Thursday, May 21, 2015

Why Minimum Wage Laws are 'Phased In' (Hint: It's an attempt to hide the terrible consequences.)

Bryan Caplan writes:
Increases in the minimum wage are usually “phased-in.” Why not just immediately impose the minimum wage you actually want?
There is a major difference between employers’ response to sharp-and-sudden versus slow-and-gradual minimum wage hikes: visibility. If the minimum wage unexpectedly jumped to $15 today, the effect on employment, though relatively small, would be blatant. Employers would wake up with a bunch of unprofitable workers on their hands. Over the next month or two, we would blame virtually all low-skilled lay-offs on the minimum wage hike – and we’d probably be right to do so.
If everyone knew the minimum wage was going to be $15 in 2017, however, even a large effect on employment could be virtually invisible. Employers wouldn’t need to lay any workers off.  They could get to their new optimum via reduced hiring and attrition.  When the law finally kicked in, you might find zero extra layoffs, because employers saw the writing on the wall and quietly downsize their workforce in advance.
If you sincerely cared about workers’ well-being, of course, it wouldn’t make any difference whether the negative side effects of the minimum wage were blatant or subtle. You’d certainly prefer small but blatant job losses to large but subtle job losses. But what if you’re a ruthless demagogue, pandering to the public’s economic illiteracy in a quest for power?  Then you have a clear reason to prefer the subtle to the blatant. If you raise the minimum wage to $15 today and low-skilled unemployment doubles overnight, even the benighted masses might connect the dots.A gradual phase-in is a great insurance policy against a public relations disaster. As long as the minimum wage takes years to kick in, any half-competent demagogue can find dozens of appealing scapegoats for unemployment of low-skilled workers.
The fact that activists’ proposals include phase-in provisions therefore suggests that for all their bluster, they know that negative effects on employment are a serious possibility. If they really cared about low-skilled workers, they’d struggle to figure out the magnitude of the effect. Instead, they cleverly make the disemployment effect of the minimum wage too gradual to detect.
(ht Mark Perry)

No comments:

Post a Comment