In the recent fury over a proposed budget for low-wage workers circulated by McDonalds, Forbes contributor Laura Shin asked Will the McDonalds Employee Budget Help Get the Minimum Wage Raised? I hope not, but not just for the sake of McDonalds customers and shareholders. I hope not for the sake of McDonalds workers and for the sake of low-wage workers everywhere.
Who could possibly be so heartless? Thats the wrong question. I agree that we should be soft-hearted, but to borrow from Princeton economist Alan Blinder, our soft hearts have to be combined with hard heads. While Blinder was one of the signatories to a 2006 Economic Policy Institute petition asking for a higher minimum wage, I think the preponderance of hard-headed economic theory and evidence suggests that a higher minimum wage would reduce employment opportunities for the least of these among us. Even if the disemployment effects arent that large, minimum wages reduce gains from trade in ways that are harder to see but that are still real.
The basic introductory economics story holds that when you raise the minimum wage, people increase the amount of labor they are willing to supply while reducing the amount of labor they demand. This creates unemployment: more people want to work, but firms want to hire fewer people. In spite of evidence suggesting that minimum wages do not cause large disemployment effects, a January 2013 study by David Neumark, J. M. Ian Salas, and William Wascher conclude(s) that the evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others.
Art Carden is a Research Fellow at the Independent Institute in Oakland, California and an Associate Professor of Economics at Samford Universitys Brock School of Business.