What happens if you do a massive hike in the minimum wage?

National Review reports:

The study, commissioned by the city government of Seattle and published by the National Bureau of Economic Research, found that Seattle’s law incrementally raising its minimum wage — to $13 an hour last year, en route to $15 — resulted in low-wage workers’ earning less money rather than more. 

Yep they ended up poorer. How?

The short version is: You can pass a law saying you have to pay low-wage workers more, but you cannot pass a law that says you have to hire them in the first place, or that you cannot cut back on hours when the price of hourly labor goes up.

Modest increases in the minimum wage have been shown to avoid these effects but large increases get this response.

As businesses responded to the new higher labor costs by reorganizing their processes in less labor-intensive ways (the classic examples here are the replacement of wait staff with computer screens in restaurants and the replacement of bank clerks with more sophisticated ATMs), the law that was supposed to increase low-wage workers’ incomes actually reduced them — substantially, by an average of $125 a month.

That’s a big drop in income. The key findings are:

  • Hours worked by low income workers dropped 9.4%
  • Low-wage jobs declined by 6.8%
  • 5,000 jobs lost
  • 3.5 million fewer hours worked
  • Wages shrunk 6.6%


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