Whether Seattle or Denmark… or Rhode Island… Minimum Wage Kills Jobs


Noah DaPonte-Smith highlights another minimum wage study, this out of Europe, in Denmark:

The country ties the minimum wage to age: When individuals turn 18, their hourly wage increases by a dramatic 40 percent. Researchers can use this structure as a natural experiment, exploring how a dramatic and rapid increase in the minimum wage affects employment on both sides of the increase.

In this case, the results are predictable, at least for those approaching the issue from a conservative perspective. Employers cut jobs to save on wage payments.

By almost one-third.

Folks need to understand that employers don’t do this out of spite.  More workers means more production for them, which should mean more profit.  If the production costs too much, there’s no profit, so there’s no reason to keep operating.

Everybody in the entire employment/business chain is making decisions out of self interest (which can also include intangible considerations, like self-fulfillment).  The boss has determined that a certain income makes it worthwhile to operate a particular organization as opposed to doing something else.  Investors have determined that a particular business is worthy of their investment as opposed to some other investment (or other use of money).

Because employers want people working, if the cost of employment jumps up, other interests in the business will adjust upward as much as their willing, meaning that investors may tolerate a smaller return, owners may tolerate a smaller profit, and customers/clients may tolerate a higher price.  But viewed across an entire economy, a competitive, free market is pretty efficient at squeezing out what excesses are already there, so higher cost of production will mean somebody in the chain will move on, which could mean employees, against their will.

A key piece to this puzzle is that the employees had generally already determined that a particular job was the best use of their time, and they were willing to work for what it paid.  Pricing them out of a job may make activists feel good, and it may benefit the people who keep their jobs, but the laid-off employees obviously suffer, as do we all, from the inefficiency.