Minimum wage hikes and reductions in ‘non-wage job attributes’

From Mark Perry.

"I posted yesterday on CD about how minimum wage laws force employers to discriminate against unskilled workers in favor of skilled workers, which is a way for employers to reduce the amount of costly on-the-job training provided to workers with no skills. But without a job that will now be filled by a more skilled worker following a minimum wage hike to $15 an hour, for example, unskilled workers are unable to acquire valuable on-the-job training while unemployed. Therefore, minimum wage = minimum on-the-job training  = maximum misery for unskilled workers.

But Don Boudreaux points out on Cafe Hayek that on-the-job training is just one of many different “margins” on which employers can adjust following an increase in the minimum wage. Here’s a list of some of the “non-wage job attributes” that employers offer and which can be adjusted (reduced) when the minimum wage rises:

– the extent and strictness of work demands
– flexibility in scheduling [including the number of hours worked]
– kindness and amiability in the workplace
– consideration and respect in the workplace
– upward mobility
– health insurance
– on-the-job training
– lockers for workers
– food for workers
– transportation (or transportation allowances) for workers
– the quality of air conditioning and lighting
– the number, quality, and cleanliness of restrooms for use by workers
– workplace comfort
– workplace safety

I would add:

– employee discounts on merchandise
– free or reduced cost uniforms
– company-sponsored holiday parties, picnics, and outings to sporting events
– tuition assistance and scholarships
– parking lot maintenance (including frequency of snow removal in winter)
– bonuses and profit-sharing

In other words, the quality of the workplace can easily be reduced by employers following an increase in the minimum wage in the same way that the quality of rental housing declines significantly as a result of rent control laws. Let me adjust my formula from yesterday’s post as follows with a fourth term:

Total Compensation for an Unskilled Worker = 1) Money wages + 2) Fringe benefits + 3) On-the-job training provided by the employer + 4) Other Non-wage job attributes.

Bottom Line: It’s a matter of simple economics and “minimum wage math” that when the money wages for unskilled workers is artificially increased by government fiat, many employers will have no other choice, if they want to remain profitable and stay in business, but to reduce: a) fringe benefits, b) on-the-job training and c) other non-wage job attributes. In that case, empirical studies that claim to find no negative employment effects following minimum wage hikes are probably not capturing the many other, and more difficult-to-measure, negative effects experienced by unskilled and low-skilled workers from artificially high monetary wages.

That is, to the extent that minimum wage increases are completely offset by employers naturally reducing the non-wage attributes offered to their employees to remain profitable, even unskilled workers who remain employed will not necessarily be better off from a minimum wage hike. Their total compensation could stay the same, or maybe even be reduced if the reductions in non-wage attributes more than offset the artificial increase in monetary wages. In the same way that a tenant who is able to find a rent-controlled apartment in Manhattan will pay a below-market rent, but will also have to live in a necessarily reduced-quality housing unit, the unskilled worker who manages to keep or find a job following an above-market minimum wage hike will likely work in a reduced-quality work environment with significantly reduced non-wage attributes.

(I’m fairly certain that politicians and minimum wage proponents almost never consider these real-world complexities and economic realities when advocating for a $10.10 or $15 an hour minimum wage law. They only look at some of the obvious, immediate, and visible benefits of a wage dictated by government fiat, while ignoring the many, less obvious, less visible, unseen, delayed and secondary costs of such legislation.)"