New Studies Argue a Higher Minimum Wage Could Backfire on Fast-Food Workers

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Might be more zero-sum than people hoped. Photo: Scott Olson/Getty Images

Arguing about whether minimum-wage laws kill jobs is one of economists’ favorite pastimes. That said, the reason they argue is because it’s a topic that defies oversimplification, and a couple of new studies will certainly be more fodder for the side that believes a $15 wage isn’t necessarily an unalloyed benefit to low-paid workers in places like the fast-food industry. New York Times labor reporter Noam Scheiber highlights these studies today, both of which were presented at the annual American Economic Association meeting this past weekend.

The first paper, by NYU’s John Horton, was meant to test the seemingly irrefutable hypothesis that raising wages is a great way to improve low earners’ standard of living. Horton’s findings throw in a wrench, though, because they suggest that when employers are forced to pay more per hour, they suddenly get very serious about hiring people who are maximally qualified. He found that the actual number of hours these higher-paid workers were on the clock “fell substantially.” Here’s how Scheiber explains the effect:

When the minimum wage increased, employers tended to hire workers who had earned higher wages in the past, suggesting that they were looking for a more productive work force.

If the pattern Mr. Horton identified were to apply across the economy, it would raise questions about whether increasing the minimum wage is as helpful to those near the bottom of the income spectrum as some proponents assume. The higher minimum wage could cost low-skilled workers their jobs, as employers rush to replace them with somewhat more skilled workers.

The other study, by a married duo at Harvard Business and Mathematica Policy Research, argues that employers have another alternative, and that’s to essentially go out of business. For their paper, they looked at tens of thousands of Bay Area eateries on Yelp, and found that “many poorly rated restaurants tend to go out of business shortly after a minimum-wage increase takes effect.” Spots with better ratings, meanwhile, are “largely unaffected by minimum-wage increases” and show “no substantial rise” in closures. Scheiber says they’re still analyzing the data, but can’t rule out the explanation that workers at a one-star restaurant are, simply put, less productive than employees at the better spots in town, despite their pay now being more similar.

Of course, the counterargument is that better spots likely charge more and have higher profit margins, so can pass increased labor costs onto customers more easily. Others will also disagree that, under Horton’s better-skilled-worker premise, employers can necessarily lure in better-skilled workers when everybody’s pay at the store becomes equal, more or less. As a New York City Applebee’s franchisee tells the Times, “It’s just a lot more money for the exact same job description.”

Studies Say Higher Wages Could Backfire on Fast-Food Workers