Power & Market

California's Minimum Wage Increase is Inefficient and Unfair

California's Minimum Wage Increase is Inefficient and Unfair

California raised its minimum wage rate for the fast food industry to 20$ today. US Politicians haven't targeted specific industries with minimum wage increases since the Great Depression. There are already signs that some fast food places in California are cutting back on employment. The specific effects of this fast food minimum wage will become clear during the rest of this year. For the time being, we should recall the general effects of minimum wages.

Minimum wage laws reduce employer demand and increase labor supply; this causes higher unemployment rates. Minimum wage laws affect teen workers more than adult workers because teens are less skilled, less educated, and less reliable. The below left graph depicts the relationship between minimum wages and overall unemployment. Minimum wage increases have a weak effect on the overall unemployment rate.

The above-right graph depicts the relationship between minimum wages and teen unemployment rates. Minimum wage increases increase teen unemployment more than three times as fast as for the total population. The correlation between teenager unemployment and a minimum wage is more than twice as strong, 20% versus 9%.

Minimum wage increases aid some people, who remain employed after each increase. Minimum increases kill jobs and raise unemployment for others. Minimum wage laws are economically inefficient because these laws really do kill some worthwhile jobs. Minimum wages are unfair because these laws benefit a few at the expense of others.

[Originally published at On the Other Hand...]

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