July 28, 2014

Misleading Minimum Wage Statistics

Donald J. Boudreaux

Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics

Liya Palagashvili

Affiliated Scholar
Summary

Earlier this month, President Obama seized upon fresh data from the Labor Department to argue for a higher minimum wage. According to the president and a subsequent Associated Press report, the 13 states that raised their minimum wages in January of this year are now enjoying, on average, faster job growth than the other 37 states.

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Earlier this month, President Obama seized upon fresh data from the Labor Department to argue for a higher minimum wage. According to the president and a subsequent Associated Press report, the 13 states that raised their minimum wages in January of this year are now enjoying, on average, faster job growth than the other 37 states.

The conclusion that Obama (and each of the many media outlets that breathlessly repeated this finding) wants us to draw is that a higher minimum wage not only does not price some workers out of jobs, it positively enhances workers’ job prospects. As the president theorized, "When … you raise the minimum wage, you give a bigger chance to folks who are climbing the ladder, working hard.”

Not so fast.

Basic economics teaches that forcing up the price of something makes people less willing to buy that something. This reasoning, for example, is behind the administration’s recent hike in tariffs on Korean steel. The president correctly understands that forcing up the price of Korean steel will cause Americans to buy less of it. Contrary to Obama’s suggestion, the same logic holds for labor. Forcing up labor’s price will cause employers to hire less of it (by, for example, supermarkets using self-checkout computers instead of cashiers).

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