Minimum wage and the Urban/Rural Divide

Interesting comment on the Reddit Austrian forum, by an anonymous poster, on the impact of the $15 minimum wage:

This will do a combination of two things :

1st is that a flood of new workers that are actually worth $15/hr will enter the workplace to compete with those that are not. Housewives & retirees mostly. Teenagers will become unemployable and be forced into debt slavery as they go to college instead of the workforce. This is intentional I believe.

2nd is that jobs that cannot pass on the wage inflation to the consumer will be replaced with automation. More apps. More kiosks. Ultimately this is going to crush a lot of Americans who can least afford it, while helping those who need it the least.


My response:

The minimum wage is an economic loser, in the same general category as rent control. Most articles seeking to prove the opposite, instead spend time arguing how much you can get away with (why not go for an even $100?). Hidden costs are seldom discussed. This post pithily discusses the impact on marginal workers. I really like the idea that these workers will face competition by more experienced people attracted to the higher wage; I haven’t seen that discussed elsewhere.

The only critique, likely to be leveraged by minimum-wage advocates (who are these people?) is that there’s at least some slack in the system. From two sources.

First, if the prevailing wage is already at or above the proposed minimum wage, then increasing the minimum wage does nothing economically, for better or worse. Although I suppose you could still score political points (from whom?).

Moreover, everything happens on the margins, as OP points out. Businesses will continue to produce as long as the selling price is above the marginal cost of production. This favors existing businesses, who have already invested in fixed and working capital. It will tend to favor big businesses who can dilute fixed costs (such as administrative costs). Thus appealing to those with a corporatist bent, or those who tend to favor big union shops over smaller owner-operated firms. (Or who just hate the “petit bourgeois” in general.)

The political implications are obvious; it tends to circle back to unions (among other things, union wages may be tied to the minimum wage). Hence the appeal to big-city politicians, who seem to have a right comfortable relationship with the unions.

In fact, I would submit that minimum-wage is in essence a big-city issue. Due to higher costs of living (sort of, transportation is usually subsidized), higher prevailing wages (meaning you can get away with it more often) and corporatist/unionist leanings. One more example of the urban/rural divide (obvious upon inspection of voting patterns by precinct) that accounts for much political tension in the US.

With the irony being, as OP pointed out, how badly it hurts urban teenagers, who live in a world of despair.

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