The Minimum Wage Means Less Hiring

Jan 22 2014, 9:17am CST | by

The Minimum Wage Means Less Hiring

A seeming point of among agreement among minimum wage researchers is that higher minimum wages lead to lower turnover. Dube et al (2012) find that “[a]verage separations, hires and turnover rates decline significantly among teen workers and restaurant establishments.” Over at Vox, Brochu and Green report on the results from their new study:

“For workers over the age of 20, the reduced separation rate is matched almost exactly by a corresponding decline in the probability an unemployed worker finds a new job. For teenagers, the latter probability declines more.

Thus, for older workers, the two effects offset one another, and there is little impact on their long-term employment rate. For teenagers, the extra reduction in hiring implies that their employment rates decline. The results are very similar for males and females.”

But the claim that “for older workers, the two effects offset one another” is only true if you count the utility of keeping a job as offsetting the disutility of not being able to find one. I am surprised how quick people are to accept this is not only a neutral development but a positive one, arguing that less turnover in the labor market is a good thing. I am more concerned that more stable but harder to get jobs is not what you want during a time of problematically high long-term unemployment. And as you can see in the graph below which shows the number of people who have been unemployed for more than 27 weeks, this really is still a significant problem. Getting people back into the labor market is a disproportionately large problem right now relative to keeping people employed.

Of course preventing a raise in or lowering the minimum wage won’t fix the unemployment problem. We need to do more here, among which I would include more deficit spending and monetary policy. But now is not the time to be thinking of lower hiring rates as a positive outcome. Labor market dynamism is a good thing when have so many people struggling to find an entry point into the labor market.

Source: Forbes Business

 
 

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