Standard economic theory predicts that a price floor, such as minimum wage, would cause a relative surplus in the good: too few of the good is demanded and too much supplied. The logic is that minimum wage would likely cause layoffs (or higher unemployment) then would occur outside of the price controls. And yet, for all the theorizing, whenever minimum wage is raised, the negative consequences are usually negligible (or, sometimes, non-existent). Why is this? To the economically uninformed, this would suggest there are no consequences to hiking the wage. To the economically-informed, there are a preponderance of explanations, ranging from monopsony power, to rearranging compensation, to attrition. Allow me to humbly offer one more explanation.
Here is a chart of your standard price floor analysis. The biggest thing to take away here is that the minimum wage is set above the equilibrium wage. That is what causes the disemployment effects: a wage set higher than what most workers typically get. But, what if the price floor is set below the equilibrium? In that case, the wage floor would appear to have no effect, but that is simply because it is set too low. I propose this is why minimum wage appears to have no/negligible effects on employment.
To test this theory, I looked at several industries that employ a high number of low-skilled workers. Here are my findings:
|Industry||% of Labor that is Low Skill||Average Hourly Wage (Non-Supervisory Employees)|
|Accommodation & Food Services (NAICS 72)||57.40%||$11.79|
|Retail Trade (NAICS 44-45)||36.50%||$14.71|
|Art, Entertainment, & Rec (NAICS 71)||34.20%||$16.35|
You’ll notice that, for these industries, the average wage of their non-supervisory employees (meaning managers, execs are excluded) are all above the national minimum wage. This would suggest that even a minimum wage of $10 or $11/hr would still result in very little disemployment effects! Of course, those who are working below such a minimum would still be harmed, (let us not forget that the above is an average) but it may help explain why so many studies find such little disemployment effects on minimum wage.