Other Unseen Consequences of Minimum-Wage Legislation

Great post by don Boudreaux of "Cafe Hayek."

"One of the many superb George Mason University econ-PhD students, Darwyyn Deyo, is launching research into the relationship between minimum-wage hikes and rate at which low-skilled workers (especially, but not exclusively, teenagers) engage in illegal or illicit activities.

Economic theory suggests that there is likely some such link.  Because minimum-wage legislation almost certainly prices some low-skilled workers out of jobs – causing them either to be fired or not hired – many such unemployed workers will turn to earning incomes in the gray or black market.  Similarly, because minimum-wage legislation makes jobs less attractive for many low-skilled workers who do not get fired or who would still be hired, this legislation lowers the relative cost to these workers of abandoning the ‘legitimate’ economy in order to pursue employment in gray or black markets.

In short, it’s quite plausible that minimum-wage hikes cause increases in the rates at which low-skilled workers commit such crimes as theft, drug dealing, and prostitution.

Getting data for such research is challenging.  But creative, well-read, intelligent, insightful, and ambitious young economists (such as we have in our program at GMU Econ) are just the sort who can identify good proxies for which reliable data are available, formulate sound hypotheses, test these hypotheses sensibly and skillfully, and then draw from their research sound conclusions.

Darwyyn is in the early stages of her research.  So far, the only significant and relevant study she’s uncovered is a very good October 1987 paper, published in the Journal of Law & Economics, by Masanori Hashimoto (entitled “The Minimum Wage Law and Youth Crimes: Time-Series Evidence“).  (If you know of other relevant studies, please do let me know.  I’ll pass along the references to Darwyyn.)  Hashimoto found evidence from the United States that minimum-wage hikes are associated with increases in the rates at which teenagers commit property crimes.  Here are a few lines from Hashimoto’s concluding section:

Past increases in the federal minimum wage appear to have increased teenage arrests for certain crimes relative to arrests for all age groups. Many of these crimes involve the acquisition of property….

On the basis of these considerations, it would seem reasonable to view these findings as evidence for the link between the minimum wage and teenage participation in certain crime types."