The Biden administration has discovered a back door into raising the effective minimum wage. Paying lucrative supplemental unemployment benefits, which is effectively subsidizing leisure, increases the opportunity cost of working and thereby places upward pressure on wages as employers seek to incentivize would-be employees to move off the couch and into the workforce. No minimum-wage legislation and political combat with the Republicans is required to implement this policy. The federal government need only keep the spigot open on supplemental unemployment benefits, and employers seeking to attract workers will have no choice but to increase the wages offered to compete. The long-run effects of this policy are deeply concerning precisely because they are so harmful to workers.
Firms in competitive markets are profit-maximizers and therefore cost-minimizers. Workers compete not only with one another for jobs, but also with technology (capital). When a cost-minimizing business employs its inputs optimally, the last (marginal) worker hired contributes to revenue an amount that is just equal to its wages and benefits. Hence, when government policies force an increase in the effective minimum wage, businesses naturally seek to insulate themselves from the wage hike. This “insulation” manifests itself in two different forms — a reduction in the amount of labor hired and an increase in the amount of capital employed. Robotics, for example, represent long-term capital investments, so market-wage corrections would not be expected to instantaneously restore labor demand to previous levels. Once these (sunk cost) investments are made, employers will continue to utilize robotics (machine labor) rather than human labor even if market wages should fall. Microsoft co-founder Bill Gates knows something about automation, and he admonishes that increasing the minimum wage can destroy jobs . Well, jobs are a great thing. You have to be a bit careful: If you raise the minimum wage, you’re encouraging labor substitution and you’re going to go buy machines and automate things — or cause jobs to appear outside of that jurisdiction. And so within certain limits, you know, it does cause job destruction. If you really start pushing it, then you’re just making a huge trade-off. An […]
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I hate being “that guy” who asks people to donate because I think our conservative news network is so crucial, but here I am…
When I left my cushy corporate job in 2017, I did so knowing that my family would have to make sacrifices. But I couldn’t continue to watch the nation slip into oblivion and was inspired by President Trump’s willingness to fight the good fight even at his own personal expense. What I didn’t realize then is that conservative media would be so heavily attacked, canceled, and defunded that the sacrifices would be extreme.
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