Job Loss or Bump in Pay?

It’s difficult for social scientists to conduct experiments because most of the findings we would be interested in are unethical to orchestrate. For example, in higher education, we would love to know if an online offering of a course is better, equal to or worse than the same course offered face-to-face.

A proper experiment would require randomly assigning some people to a face-to-face course and other people to an online course. At the moment, we never force students into one type or the other, so there is a selection bias that affects the outcome. Most studies have found that online students perform better, but we don’t know if they were more disciplined in the first place, in which case their performance could be attributed to their discipline rather than the format of the course.

But sometimes society “arranges” experiments naturally, creating laboratory conditions that we scientists can use. Not everyone had access to television at the same time during the 1950s. Since some communities had television broadcasting years before other communities, scientists were able to measure the influence of television. We now know that the effect on communities was negative, even when the TV shows were all G-rated.

We have a similar “experiment” going on today with minimum wage rates. The federal government has established a rate of $7.25, but some states and municipalities have established a higher minimum wage. Some people advocate for a higher minimum wage for ideological reasons. Because of the ongoing experiment, we can find out what the likely effect is and whether there is overall benefit or harm.

Seattle is perhaps the most famous example for requiring the minimum wage to increase to $15 an hour over a few years. It is still too early to tell, but the latest Bureau of Labor and Statistics report for Seattle is ominous.

Seattle is a thriving city that, since the bottom of the recession, had grown from 345,000 to 405,000 jobs in April 2015 — the month that the legislation was announced. From April to December, Seattle lost 10,000 jobs while the rest of the country continued to gain jobs.

Walmart offers a more definitive case. Caving to intense political pressure, Walmart raised its minimum wage to $9 an hour in April 2015. But most Walmart employees were already making more than the federal minimum wage, so the increase had little effect.

In January, Walmart made the far costlier move of raising its minimum wage to $10. The company’s stock price dropped by 10 percent that day and has dropped 30 percent in the past 12 months. Depending on your ideology, you may be cheering that the “little guy” got more money and the shareholders got walloped, but that isn’t the end of the story.

Profitability determines whether some stores can continue in business and whether growth can occur, leading to the creation of new jobs. Walmart had recently opened stores in Los Angeles and planned to open stores in Washington, D.C. and inner city neighborhoods in cities that were discussing following Seattle’s lead and raising the minimum wage as high as $15 an hour. The company has since shuttered the Chinatown store, which was already having a dramatically positive effect, and realized that it could not afford to open the hoped-for stores in Washington, D.C., and poor neighborhoods.

Walmart plans to close 154 stores across the country. Although there is usually more than one reason, the biggest factor is this case is the increase in labor cost.

The non-partisan Congressional Budget Office, which badly miscalculated the jobs lost from the Affordable Care Act, estimates that a federal minimum wage increase to $10 an hour will eliminate 500,000 jobs. Although at least 16 million people will benefit from the extra pay,many of whom are currently making above the minimum wage, my judgment is that the Congressional Budget Office has once again underestimated the loss of jobs.

There are other factors, such as helping poor neighborhoods, but the primary question of raising the minimum wage comes down to your politics or ideology. Do you think there is overall gain or harm when as many as 1 million people lose their livelihoods in order for 16 million people to gain an average of $1 an hour in their pay?

I know my preference. What do you think?

Eric Dent is a business professor at Fayetteville State University who lives in Lumberton.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s