US Government

Minimum Wage, Maximum Unemployment

The first academic study is out on the effect of the sharp increase in the minimum wage in Seattle, and the results are predictably bad.

Economists always talk about trade-offs, and the impact of artificially raising wages is a perfect example. When you raise wages above the market rate, the unintended consequences are profound — unemployment and a shift toward machines instead of labor.

Seattle became one of the first major cities to approve an eventual $15 minimum wage back in 2014, more than double the current federal minimum wage of $7.25.

The National Bureau of Economic Research unveiled a working paper that found the number of hours worked in low-skill professions dropped more than 9% in Seattle during the first three quarters of last year, while low-wage jobs declined by 6.8 percent, or by more than 5,000 positions. That all coincides with Seattle raising its minimum wage to $13 per hour in 2016 amid the city’s gradual push to boost floor-level pay to $15. The University of Washington researchers who authored the study pointed to this wage increase as the root cause of the hourly and employment declines.

“There is widespread interest in understanding the effects of large minimum wage increases, particularly given efforts in the U.S. to raise the federal minimum wage to $15 per hour and the adoption of high minimum wages in several states, cities and foreign countries in the past few years,” the authors said in the report. “These results suggest a fundamental rethinking of the nature of low-wage work.”

Politicians are making a mistake interfering with the labor markets by artificially raising wages. It is better to focus on legitimate ways to raise wages. For example, companies that are highly profitable naturally tend to pay their workers more money. By cutting taxes and regulations, companies can be more profitable and thus able to hire more workers at higher wages. Or legislatures can encourage training and education with tax credits. These are indirect, natural ways to improve the wage levels of workers that are far superior to artificial methods such as the minimum or living wage laws currently in vogue.

Mark Skousen

Mark Skousen, Ph. D., is a professional economist, investment expert, university professor, and author of more than 25 books. He earned his Ph. D. in monetary economics at George Washington University in 1977. He has taught economics and finance at Columbia Business School, Columbia University, Grantham University, Barnard College, Mercy College, Rollins College, and is a Presidential Fellow at Chapman University. He also has been a consultant to IBM, Hutchinson Technology, and other Fortune 500 companies. Since 1980, Skousen has been editor in chief of Forecasts & Strategies, a popular award-winning investment newsletter. He also is editor of four trading services, Skousen TNT Trader, Skousen Five Star Trader, Skousen Home Run Trader, and Skousen Fast Money Alert. He is a former analyst for the Central Intelligence Agency, a columnist to Forbes magazine (1997-2001), and past president of the Foundation for Economic Education (FEE) in New York. He has written articles for The Wall Street Journal, Liberty, Reason, Human Events, the Daily Caller, Christian Science Monitor, and The Journal of Economic Perspectives. He has appeared on ABC News, CNBC Power Lunch, CNN, Fox News, and C-SPAN Book TV. In 2008-09, he was a regular contributor to Larry Kudlow & Co. on CNBC. His economic bestsellers include “Economics on Trial” (Irwin, 1991), “Puzzles and Paradoxes on Economics” (Edward Elgar, 1997), “The Making of Modern Economics” (M. E. Sharpe, 2001, 2009), “The Big Three in Economics” (M. E. Sharpe, 2007), “EconoPower” (Wiley, 2008), and “Economic Logic” (2000, 2010). In 2009, “The Making of Modern Economics” won the Choice Book Award for Outstanding Academic Title. His financial bestsellers include “The Complete Guide to Financial Privacy” (Simon & Schuster, 1983), “High Finance on a Low Budget” (Bantam, 1981), co-authored with his wife Jo Ann, “Scrooge Investing” (Little Brown, 1995; McGraw Hill, 1999), and “Investing in One Lesson” (Regnery, 2007). In honor of his work in economics, finance, and management, Grantham University renamed its business school “The Mark Skousen School of Business.” Dr. Skousen has lived in eight nations, and has traveled and lectured throughout the United States and 70 countries. He grew up in Portland, Ore. He and his wife, Jo Ann, and five children have lived in Washington, D.C.; Nassau, the Bahamas; London, England; Orlando, Fla.; and New York. For more information about Mark’s services, go to http://www.markskousen.com/