Tag Archives: Ian Salas

Does the minimum wage increase unemployment? Ask Willie Lyons.

President Obama recently claimed:

[T]here’s no solid evidence that a higher minimum wage costs jobs, and research shows it raises incomes for low-wage workers and boosts short-term economic growth.

Students of economics may find this a curious claim. Many of them will have been assigned Steven Landsburg’s Price Theory and Applications where, on page 380, they will have read:

Overwhelming empirical evidence has convinced most economists that the minimum wage is a significant cause of unemployment, particularly among the unskilled.

Or perhaps they will have been assigned Hirschleifer, Glazer, and Hirschleifer’s widely-read text. In this case, they will have seen on page 21 that 78.9 percent of surveyed economists either “agree generally” or “agree with provisions” with the statement that “A minimum wage increases unemployment among young and unskilled workers.”

More advanced students may have encountered this January 2013 paper by David Neumark, J.M. Ian Salas, and William Wascher which assesses the latest research and concludes:

[T]he evidence still shows that minimum wages pose a tradeoff of higher wages for some against job losses for others, and that policymakers need to bear this tradeoff in mind when making decisions about increasing the minimum wage.

Some students may have even studied Jonathan Meer and Jeremy West’s hot-off-the-presses study which focuses on the effect of a minimum wage on job growth. They conclude:

[T]he minimum wage reduces net job growth, primarily through its effect on job creation by expanding establishments. These effects are most pronounced for younger workers and in industries with a higher proportion of low-wage workers.

Students of history, however, will be aware of another testimonial. It comes not from an economist but from an elevator operator. Her name was Willie Lyons and in 1918, at the age of 21, she had a job working for the Congress Hall Hotel in Washington, D.C. She made $35 per month, plus two meals a day. According to the court, she reported that “the work was light and healthful, the hours short, with surroundings clean and moral, and that she was anxious to continue it for the compensation she was receiving.”

Then, on September 19, 1918, Congress passed a law establishing a District of Columbia Minimum Wage Board and setting a minimum wage for any woman or child working in the District. Though it would have been happy to retain Ms. Lyons at her agreed-upon wage, the Hotel decided that her services were not worth the higher wage and let her go.

Ms. Lyons sued the Board, claiming that the minimum wage violated her “liberty of contract” under the Due Process clauses of the 5th and 14th Amendments.* As the Supreme Court would describe it:

The wages received by this appellee were the best she was able to obtain for any work she was capable of performing, and the enforcement of the order, she alleges, deprived her of such employment and wages. She further averred that she could not secure any other position at which she could make a living, with as good physical and moral surroundings, and earn as good wages, and that she was desirous of continuing and would continue the employment, but for the order of the board.

For a time, the Supreme Court agreed with Ms. Lyons, finding that the minimum wage did, indeed, violate her right to contract.

The minimum wage was eliminated and she got her job back.

——————-

*Legal theorists might well claim that the Immunities and/or Privileges clauses of these amendments would have been more reasonable grounds, but those had long been gutted by the Supreme Court.