Category Archives: Minimum Wage

CEI Experts on COVID-19 Relief Bill

My colleagues and I have a generally dim view of the proposed coronavirus stimulus bill. A roundup of our reactions is here. Here’s my contribution on its minimum wage proposal:

Senior Fellow Ryan Young:

“The Democrats’ demands require firms seeking federal aid to pay a minimum wage of $15 an hour. Small businesses across the country are struggling to make payroll. An unexpected increase in payroll costs could put far more workers at risk of losing their job than under normal times. At the very least, workers would see cuts to their non-wage pay such as insurance, meals, parking, and other benefits. These tradeoffs would appear at precisely the worst time.​”

The Minimum Wage Tax Increase

By far the most common criticism of minimum wages is that they cost jobs. This is incomplete—the data often show smaller job losses than one would expect after minimum wages go up. This is because workers earn more than wages—they also get non-wage pay such as insurance, free food and parking, and more. When regulations cause wage pay to go up, employers cut non-wage pay to pay for it. Job cuts happen, but they tend to be a last resort. I recently wrote a paper on these underappreciated tradeoffs.

The most underappreciated minimum wage tradeoff is a tax increase on the poor, which for some people would exceed $2,000. When untaxed non-wage pay is converted to taxable wages, workers pay higher taxes, without necessarily making more money. If a $15 minimum wage passes, it could cost some workers more than $2,000 in taxes, in addition to all the other non-wage pay cuts that come with a minimum wage increase.

I try to shine some light on this in an op-ed for Inside Sources:

To afford higher wages, employers cut back on other benefits, like health insurance, workplace leave flexibility, free meals, free parking or tuition reimbursement. That’s a real loss to workers, considering that non-wage pay is mostly tax-free.

By incentivizing employers to convert nonwage benefits to wages,  minimum wage advocates are, probably unknowingly, proposing a massive tax increase on the poor.

For some workers, this would mean a tax increase of up to $2,370 per year at a $15 per hour minimum wage. Depending on which state a worker lives in and other factors, shifting untaxed non-wage pay over to taxable wages could also expose some minimum wage earners to income tax liability, sales taxes and other taxes.

Read the whole thing here. My paper “Minimum Wages Have Tradeoffs” is here.

Minimum Wages Rise Across the Country

Twenty four states rang in 2020 with minimum wage increases. Most of the increases are modest, so the tradeoffs will be, too. But there was curiously little discussion of those tradeoffs. This is a common tendency among both the media and the general public. They often prefer to either deny that tradeoffs exist, or else play them down. This is unfair to affected workers.

The New York Times editorial board, for example, in a recent editorial titled “Double the Federal Minimum Wage,” opens:

Opponents of minimum-wage laws have long argued that companies have only so much money and, if required to pay higher wages, they will employ fewer workers.

Now there is evidence that such concerns, never entirely sincere, are greatly overstated.

Not only does this piece downplay unemployment tradeoffs, it is one of only two types of tradeoffs it mentions. The editorial also calls for increasing tipped workers’ wages, but those workers mostly disagree, preferring sometimes-informal tipped income over a higher formally reported wage.

Regarding unemployment, the Times piece cites the famous 1993 Card and Krueger study that found no unemployment increases in the aftermath of a New Jersey minimum wage increase. That study relied on survey data, in which business owners sometimes give less-than-honest answers, so as not to appear stingy or heartless. Card and Krueger also did not control for outside economic factors, or what statisticians call “the dreaded third thing.” These relevant third things include macro-level financial, economic, and monetary policy conditions, and local government policy changes other than minimum wage increases. By focusing on only one industry, fast food, Card and Krueger also did not see how other sectors responded to the same increase and possibly affected each other’s behavior.

Job cuts are one of the rarest tradeoffs to minimum wages. It is a drastic measure employers will take only if they have to. Instead, employers typically make much subtler, but more widespread cuts in other areas so they can avoid firing people. This is why, while most studies do find job losses from minimum wage increase, they are typically modest. This is not a victory for minimum wage increase advocates. It means they are not looking very hard for tradeoffs.

My recent paper focuses on those many tradeoffs. When wage pay goes up, non-wage pay goes down to roughly cancel it out. That means cuts to vacation time and perks like free food or parking, less generous insurance, less workplace flexibility, less attention paid to working conditions, and on and on. The mix of tradeoffs is different at every company, and for every affected worker inside a given company, but their rough effect is to roughly cancel out the benefits of the increase. Moreover, larger companies take advantage of minimum wage laws to artificially hobble smaller competitors by raising their labor costs. That is where the debate should be. Jobs are a small part of a much larger picture.

While the House passed a $15 federal minimum wage bill last year, the Senate is not likely to take it up. The more than 50 increases that have just taken effect are all at the state and local level, but minimum wages will almost certainly be a significant campaign issue in 2020. Regardless of November’s election results, next year’s incoming Congress will likely attempt another increase next year, just as most Congresses have over the last 80 years or so.

For more on minimum wages, see my paper “Minimum Wages Have Tradeoffs.”

In the News: Target and Minimum Wages

Reason‘s Eric Boehm quotes me in an article about unintended tradeoffs of Target’s $15 internal starting wage.

My recent paper on minimum wage tradeoffs is here.

In the News: Minimum Wages

The Jacksonville Journal-Courier‘s Marco Cartolano quotes me in an article about minimum wage increases in Illinois and Florida.

My recent paper on minimum wage tradeoffs is here.

In the News: Minimum Wage

Ingrid Case at Employee Benefit News has a thorough writeup of my recent minimum wage paper.

The article is here. The paper is here.

In the News: Minimum Wage Tradeoffs

Here is a writeup of my recent minimum wage paper being syndicated to local newspapers by the Center Square. The full paper is here.