Downward Sloping Demand for Unskilled Workers: Employers WILL Respond to Minimum Wage Hikes
Angry Bear writes: We have a long record to compare the teenage unemployment rate and the minimum wage (see graph above). If you look at the two series you see a very inconsistent record. Sometimes a rise in the minimum wage is followed by a drop in the teenage unemployment rate and sometimes it is followed by a rise in the teenage unemployment rate. Essentially, the correlation between the teenage unemployment rate and changes in the minimum wage is zero, strongly implying that there is no causal relationship.
MP: Let's assume there is no correlation between: a) teenage unemployment rate and b) changes in the minimum wage. That is not the same thing as saying that "the minimum wage has no negative effect on teenage employment." Here's why:
Even if the same number of teenage workers are employed after a hike in the minimum wage, reflected in NO change in the teen jobless rate (and this is not necessarily true), there are many other adjustments that employers would make to offset the monetary increase in labor costs:
1. Fewer hours - unskilled workers might still be employed, but at a reduced number of hours (the BLS counts workers as "employed" even if they work 1 hour per week). Full-time workers now become part-time workers. Overtime hours are eliminated. Full-time workers now are forced to work a split-shift (e.g. 11 a.m. - 2 p.m. and 5 p.m. - 8 p.m.). Therefore, we would expect a negative relationship between increases in the minimum wage and HOURS WORKED.
2. Reduced benefits - employers can adjust "total compensation" and offset higher monetary wages by: a) no longer providing free uniforms, forcing employees to now pay for uniforms, b) no longer providing free or reduced food at fast food restaurants, c) reducing or eliminating "employee discounts" on the employer's merchandise, d) eliminating paid holidays, e) eliminating scholarship programs, f) eliminating group discounts available through large companies like McDonald's, g) eliminating employer sponsored or subsidized health care benefits, etc.
3. Fewer opportunities for advancement, fewer or reduced (or no) wage increases, fewer or reduced (or no) bonuses.
For example, see the list of benefits here for McDonald's workers in Canada (I couldn't find a comparable list for the U.S., but I assume it would be pretty similar), and you'll see that are at least ten non-monetary benefits offered to even unskilled minimum wage workers that could be adjusted in the face of higher monetary wage costs resulting from legislated minimum wage increases .
Bottom Line: Demand curves slope downward, and the market for unskilled workers is no exception. Employers WILL respond to increases in the minimum wage, in many ways that will NOT show up in the teenage unemployment rate, but still to the DISADVANTAGE of unskilled workers.