget completely about the third parties involved, namely small business owners and their families like the Johnsons in Maine, and the local merchants that now lose their business because the labor costs for small businesses have been artificially increased by government fiat.

Minimum wage advocates will easily see Alex’s increased income and spending because it is immediately visible to the eye and easy to calculate ($5 billion next year according to EPI, and $144 billion annually if the federal minimum wage is increased to $15 an hour). They fail to see the lost income and subsequent reduction in spending by the Johnson family that otherwise would have occurred – because it’s less visible and harder to calculate.

The minimum wage example above exposes an elementary fallacy about its alleged positive income effects. Anybody, one would think, would be able to avoid that fallacy after a few moments thought. Yet the minimum wage fallacy, under a hundred disguises, is the most persistent in the history of economics. It is more rampant now than at any time in the past. It is solemnly reaffirmed every day by great captains of industry, by labor union leaders, by editorial writers and newspaper columnists, by progressive politicians and progressive think-tanks, by learned statisticians using the most refined techniques, and even by professors of economics in our best universities who sign statements in support of the minimum wage. In their various ways, they all perpetuate the minimum wage fallacy.

It All Has to Come from Somewhere

The minimum wage supporters see almost endless benefits despite the economic destruction that characterizes minimum wage laws. They see miracles of multiplying prosperity, increased income, and more jobs coming from minimum wage hikes, a form of economic magic enacted in state capitals, by city councils, and the federal government. But once we trace the long-term effects of such public policy on all groups in the economy, and analyze both what is seen and what is unseen, we should easily understand that the minimum wage cannot, and will not, have overall positive effects. At best it can only transfer income from one group (business owners like Mrs. Johnson above and/or their customers in the form of higher prices) to another group (low-skilled, limited-experienced workers), but with no net gain.

It’s an ironclad law of economics that to stimulate one group with public policies like the minimum wage, protective tariffs, or farm subsidies, another group in the economy has to be equally “un-stimulated.” In the case of the 18 increases next week in state minimum wages, the EPI’s estimate of $5 billion in additional wages will stimulate low-skilled workers next year by the exact same amount that it will “un-stimulate” merchants, businesses, business owners, and their families in those 18 states – by $5 billion.

When one considers all of the long-term effects on all groups that would result from minimum wage laws: the economic distortions, the misallocation of resources, the loss of employment opportunities for low-skilled workers and the lifetime consequences of not gaining work experience at an early age, and the businesses that close or are never opened, one can only come to one conclusion: the minimum wage law is a very bad and very cruel public policy that makes local communities and the entire economy overall much worse off, not better off.

Groups like EPI that support increasing the minimum wage do a great job of addressing the benefits of higher wages to low-skilled workers, but then completely ignore the costs of those artificial wage increases. That is, they never answer the most important question of all, posed above: Where will the $5 billion in additional annual wages from the 18 minimum wage hikes next year come from?

For example, in a 60-page document released earlier this year by EPI’s senior economic analyst David Cooper, “Raising the minimum wage to $15 by 2024 would lift wages for 41 million American workers,” there is extensive coverage on every page of the estimated benefits of artificially higher wages ($144 billion annually) to various workers by demographics (age, gender, race/ethnicity, education, family status, children, geography, etc.) that would result from a $15 an hour federal minimum wage. But you won’t find a single sentence in the 60-pages of text that explains where the $144 billion will come from if the federal minimum wage is increased to $15 an hour!

There’s not a single mention in the EPI report of the word “business” except for a reference to a $15 minimum wage “spurring greater business activity and job growth.” There’s also not a single mention of what should be relevant terms like “higher prices,” “labor costs,” “profits,” “adjustments,” or “reduced hours” that would give us some idea of the costs of a $15 an hour minimum wage, who pays those costs (businesses), and how those higher costs will offset the benefits. And that’s the essence of the “blessings of the minimum wage fallacy” that EPI has fallen prey to — a $15 minimum wage sounds like good public policy only when you count all of the blessings (benefits) to workers while ignoring the costs to businesses.

We learned from Bastiat and Henry Hazlitt that broken windows and other forms of destruction can’t increase a community’s overall income, employment, and economic prosperity. Likewise, neither can the 18 minimum wage hikes scheduled to take place on Monday have overall, positive net economic benefits next year.

Any public policy looks good when you look merely at the immediate effects, but not the longer effects; when you consider the consequences for just one group (workers in the case of the minimum wage) but for all groups (businesses), and only emphasize the benefits (to workers) while completely ignoring the costs (to employers). But that’s not sound economic logic or objective economic analysis on the part of groups like EPI; rather it’s pure partisan political advocacy for an economic fallacy that violates the ironclad law of economics described above. Or as Milton Friedman described it in 1966, support of the minimum wage is “monument to the power of superficial thinking.”

Update: As Not Sure points out in the comment section, there is an additional cost to employers when the minimum wage increases because of the 7.65% payroll tax imposed on employers for Social Security and Medicare. Therefore, the $5 billion in higher wages next year for minimum wage workers would actually cost their employers $5.3825 billion.

Reprinted from the American Enterprise Institute

Mark J. Perry


Mark J. Perry is a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan’s Flint campus.

This article was originally published on FEE.org. Read the original article.