Follow-up on Minimum Wage


Why would anyone ever pay their employees minimum wage? I made minimum wage waiting tables in high school. Minimum wage is the employer’s way of saying I would pay you less if I could, but it’s illegal.

Employee theft is how we say Screw you too.

As a restaurant worker, I pilfered food and liquor bottles for my friends. The ones at In-N-Out comped meals. Those in retail rang up merchandise with blank receipts. The kid selling tickets at AMC gave free movie passes. It was like a Kula ring for grifted goods.

Sure, we were stealing from our employers, but we were also making $5.75 an hour. Who’s the real thief here? we reasoned.

Lest you think we were exceptionally horrible kids, look: Employee theft costs the restaurant industry an estimated $6 billion per year. And that wasn’t all me. Retailers lose another $42 billion to lifted merchandise, 43% of which is done by employees.


There’s a story of how Henry Ford increased the pay of his workers to $5 a day so that they could afford the cars they were building, and thus expanded the market for his products. Of course, if Ford wanted to give his employees money to buy cars, he could just pay them with cars and cut out the tax-collector.

The more immediate benefit to Ford from increased wages was reduced employee turnover and higher productivity. They probably also stole fewer cars.

The microeconomic view of minimum wage suggests that a mandatory increase in wages leads to a decrease in employment, but this assumes that supply and demand are elastic and employees are fungible.

After New Jersey increased its minimum wage in 1992, Card & Krueger observed higher employment rates in fast food establishments, relative to restaurants in Pennsylvania, where minimum wage remained fixed. Maybe cheap labor was actually supply-limited, and higher wages attracted more people to work at fast food restaurants.

In Seattle, the minimum wage increase was followed by lower employment in neighboring Pierce County, but no change in King County where Seattle is located. Maybe Pierce County workers left for higher-paying jobs in the city.

In an ideal labor market, minimum wage is unnecessary. Employers competitively increase wages to find and retain workers. Low-wage labor supply is limited because there are many job options.

And in this ideal market, teenage-Elaine is earning a passable wage, thinks she’s got a good gig, and makes an effort to be a sober and honest employee. But market forces are complicated in the real world, and while it sucks to be making minimum wage, it sucks even more that we need a federal minimum wage.

Seattle’s Minimum Wage Law and the Death of Restaurant Jobs

Last night, I made a bet about the effects of minimum wage on employment rates in the Seattle restaurant industry.

On April 1, 2015, Seattle’s minimum wage increased from $9.47 to $11. The wager: The trendline for Seattle restaurant employment has fallen by at least 20% since then. I took the over.

Their rationale: Supply and demand. Increase the price of an employee, and people will hire fewer employees.

My rationale: Employer demand is inelastic, but employee supply is elastic. Restaurants already do not employ more workers than necessary.

I can see how the world might believe otherwise. This was the result of the first Google search I performed:

Screen Shot 2016-03-03 at 7.19.35 PM

It came from Google, so it must be right. But let’s look at some actual numbers.

This is the chart presented by Mark Perry, author of Google’s first search result:


It seems to show that the Seattle metropolitan area lost restaurant jobs while Washington state as a whole gained restaurant jobs.

But the Seattle metropolitan area didn’t increase the minimum wage. Only Seattle city did. We’re talking about a population of 670,000 vs a population of 3.7 million.

@TBPInvictus breaks out Seattle metro’s restaurant industry employment by component counties. King County, place of Seattle proper, has a population of 2 million. It’s a slightly better proxy but not perfect.


If anyone lost restaurant jobs, it’s Pierce County, whose minimum wage didn’t change. King County did just fine.

I think I just won a peppercorn.

Seattle’s longer-term minimum wage effects are unknown, but none of this is new. In the last eight decades, federal minimum wage increased from 25 cents to $7.25, and the restaurant industry somehow didn’t get decimated along the way.

I’ll save speculation of why for a later post, but for now I’ll end with the references below. Most importantly, don’t trust Google search infoboxes.

See Also:
1. D. Card and A. Krueger. Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania. American Economic Review, Vol. 84, No. 4, pp. 772-793, September 1994.
2. We Can Afford a $12.00 Federal Minimum Wage in 2020 –Economic Policy Institute, April 30, 2015