Does increasing the minimum wage also increase crime?

The Wall Street Journal looks at some of the harmful consequences of raising the minimum wage to $15 an hour:

New York City’s minimum wage rose again on Dec. 31. Businesses with 11 or more workers must pay $15 an hour, up from $13 last year and $11 in 2017. Employees who earn tips can be paid a lower rate, now set at $10 an hour for waiters, provided their total pay exceeds $15.

Is it merely a coincidence that the city’s full-service restaurants have fallen into a jobs recession?

Employment in January dropped 3.7% year over year, according to the Bureau of Labor Statistics. At the start of 2018, the Big Apple’s sit-down restaurants had 167,900 employees. This January, after the wage bump, it fell to 161,700, a three-year low. The preliminary February number is 161,000, even as overall city employment is up around 2% year over year.

The monthly jobs data can be noisy, but the trend fits what restaurateurs are saying. The New York City Hospitality Alliance surveyed 324 full-service eateries late last year. Nearly half, 47%, planned to eliminate jobs in 2019 to deal with higher labor costs. Three-fourths expected to cut employee hours, and 87% said they would raise menu prices.

Meanwhile, in a National Bureau of Economic Research working paper posted last month, three economists examined whether minimum-wage increases had any effect on crime from 1998 to 2016. “We find robust evidence,” they write, “that minimum wage hikes increase property crime arrests among teenagers and young adults ages 16-to-24, a population for whom minimum wages are likely to bind.”

When politicians arbitrarily set the price of labor, young workers without skills can be locked out of the job market. That’s the finding in studies of Seattle’s wage mandate by a team at the University of Washington. The new wrinkle in the NBER paper is that some of these young people turn to petty crime.

What does this say about the Democrats’ idea for a nationwide $15 mandate? “Our estimates suggest,” the economists write, “that this minimum wage hike would generate over 410,000 additional property crimes and $2.4 billion per year in additional crime costs.” . . .

How did Democrats settle on a goal of $15 anyway? An organizer with the Service Employees International Union, which is behind the public campaign, joked in 2014 that “it was a pretty scientific process: $10 was too low and $20 was too high, so we landed at $15.”

Just yesterday I noticed that a restaurant where I've sometimes gone to lunch from work in Manhattan had raised all of its entree prices to at least $20. This is more than the restaurant was charging last week. I don't plan to go back. Democrats have recklessly caused harm by raising the minimum wage to unreasonable levels.

Warren Buffett has a better economic plan than raising the minimum wage

Buffett writes in the Wall Street Journal:

In my mind, the country’s economic policies should have two main objectives. First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity.

That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.

The better answer is a major and carefully crafted expansion of the Earned Income Tax Credit (EITC), which currently goes to millions of low-income workers. Payments to eligible workers diminish as their earnings increase. But there is no disincentive effect: A gain in wages always produces a gain in overall income. The process is simple: You file a tax return, and the government sends you a check.

In essence, the EITC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment.

The existing EITC needs much improvement. Fraud is a big problem; penalties for it should be stiffened. There should be widespread publicity that workers can receive free and convenient filing help. An annual payment is now the rule; monthly installments would make more sense, since they would discourage people from taking out loans while waiting for their refunds to come through. Dollar amounts should be increased, particularly for those earning the least.

How does raising the minimum wage affect employment levels?

A large literature has examined the effects on employment of raising the minimum wage, with different researchers arriving at conflicting conclusions. The core reason that economists can’t answer questions like this better is that we usually can’t run controlled experiments. There is always some reason that the legislators chose to raise the minimum wage, often related to prevailing economic conditions. We can never be sure if changes in employment that followed the legislation were the result of those motivating conditions or the result of the legislation itself. For example, if Congress only raises the minimum wage when the economy is on the rebound and all wages are about to rise anyway, we’d usually observe a rise in employment following a hike in the minimum wage that is not caused by the legislation itself. UCSD Ph.D. candidate Michael Wither and his adviser Professor Jeffrey Clemens have some interesting new research that sheds some more light on this question. . . .

Clemens and Wither found that the federal minimum wage hike resulted in about a 6% decrease in the probability that low-wage individuals would have a job based on this comparison of states in which the minimum wage hike would have been binding and those for which it would not. The hike in the minimum wage thus appears to have raised the wage for low-skilled workers but made it harder for them to find jobs.

(Source.)

Two things to remember to keep this in perspective:

1. Reducing employment is just one of many ways workers can be hurt by raising the minimum wage. It can also cause employers to avoid giving raises to higher-level employees, cut benefits, offer less hours, raise prices (paid by low-wage workers who are also customers at their own companies or other companies), etc.

2. Unemployment is a particularly bad problem for a person to have — it's a far worse problem than not being paid quite enough. So even a small disemployment effect could be good reason to oppose raising the minimum wage.

Why President Obama is wrong on the minimum wage

In tonight's State of the Union address, President Obama said:

We know our economy’s stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year. Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong. That’s why, since the last time this Congress raised the minimum wage, 19 states have chosen to bump theirs even higher. Tonight, let’s declare that, in the wealthiest nation on Earth, no one who works full time should have to live in poverty -- and raise the federal minimum wage to $9 an hour.

No, let's not. No matter what we "declare," there is going to be some amount of poverty in a country of 300 million people — and Obama's proposal would increase that amount. Raising the minimum wage creates more poverty by preventing people from being able to find employers who are willing to pay them. The law can only force employers to pay the minimum wage to the workers they do hire; it can't force them to hire anyone. Make it more expensive to hire workers, and not as many workers will get hired. The difference between $7.25 an hour and $9 an hour is tiny next to the difference between having a job (which can lead to getting better jobs) and not having a job.

Also, why should the question be whether you could single-handedly support two children on the minimum wage? The minimum wage applies to everyone. Not everyone is single-handedly raising two children! To forbid workers in other circumstances from getting a job paying a certain amount just because someone would want to earn a higher amount is simply cruel.

A good question on the minimum wage

Here's a question posted at Cafe Hayek:

If the legislated minimum-wage rises in the U.S., which of the following two people is most likely to benefit from that rise: (1) Joe, a black 17-year-old recent graduate of a New York City public school, raised by a single mother, living in a very poor section of inner-city New York, or (2) Jim, a white 17-year-old recent graduate of an exclusive private school, raised in a two-parent household, living in Manhattan’s very wealthy Upper East Side?

The Cafe Hayek post doesn't give an answer, and points out that it's "not a trick question."

Consider this scholarly article about a 2011 study of the minimum wage. From the intro:

[We] analyzed the unemployment rates in contiguous counties with different minimum wage rates in the Pacific Northwest. [We] compared unemployment rates in geographically contiguous counties of the two states that had the largest difference in minimum wage rates, both in absolute terms ($2.48) and as a percentage of the federal minimum wage (48%). The study examined this gap in the context of a consistent increase in one state’s minimum wage rate over several years, while the other state’s wage rate remained unchanged. The analysis of the data reveals that, from an economic perspective, there is a strong correlation between a higher legislated minimum wage rate and a higher unemployment rate. The results of this study suggest that, because of this disemployment effect, minimum wage laws indeed may frustrate the goals advanced as their justification ...