The Corner

Economy & Business

Unintended Consequences of a Minimum-Wage Hike

Sheets of $1 bills on a light table at the Bureau of Engraving and Printing in Washington, D.C., November 14, 2014. (Gary Cameron/Reuters)

As I discussed in a piece earlier this year, hiking the minimum wage can cause a number of unintended consequences. The most obvious, and most studied, is that employers might buy less labor when labor is more expensive. Yet employers can respond in other ways too — such as cutting benefits or making jobs more demanding.

Today, Mark Perry points us to an interesting study of an anonymous “chain of fashion retail stores” with locations in Texas and California. The data run from 2015 through early 2018; the minimum wage was $7.25 for this entire period in Texas, but started at $9 and rose every year in California.

Interestingly, as the minimum wage crept up in California relative to Texas, stores in the Golden State did not measurably reduce the number of employee hours they paid for. What they did, instead, was to spread those hours around: hire more workers, but have each employee work fewer hours.

What’s the advantage of doing this? Well, as the authors note, “workers have to work at least 20 hours per week on average to be eligible for retirement benefits and work at least 30 hours per week for employer-sponsored health insurance based on the [Affordable Care Act].” They estimate that stores can save roughly a quarter of the cost of the higher wages simply by getting out of contributing to these benefits.

On top of that, workers’ hours became less consistent week-to-week, presumably because the stores wanted to be more careful paying for hours when work became more expensive.

As I put it before, a minimum-wage hike is a simple policy with extremely complicated consequences, and thus runs a far bigger risk of backfiring than most realize.


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