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Job Loss in the Low-Wage Labor Market

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Wednesday, 04 December 2013 06:02

My friend and co-author Jared Bernstein has a good post on the minimum wage this morning. It would benefit from one additional point.

While Jared acknowledges that the minimum wage may lead to some job loss it is important to note that jobs in the low wage labor market tend to be high turnover jobs, although turnover is likely to be slower in response to a higher wage. The reason why this matters is that when we talk about job loss in response to a minimum wage hike, we rarely are talking about people literally losing their jobs. Essentially this means somewhat less employment.

That would play out in the form of workers taking longer to find jobs. This could mean, for example, that workers may expect to work an average of 1 percent fewer hours in response to a hike of 10 percent in the minimum wage because it takes them longer to find a job. However, they could expect to get 10 percent more money for each hour they work. That is the sort of trade-off we would be talking about based on the extensive research on the topic.

Comments (7)Add Comment
how does this reconcille with wages being to high....???, Low-rated comment [Show]
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written by sherparick, December 04, 2013 10:58
I think one of the unintended consequences (to give its authors the benefit of the doubt) of globalization in the 1990s was exert downward pressure on U.S. wages. Because of the strong dollar policy and protectionism for the 1% in finance and medicine, most of this downward pressure was on the U.S. median, particularly manufacturing and back-office service jobs that could be performed in low wage countries.

A slightly higher inflation rate and a weakening of the dollar would result in across the board decline in U.S. real wages. But since nominal pay would increase while current nominal debts would be fixed, it would improve most people's cash flow and thereby their economic circumstances. However, this would affect the cost of cocktails in Davos and so would make the 1% more "sad" than the rest of us. We would get a net decline in our real debt and could substitute more cheap domestically made goods for expensive imports over time.

Also, I wonder what is the evidence that small business is harmed by an increase minimum wage?
Minimum wages
written by Gerry Flaychy, December 04, 2013 11:38
The minimum wage fixed by law is for the workers who have a job, but what is the minimum wage of the workers who don't have a job ? In another words, what is the real minimum wage ?

Also, if instead of moving up the legal minimum wage, we move it down, say $3/hr, will we have more workers who have a job, or less ?
"real" minimum wage...
written by pete, December 04, 2013 12:12
Indeed, the underground economy is the way to observe the real minimum wage. Many "unemployed" work under the table, tho probably for a decent wage. For example, illegals who are good at sheetrocking etc. make $15-$20 an hour in Texas. Note that this is unencumbered by payroll taxes, unemployment taxes, and income taxes. So adjusting for those could bring this down to $10, still more than $7.50. Really the minimum wage only effects entry level jobs such as flippin burgers, and this is where our biggest problem is, unskilled inner city youth unemployent. Raising the minimum wage will certainly not make them more attractive.
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written by watermelonpunch, December 04, 2013 2:47

Wow pete, how many unsupported scare myths can you throw into this one comment thread?

Will we next be regaled with tales of Corning Glass super spies and the evil master plot of the Duke of Wales? Or can we just get a link directly to Brother Nathanael's Youtube channel? LOL
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written by urban legend, December 04, 2013 9:25
When the national rate has been increased, jobs have become more plentiful in the following months in almost every case since 1950. Believing that there will be less employment, no matter how small, means accepting a counterfactual based on a weak and simplistic view of Econ 101 theory.
All facts
written by Gerry Flaychy, December 05, 2013 11:09
We have to look also if before each increase, jobs were already becoming more plentiful, because, if we don't look, we cannot make any conclusion at all. We have also to look at the economy at large, if it was increasing or not, in the same period of time.

Without that, no conclusion is serious.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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