A minimum wage increase is not a pay raise for low-wage workers. It's a statutory price floor for their services. And as with all other laws that raise the price of something, this one can and will price many workers above what potential employers are willing or able to pay for the services they need.
Economists have known this for centuries. You can't create something out of nothing by simply changing a law — otherwise, we would have all made ourselves rich long ago.
But in recent decades, there have been efforts to cherry pick a few studies here and there to suggest that one can tease a free lunch out of the labor market by simply raising the minimum wage. This has been central to the recent "Fight for $15" campaigns funded in recent years by labor unions, whose members often have contracts that specify their pay as a multiple of the minimum wage.
A new study is among the many reasserting the inescapable consensus that minimum wage increases come with tradeoffs in the form of reduced employment for minimum wage workers. Two economics professors, William Even of Miami University and avid Macpherson of Trinity University, have released the data and conclusions from their study of California's experience from 1994 and 2016 and of its plans for a $15 wage by 2022. Here's the bottom line, straight from the summary, published by the Employment Policies Institute, a free-market think thank:
Specifically, they find that a 10 percent increase in the minimum wage would cause a nearly five-percent reduction in employment in an industry where one-half of workers earn wages close to the minimum. In an industry with an average share of lower-wage workers, their findings imply that each 10 percent increase in California’s minimum wage has reduced employment for affected employees by two percent. The authors apply these estimates to the state’s forthcoming $15 minimum wage. By 2022, approximately 400,000 jobs would be lost as a consequence.
It's worth a read. Naturally, no one can be certain about exact numbers of jobs created, destroyed, or never created as a result of a specific policy. But employers in search of reliable labor have to think about their costs just like anyone else buying anything else.
In the long run and on aggregate, employers can only afford to pay their employees some amount (including all compensation and taxes) that is less than the total value they create for the business. An employer who ignores this upper bound on a wide scale will surely go out of business.
And a minimum wage law can force the retail price of labor higher, but it doesn't change the employer's ability to bear the costs. At some point, the hiring of a new employee becomes an expense rather than an investment. And in low-income professions, low-skilled employees cannot afford to be expensive if they want to keep working because the real minimum wage is and always will be zero.