With the New Years Day right around the corner, various outlets are reporting on workers who will get a raise with increases in the minimum wage going into effect in several states. But will peoplepotential low-income workers especiallybe better off in the long run as a result of higher minimum wages?
Not necessarily. And we can see how if we follow the economist Ronald Coases advice and look out the window for an example. I saw one at a restaurant in Boston with a sign on the wall that said Please put away your own plates & silverware when you are done. They dont have anyone on staff to bus the tables; hence, we have to do it ourselves.
Lest I be misunderstoodI can hear someone sneering look at mister fancy man who is too good to clean up after himself!scraping a plate and putting it in a bucket is no great imposition. But what, I wonder, is happening to the bussers who would otherwise be earning money doing it? Where did they go?
Simple: theyre being priced out of the labor market by minimum wages. At $8 an hour, it might be worthwhile to hire someone to bus tables. At $11 an hour, Massachusetts minimum, it probably isnt. With the minimum wage in Massachusetts set to rise to $12 an hour in 2019 on its way to $15 an hour over five years, we should expect to see fewer and fewer jobs like these.
So what? you might say. Those jobs are terrible. Relative to a lot of our options, they certainly are. To quote the economist and 2008 Nobel laureate, Paul Krugman, however, Bad jobs at bad wages are better than no jobs at all.
Why? The first reason is most obvious: some income is better than no income. There is a more important reason, though: low-wage, low-skill service sector jobs are great places to learn the soft skills that make for successful futures. Jobs like these are where a lot of people get experience. By being faithful with little, they show that they can be trusted with much. Its a well-worn illustration, but minimum wages cut the bottom rungs off the career ladder for a lot of people.
In lieu of triumphalist stories about how some very visible and very sympathetic people will have higher earnings because of higher minimum wages, we should consider the very real possibility that these gains are coming at the expense of people who are being pushed out of the labor market altogether.
We should also consider the possibility that these victories for workers are pyrrhic. As Jonathan Meer argues in a recent episode of The Economics Detective, there are a lot of ways wage-and-benefit bargains can adjust in response to laws requiring that workers take more of their compensation as money wages.
The next time you read a story about the trials and travails of low-wage workers being stuck with inflexible schedules, think it possible that this inflexibility is an unintended consequence of a law prohibiting them from taking a job that pays $8 an hour but that has a much more flexible schedule.
Again, for someone in my positiona college professor with a decent income and job securityhaving to clean my own plate is simply not a meaningful imposition. But its not a price Im paying for justice. Its a cost Im bearingand, importantly, a cost someone else is bearingbecause were not allowed to cooperate with on mutually agreeable terms. Again, its no big deal for me. But its yet another closed-off opportunity for someone less fortunate.