Monday, March 14, 2016

Unintended Consequences

Employment news out of Seattle is discouraging but not surprising. In June 2014 Seattle raised the minimum wage for all employees in the city to $15 to be reached in increments.
Starting last April, it raised the minimum from $9.32 (the state minimum wage) to $10 for certain business, $11 for others. Increases to $12, $12.50 and $13 an hour began taking effect for most employers this Jan. 1.
There's still a way to go before the wage hits the target of $15 per hour in 2017, but it's not too early to get an indication of the effect the hike has had on jobs. An American Enterprise Institute study shows that,
[B]etween April and December last year Seattle saw the biggest employment drop in any nine-month period since 2009 — a full year into the Great Recession. The city unemployment rate rose a full percentage point.

Before the minimum-wage hikes began, Seattle employment tracked the rest of the nation — slowly rising from the 2008-09 bottom. But it started to plunge last spring, as the new law began to kick in.

Furthermore, Seattle’s loss of 10,000 jobs in just the three months of September, October and November was a record for any three-month period dating back to 1990.

Meanwhile, employment outside the city limits — which had long tracked the rate in Seattle proper — was soaring by 57,000 and set a new record high that November.
In what may come as a surprise to the members of the Seattle city council and similar bodies around the country, when government raises the cost of doing business employers lay off, or choose not to hire, marginal employees. In a vivid illustration of the Law of Unintended Consequences at work the attempt by government to increase the income of minimum wage employees actually makes it harder for those employees to get hired and, if hired, to keep their jobs.

Now thousands of Seattle residents are out of work because their leaders thought they'd help them by raising their pay rate. Given a choice, which would minimum wage employees prefer, to have a job making $7.50 an hour or to have no job but know that if they did have one they'd be making twice as much?

The late Ronald Reagan could have had Seattle in mind when, in his first Inaugural Address, he declared that, "government is not the solution to our problem; government is the problem."