What’s behind the “unseen” of the minimum wage?

Tyler Curtis January 27, 2017

Ah, the minimum wage – first it prices you out of the job and then it gives you food poisoning. That is, according to a recent paper by Srikant Devaraj and Erik Nessen. Studying the effects of minimum wage increases in Washington restaurants, Devaraj and Nessen find “that for $0.10 increase in real minimum wage, total hygiene violation score increases between 3.35 and 8.99 percent.” If bad economic policies didn’t make you sick before, they sure will now.

Everything Has a Cost

The economist lives by a simple credo: there ain’t no such thing as a free lunch. In other words, everything has a cost, whether it be measured in time, money, resources, or effort. A restaurant faced with government-mandated wage increases must find some way to absorb these extra costs lest it go out of business. There are a number of options available: it could (1) raise prices, thus incurring menu costs and possibly losing customers; (2) terminate some of its employees, losing friends and lowering morale; or (3) reduce labor hours, making it difficult to adequately staff the restaurant.

The economist lives by a simple credo: there ain’t no such thing as a free lunch.

Because option (2) is an unpopular way of reducing costs and option (1) becomes counterproductive when facing an elastic demand curve, businesses in Washington have instead chosen to cut labor hours. Washington restaurants, faced with smaller staffs, have had to give larger work-loads to their employees. With more work per person to be done, less time and energy is available to be put toward cleaning – and thus the hygiene level drops.

Many of those who support raising the minimum wage have the best of intentions. They simply want to help lift people out of poverty; this is an admirable goal. However, their passion has prevented them from seeing that wages cannot be forced upward by government edicts. The law of demand tells us that if a price floor is instituted above that which the market would set then there will be a surplus; in this case, the surplus is labor. This artificial surplus means certain jobs are not being done (e.g., cleaning restaurants) even though there are workers available to do them, but it is now illegal for them to work for what the job is worth.

The result? Dirtier restaurants and, thanks to reduced hours, no change in the living standards of their employees. So the next time you come home from dinner feeling queasy, bad sushi may not be the only culprit.

Tyler Curtis

Tyler Curtis is working toward attaining a B.S. in Economics at the Missouri University of Science and Technology.