Walter Block on Where the Minimum Wage Hits Hardest

Walter E. Block, Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics
Joseph A. Butt, S.J. College of Business, Loyola University New Orleans, emails:

In my view, the people really “hit hard” by the min wage are not small biz owners. They can, usually, substitute self service, or higher skilled workers for those now unemployable by this law. The people really hit hard are the unskilled workers, who are now unemployable.

I tend to agree with Walter here, but want to add that I believe it depends on the level of the minimum wage. Indeed, at very small minimum wage above market clearing rates for unskilled workers, say three cents an hour, it would have extremely limited impact. Indeed, at such levels it is very likely that it could even be "passed on" to consumers.  If a business owner needs to increase the meals at a restaurant by a penny a meal to maintain a certain net income level, because of a given minimum wage and he feels he can do so becasue other restaurant owners will be facing the same new minimum wage, it is unlikely he is going to lose much in terms of business, if any at all.

It is at higher minimum wage levels where substitution and higher skilled workers come into play. But at extreme minimum wages, just for purposes of example say a minimum wage of $10,000 an hour, it would destroy almost all business that couldn't switch to self-service or robots, and almost completely destroy the jobs market.

But in general for the range of minimum wages that we see, Walter's observation applies. Though some of the rate hikes that are about to take effect are large enough, such as the $15.00 minimum wage in Seattle, that you have to wonder whether the hikes are great enough that it is going to start having a more significant impact on some small businesses, so much so that it may cause a noticeable number of them to close.

 -RW