Amazing. Thank you, president Xi Jinping. You’re a hero to gamers everywhere. Liberate the GPUs!
In fact, in this quarter’s survey, 57% of all small business owners say these minimum wage increases will have no impact at all on their business in 2020, indicating that they can absorb the cost of the wage increase, sustain any loss in profits and find ways to raise revenue to compensate for the increase on their balance sheets. Or perhaps many were always paying their workers above the minimum wage even before the change was made.The risk of a wage increase is that it will be set too far above the hourly rate that employers can afford to pay their employees, forcing them to lay off workers if they can’t offset that cost in some other way. Small businesses typically have smaller profit margins and fewer ways to reallocate funds if their business model suddenly changes.But with these wage increases coming at a time of near-record unemployment and steady national GDP growth — not to mention great confidence among small business owners, specifically — few small business owners are complaining about the wage boost. Perhaps more significantly, even those who expect a business impact thanks to the change only rarely say they will cut headcount as a result.Just 8% of small business owners say they will be forced to lay off workers as a result of the higher minimum wage, while 14% say they will be forced to cut worker hours, 14% say the higher minimum wage will result in less revenue for their business and 22% say it will result in less profit for them.
“The best evidence is that judiciously set minimum wages make a lot of sense. They raise earnings, reduce individual and family poverty, and have no measurable negative effects on employment,” said David Autor, an economics professor at MIT and co-chair of the MIT Task Force on the Work of the Future.A report last year by the Congressional Budget Office found that a $15 minimum wage would increase the income of 27 million workers, 17 million of whom currently earn below that amount with the remaining 10 million earning just over $15 an hour, but all of whom would see their wages rise due to what economists call the “spillover effect.”When adjusted for inflation, today’s minimum wage gives workers far less buying power than it once did. Since peaking 52 years ago, purchasing power of the minimum wage has fallen by 31 percent — the equivalent of $6,800 for someone working full-time at minimum wage for a year.
It’s not uncommon to hear that minimum wage increases have disastrous consequences, particularly for small businesses. However, economic research into the impact of minimum wage hikes on small businesses suggests that not only are increases not harmful, they might even be beneficial.Research from the Fiscal Policy Institute examined three years of small business activity in states that increased the minimum wage above federal standards as well as states that did not. These were some of the researchers’ findings:
- From 1998 to 2001, the number of small business establishments grew at a rate of 3.1% in states with higher minimum wages, compared with a rate of 1.6% in states with lower minimum wages.
- Employment grew 1.5% more quickly in states with higher minimum wages.
- Annual payroll and average payroll per worker increased more quickly in states with higher minimum wages.
Fortunately, there’s reason to think that small towns won’t be so screwed by a too-high minimum wage. The reason is that these small towns also tend to have fewer employers, and therefore more monopsony power. And as we saw above, more monopsony power means that minimum wage is less dangerous, and can even raise employment sometimes.A recent study by Azar et al. confirms this simple theoretical intuition. They find that in markets with fewer employers — where you’d expect employers’ market power to be stronger — minimum wage has a more benign or beneficial effect on jobs:We find that more concentrated labor markets…experience significantly more positive employment effects from the minimum wage. While increases in the minimum wage are found to significantly decrease employment of workers in low concentration markets, minimum wage-induced employment changes become less negative as labor concentration increases, and are even estimated to be positive in the most highly concentrated markets.This implies that in smaller towns where wages are naturally low, the danger of minimum wage is reduced because employers are more powerful to start with. And in bigger cities where there are lots of employers and labor markets are more competitive, the danger of minimum wage is reduced because wages are naturally high.
It’s fine to talk about monopsony power and all, but ultimately the case that the minimum wage is a pretty-safe policy rests on the weight of empirical evidence. And that evidence has been powerful enough to change economists’ minds over a fairly short space of time. Remember that in 2013, 34% of top economists surveyed by the University of Chicago agreed that a $9 federal minimum wage would “make it noticeably harder for low-skilled workers to find employment”. Just two years, later, in 2015, the same survey found that only 26% of economists agreed that a $15 federal minimum wage would mean that “the employment rate for low-wage US workers will be substantially lower than it would be under the status quo.”The actual evidence didn’t change in two years; it had been building up for a long time. But economists’ awareness of the evidence probably did change. In 2014, the Upjohn Institute published a book by Dale Belman and Paul Wolfson called What Does the Minimum Wage Do?, summarizing the evidence thus far. In 2015 they put out a paper reviewing the recent literature. They found that since the turn of the century, newer analyses using better data and more sophisticated analysis had increasingly found little or no effect on employment from minimum wage hikes.
22% of workers get laid off or hours cut and that’s not a big big deal? Seriously?
And that data was from before the covid crisis.
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