Minimum Wage Study Casts Doubt on Unemployment Effects

Businesses find ways around firing people, say economists

Will President Obama's desire to increase the federal minimum wage to the whopping figure of $9/hour be a setback for the low-skilled labor market? Investors seem to think so, but are they simply misinformed?

A 2011 study passed along by Business Insider looked at recent historical data on the effects of an increase in the minimum wage (as opposed to mere economic theory on its effects), and found that employers didn't in fact reduce their workforce when faced with it, which'd be the expected result of a move that raises the price of labor. Instead, it found that businesses opted to increase workers' performance standards, reduce food and energy waste, and creatively juggle work schedules among other cost absorption strategies.

"We find no significant effect of the minimum wage increases on employment or hours over the years [studied]," the Georgia State University authors conclude.

But while employment itself may not be at risk, one might conclude that the work experience could suffer. "Increasing performance standards" reads a bit like a euphemism for "squeezing more blood from a stone," does it not? The question then becomes: Would you rather work hard, or hardly work?

Via Business Insider.

What do you expect to result from an increase in the minimum wage?

[Neo_NtheMatrix]

Where is the higher price for goods and job losses option? obama is a boat anchor around the necks of job creators. It's a wonder we have an economy at all.

[PNWest]

The DJIA when Obama was sworn in on 1/20/09 7,949.09. The DJIA at close of business today - 13,973.39. This makes me very glad.

[Neo_NtheMatrix]

@PNWest - How have small businesses fared during that time frame? We know big business is making a killing, what with not having to pay taxes and all.

[Fishbone345]

@PNWest I stated once that the stock market was on the rise after Obama took office. Boy was I attacked for it. Told in no uncertain terms that it didn't have anything to do with the economy.
I hope you fare better my friend.

[PNWest]

@Neo_NtheMatrix The housing market is doing much better, in my community at least it appears that the mom & pop businesses are doing much, much better. If you look at the Russel 2000 which is the index that tracks the small cap companies it went from 456.76 when Obama took office to 923.76 today. That is more than double. I'd say small business was doing OK. How's your 401K?

[PNWest]

@Fishbone345 Yet if you talked to these same people in 2007 they were praising George Bush for the same index and talking about how great his policies were because more people were purchasing homes. We saw what happened because of those policies. Thankfully we are digging out of that mess.

[PNWest]

I'm waiting for the right wingers to try to discredit this study because it was carried out by a university, you know by smart people. Other studies have shown similar results
http://emlab.berkeley.edu/~card/papers/minwag... for one.

[Neo_NtheMatrix]

You're serious, aren't you? Berkeley? Berkeley is a bastion of liberal thinking. Nothing conservative has ever come out of that place.

[PNWest]

@Neo_NtheMatrix "Nothing conservative has ever come out of that place. " - That's why they are considered the cream of the crop as far as California state universities are concerned. I guarantee you that if either of your sons were to get accepted to Berkeley that you would be extremely proud of them. Try looking college rankings to see where Berkeley stands.

[Fishbone345]

@Neo_NtheMatrix And? Conservative as you define it, doesn't exactly scream "innovation" or "best thinker of our age".

[DARSB]

@Neo_NtheMatrix Just to clarify, the study we're discussing came from Georgia State University, not Berkeley.

[PNWest]

@DARSB He was complaining about the study I posted a link to that had the same results. It was from Berkeley.

[thatgirl]

Wheres the option for none of the above? Every time the idea of increasing the min wage is brought up, the so called "experts" trot out this same old, tired argument.
And the dire warnings they issue turn out to be unfounded.

[Justin_Case]

Agreed. This reminds me of Stephen Colbert, who humorously gives "great" or "greatest" president options about Bush (cough-cough-hack-hack)

[AceLuby]

That's what I'm wondering...

[DARSB]

It's reasonable to think a business owner would be able to find improved efficiency in the face of increased costs of doing business.

[Fishbone345]

Reasonable? Yes. Likely? No.
Its much easier to blame your failing business on Unions, Liberal media, and Obama.

[albeahorse]

Having heard a multi millionaire explain in his opinion that a higher minimum wage costs the small business owners profit and could depress car sales in the luxury category i can't empathize. The fact is if 100 thousand workers have in the pay packet 10 dollars more , a million more will be transferred by there spending into the economy, and the positive effects of a raise are well known on morale. that alone is well worth it, think Henry Ford and his grand wage increase and the huge application rush to get on the Ford factory line.

[mwr]

that middle class BHO is "protecting" will pay more for food and services to cover the increase.

[Fishbone345]

Thanks Captain Obvious. We do that now. Anything else to report? Sky is blue maybe?

[mwr]

@Fishbone345 you funny :)

[Denizen_Kate]

We've been paying more and more for goods and services for at least a decade now while our incomes decrease. If you own a small business, you need so many employees in order to run that business. If it costs you a little more to employ those people, you need only a slight raise in the price of one or two of the goods or services you sell in order to make up the difference (unless you're greedy). It's isn't as "doom and gloom" as Boehner and the GOP make it out to be. It never has been.

[SorryNoSale]

@Denizen_Kate
The bad part is that the goods cost more to get to you to sell. The employer is faced with increased cost of goods, increased payroll, mandated healthcare (or fine), increased taxes, and employees who STILL think that minimum wage equals minimal effort. Folks need to bust their rump and move up the ladder. Leave minimum wage to the entry level kids. It'll teach them the value of hard work and prudence. To make a budget and stick with it. As they grow, they will be motivated to make more and take on more responsibility. Or, they could make sandwiches at subway and live in Mom's basement until they inherit the house when she dies ;)
That sounds more like it!

[norezen]

@SorryNoSale It would be nice if thats the way the world works but it just isn't. The price or value of labor is based on market value. With high unemployment and even higher underemployment, labor is cheap. Companies simply hire at what pay it takes to keep staffed. The savings they get from hiring at a lower wage is more money for executive and shareholder compensation. There is plenty of money to go around but the people who control the checkbooks would rather keep more for themselves. Raising the minimum wage would help alleviate this problem.

[its_my_freedom]

The last time this happened, our local effect was the increase in prices. Local minimum wage employers did not cut staff or fire anyone, they just cut everyone's hours. Pair this with mandatory health care coverage if a certain amount of hours per week....you'll see even few hours being given to these employees. In turn this will lead to even more minimum wage earning families applying for food stamps and other govt. welfare programs. Small mom and pop businesses such as the one I work for are worried that if they dont increase their prices they wont be able to cover the additional required cost in payroll. I think we'll see even more small family owned businesses going belly up, especially with gas going up yet again (which in turn causes shipping of product and cost to go up) but I guess thats ok for Obama....after all, they didnt built it anyway right?

[AnObserver]

Obama has a knack for spending other people's money in a way that makes him look good and them look bad if they complain...I'm thinking people are beginning to catch onto that.

[Chromalord]

See folks! I write it, you guys disagree with me, and then Business Insider supports my claim that raising minimum wage has no real effect on the work force in place.

[its_my_freedom]

With all due respect, I work minimum wage. I have a job that I absolutely love and work for a wonderful employer. my second job, not so much. I struggle to make ends meet and have managed thus far to avoid public assistance. Your claim that raising the minimum wage has no real effect on the workforce in place is not only ignorant, but DEAD WRONG. We all saw our hours cut. my second job I was cut down to 7 hours a week as were many of my fellow employees. this was done to offset labor costs.....they didnt want to fire anyone, if they did they risked unemployment. so they cut everyone's hours and got folks to quit that way. then the rest of us were expected to do the work of double the staff, with fewer hours in which to do it. if we didn't we were replaced. so please dont sit there all high and mighty spewing your "i was/am right cause business insider sides with me" nonsense. I live it. trust me when I say you are dead wrong

[its_my_freedom]

what I posted above is what really happens when you hear "increase workers' performance standards, and creatively juggle work schedules"

[Capt_Morgan02]

The cost will be passed down and the net effect for those that get a pay increase will be zilch.

[Vance1]

minimum wage wasnt ever set up to be a living wage, But todays young people will end up working a minimum wage job their entire life, Because they arent educated enough to do better, and Obama's economy will never bring jobs back.

[its_my_freedom]

Not everyone working minimum wage is as uneducated as you seem to think. Small communities like the one I live in have watched as the higher paying professional jobs leave the area in droves. My degree looks lovely sitting on my mantle collecting dust. This leaves nearly nothing BUT minimum wage jobs. When you move somewhere with a great job, save for the future, buy a house and start a family, then after 10 years watch as everything that once was is now gone thanks to washington (and don't even try to blame this on bush btw....who controlled congress during his last term?) simple packing up and leaving is not an option. We have become a community of senior citizens on medicare and college kids, who go to school and gtho as soon as they graduate. our industry is gone, our professional jobs are gone, without connections, what few good jobs are left are given to unqualified family members. And this is just in my small community. I dare to think what is going on elsewhere. Degrees mean nothing if the jobs to fill are gone

[Vance1]

@its_my_freedom
Dear Sir
I agree with you.

[Cheenoguy]

Actually if you did just a bit of research about why the minimum wage was created you would see that it was created to be a living wage. But why bother with research when you can just mindlessly parrot the plutocrat party line.

[zachsquatch]

Again, big companies won't be affects as much as the little guy. Raising the minimum wage has no correlation to less unemployment, more unemployment, maybe so.

[NTBFW]

It doesn't make any difference to most people. It's not their money. Just raise taxes on the greedy rich. They need to pay our fair share. Obamanomics 101.

[Jinks]

If asked, those same economists would probably also say that businesses find ways around hiring people when the cost of unskilled labor goes up.

[commonsense51]

Have you noticed how most things Democrats and Liberals stand for fit right into the Socialist manifesto? Minimum wage increases, continually trying to increase taxes on successful people, support of Unions who keep the irresponsible's jobs(I worked in a Union and know this to be true), support for Welfare with no accountability, laws protecting Criminal rights, making excuses for criminals who choose to take ILLEGAL hard drugs such as cocaine, allowing them to stay on welfare while they spend our tax dollars on drugs. These are their passions, not creating jobs for hard working responsible Americans. Obama has been all about his Liberal agenda, forcing his Government healthcare control, forcing us to pay for abortions, etc. He has never cared or even talked much about creating jobs or cutting the huge debt. He does not care for us, we don't fit into his Socialist utopia other than being the serfs who work and toil to provide taxes to feed his Big Government voting block. Minimum wage is just one more Socialist take from the successful business owners and give to those who have done nothing to demand higher pay. Our pay scales are based on value to a company. If we are easily replaced because of the nature of the job, then our pay scale will be low. If we are more valuable and harder to replace, our pay scales will be higher. I realize that Liberals want to change those laws of employment and pay scales. They want their laughable Socialist utopia whereby everyone makes the same money no matter the effort or value put forth. This of course would take away all desires to create businesses and jobs since the money you make would be taken from you. Liberals, who do you think you are kidding? You are closet Socialists and as far as I'm concerned traitors to this nation.

[mtkopf]

Hahahahahahaha...no wait... Hahahahahahahaha.

[commonsense51]

@mtkopf That is the response from most people who know they only care for themselves when they vote for people like Obama. He has done absolutely nothing for America yet people like you voted for him for sake of yourself and the free stuff you might get from the tax payers.

[KRKelly]

How many jobs are out there that do pay minimum wage? Even McDonalds here doesn't pay minimum. No effect whats so ever.

[Memyselfi]

My goodness, here in Australia ,

"The national minimum wage acts as a safety net for employees in the national workplace relations system to provide minimum rates of pay for employees not covered by awards or agreements. National minimum wage orders are made by the Minimum Wage Panel of the Fair Work Commission.Australia's minimum wage is $15.96 per hour or $606.40 per week. Generally, employees in the national system shouldn't get less than this.
An employee's basic rate of pay depends on such things as their age, job classification and what industrial instrument they're covered by (e.g. a modern award, pre-modern award, transitional Pay Scale, workplace agreement and so on).
The minimum wages received by employees in the national workplace relations system are reviewed by the Fair Work Commission annually, with any adjustments taking effect from the first pay period on or after 1 July each year.

On top of that we get free health care.

If you're on a low income, you can ALWAYS find a GP who will see you for free.
You can ALWAYS go to the hospital, and, if required, be treated for FREE treatment under Medicare. At worst case, for expensive non life threateneing operations, like knee replacements, you go on a waiting list, which can be up to two years. Unfair and painful for the patient yes, BUT, it's FREE. As an Australian you ALWAYS have access to these services.
When they found potential cancer in me 5 years ago, I was operated on within a month.
Had it been more urgent, I'm sure they'd have done it according to its urgency. The only fee I paid, was about $160 to visit the surgeons office, and half of that I was able to claim back in cash, through Medicare. I paid the same claimable fee twice following the surgery
for follow up appointments. To the hospital, for the operation, the week in hospital, all the drugs I recieved, the week I came back due to an infection I got for disobeying my doctors orders and running around (because I had a 3 month old baby), instead of resting; I paid exactly $0

Once upon a time the $U.S was above ours quite significantly , so the argument was always that you could get more for your dollar, therefore the wage differences were about the same. Today, we are just about on equal terms.

Yes we pay about double what you do, for software, due to antiquated laws, and things like toys, which have to be shipped across the Pacific ocean, cost more, neither of which you care about, when you are trying to feed your family!!!!
I think most of your housing is less expenxive, but we also have areas of cheap housing, if you are prepared to live in that type of area, which usually comes with high crime rates, and on this issue, Americans and Australians are equal.

Yes, you had better raise your minimum wage.
Otherwise you're telling your citizens that Australian workers are worth more in the world, than Americans are. Something I'm sure your citizens are going to have big problems, with.

[Memyselfi]

Please understand I have total respect for your country by the way, so if I said anything that could be misconstrued as offensive to your culoture this is unintentional.
You deserve to be paid the same as us, and to have the same access to the basics of health and education that we do.

[mtkopf]

@Memyselfi great post. You said nothing offensive whatsoever and even if you did, it wouldn't be half as bad as some of the less intelligent ppl here post.

BTW, I wish you all the best in your recovery.

[justapirate]

@Memyselfi I agree with you. Problem here is if you try to make sense someone starts hollering (depending on the topic)'commie' and 'socialist' and 'rethuglican' or whatever. No one actually bothers to look at the true details available. They'd rather spout Party PC than actually think or learn.
I do commend your country on what it has done.

[Yank]

An efficent employer already has just the number of workers, and if they can shed jobs they would have over the last 5 years. What they will now do is pass higher costs on to the consumer.

[Seamus]

The people who did this "study" didn't seem to notice what happened in 2008-onwards. Most of the people who lost their jobs were low-skilled workers, because businesses couldn't afford paying these already above-market rate wages when the economy is suffering such a severe crash.

[RedFloppyShoes]

After living in California through their minimum-wage hike, Our company shed jobs expected more out of the personnel and it up having A lot of disgruntled employees who eventually left for other jobs making more difficult to hire qualified employees.

[Canoochee]

As PN says the 'Academics' say raising the minimum wage does not cause higher unemployment.

Far be it for me to argue with said 'Academics' They aren't real busy working trying to meet a payroll at the old minimum wage.

So they have plenty of time to ponder the situation.