In a recent column, economist Walter Williams attacks Nobel Prize winner Paul Krugman for implying that an increase in the minimum wage would affect only an insignificant number of workers. Hence, according to Krugman, it can only contribute in a minor way to the unemployment rolls. This means that, in this case, the cause of increased unemployment is the employer’s inability to pass such increases on to consumers in the form of higher prices.
THE ABILITY TO convert wage increases into higher product prices is an important and controversial point. Because if the employer has that power, the affect of the wage increase on firm employment would be neutral. On the other hand, if they lack this ability they must reduce employment to have a chance to cover these increased costs and stay in business.
Krugman claims, however, that minimum-wage workers have a unique feature that markedly distinguishes them from other workers: They are mainly in industries that do not have the ability to immediately institute labor-saving technology to replace these higher-wage employees. That is, they are unable to quickly substitute capital for labor, or automate the function involving the minimum-wage workers. He cites examples of the fast-food and hotel industries. For this reason, unemployment effects of minimum- wage hikes will be minimal.
Williams, however, finds three conspicuous examples that refute this suggestion.
IT IS USEFUL FOR Krugman to have raised this controversial, if mistaken, notion, if only to help clear the air. But it drastically fails to negate the view that these suggested minimum-wage hikes will substantially and adversely affect employment of unskilled workers, those that society aims to help.
Any way you view it, increasing minimum wages tends to increase minimum-wage job losses.
via Raising the minimum wage also will increase job losses | The Augusta Chronicle.
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