Forbes’ Min-Wage-Hating Worstall on $15: The Datum Supports My Thesis!

Tim Worstall, blogger

Tim Worstall, righty blogger

Tim Worstall not only has a byline at Forbes and a fellowship at the impressive-sounding Adam Smith Institute, he also spells “labour” with that fancy extra “u,” so he must be a smart guy who knows an awful lot about economics, right? But then you read his actual words and, well, not so much…

Back a month and a bit there was a bit of a rumpus, a broo haha even, over the effects that Seattle’s newly enacted $15 an hour minimum wage was going to have upon employment in that great city. I, along with every economist, was saying that a minimum wage rise of that amount would reduce the amount of labour employed as against the amount that would have been in the absence of such a change in the minimum wage.

Wow. Really? “Every economist” agrees with Worstall? All of them? He couldn’t find a single a voice of dissent within a profession whose practitioners are the butt of jokes for contradicting themselves? Personally, I can think of at least one PhD in Economics who would dispute Worstall’s assertion—Dr. Kshama Sawant—but then, she only defended her dissertation at North Carolina State University, whereas the erudite labour-with-a-“u”-spelling Worstall got his PhD in Economics from… um… oh, wait… despite the implied association in “I, along with every economist,” Worstall isn’t actually an economist at all.

So what is he? He’s a blogger and a “fellow,” just like me. (And to be clear, the venerable Adam Smith has no more to do with Worstall’s think tank libertarian propaganda mill than Sam Adams has to do with that beer.)

The place we would see this would be in the restaurant industry, as that’s the industry that employs around 50% of minimum wage labour and thus that’s the industry where it is most binding.

Well, Worstall’s half right, in that he’s wrong by half: the restaurant industry actually employs about 25% of Seattle’s minimum wage workers, according to a report (PDF) commissioned last year by the city (and authored by actual economists). Not that this refutes Worstall’s larger point about the restaurant industry being a bellwether, but reality is not in fact optional.

Objections were many and varied: but it really is true that the academic literature here states that rises in prices do lead to fewer purchases of the thing that has risen in price. Labour is not an exception to this rule.

Actually, there are tons of exceptions to this so-called “rule,” and the academic literature is full of them. Health care and housing markets, for example. There’s even some debate over the elasticity of labor markets. But regardless, these “rules” are meant to describe perfect markets, economic unicorns that do not exist in the real world.

In the real world, the labor market is actually quite complex. When workers have more money businesses have more customers, and when businesses have more customers they hire more workers. Also, the power imbalance between employers and workers means that wages are often lower than what the employer can afford. As Adam Smith pointed out: “Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate.” Doesn’t sound like a perfect market to me.

Further, there’s plenty of work in the literature specifically about the minimum wage which says that modest changes will have modest employment effects. But no one at all is stating that large rises will not have some effect in reducing employment.

There is plenty of work in the literature—particularly, the most current literature—that says that empirical evidence shows little or no employment effects from modest changes in the minimum wage. As for $15, well, there just aren’t enough data points yet to know for sure what the effect will be.

But the lack of data never stops Worstall:

And so it has come to pass:

Ritu Shah Burnham doesn’t want to go out of business, but says she can’t afford the city’s mandated wage hikes.

“I’ve let one person go since April 1, I’ve cut hours since April 1, I’ve taken them myself because I don’t pay myself,” she says. “I’ve also raised my prices a little bit, there’s no other way to do it.”

And this is happening at this small business a little faster than it is at others because:

Small businesses in the city have up to six more years to phase in the new $15 an hour minimum wage. But Shah Burnham says even though she only has one store with 12 employees, she’s considered part of the Z Pizza franchise — a large business. So she has to give raises within the next two years.

It really is true. Demand curves slope downwards.

Um… how do you plot a demand curve from a single point of data? That’s one restaurant—count ‘em, one—that claims it is going out of business due to a higher minimum wage. That’s datum, not data. Meanwhile, there’s plenty of data that continues to show the net number of restaurants in Seattle growing at a healthy clip.

If you raise the price of something then people will buy less of it.

Gotta admire the confidence in which Worstall declares his unsupported bullshit.

Whatever your politics and however much you’d like to improve the life of your fellow man I’m afraid that reality is not in fact optional.

On that one point we both agree: “reality is not in fact optional.” Unfortunately, it appears that Worstall’s reality is fact-optional.

Look, nobody said that some restaurants wouldn’t close. Restaurants close all the time. And I don’t doubt that for some restaurants and other businesses that are teetering on the edge, a higher minimum wage will give them the final shove. But if businesses predicated on paying a low wage close and are replaced by viable businesses paying a higher wage, wouldn’t that be a net plus for the economy and the society at large?

Again, as Adam Smith notes in The Wealth of Nations:

No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.

Put that in your institute and smoke it, Worstall.

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Goldy
David "Goldy" Goldstein has written about politics for The Stranger, The Nation and the Huffington Post. He hosted “The David Goldstein Show” on Seattle’s news/talk 710-KIRO from 2006 through 2008, and has been pissing off readers at his blog HorsesAss.org for more than a decade.