Tag: Fight for $15

Do Minimum Wage Increases Raise Crime Rates?

They do for younger workers and property crimes, finds a new paper by Zachary S. Fone, Joseph J. Sabia and Resul Cesur.

Back in 2016, President Obama’s Council of Economic Advisors (CEA) claimed raising the minimum wage to $12 per hour could prevent up to half a million crimes annually. The basic idea was simple: there is good evidence criminal behavior is negatively related to wages. The CEA thought raising the minimum wage would raise the opportunity cost of low-paid workers engaging in crime.

Implicitly they were saying this crime-reduction effect would dominate any impact of job losses or hour reductions leading to more property crime, for economic reasons, or violent crime, for despair-related reasons. But this new paper suggests the CEA’s intuition on the balance of the effects was wrong, for younger workers especially.

The economists use three large crime datasets over a two-decade period to undertake regression analysis of the effect of minimum wages on different crime rates. They control for policing characteristics, crime policy, demographics, health and social welfare policies, minimum high school dropout ages and government lifestyles regulation. Doing so presents robust evidence that minimum wage hikes do not reduce crime. In fact, they increase property crime arrests among 16-24 year olds – the group for whom the minimum wage is most likely to bite.

Their regressions find little evidence minimum wage hikes affect violent or drug crime, or net crime among older individuals. But the impact on young people is positive and strongest when the minimum wage hikes are larger. Digging deeper, they find that the property crimes spike is driven larcenies rather than burglaries, motor vehicle theft or arson. The results are strongest for counties with populations over 100,000 and are likely driven by the traditional labor demand impact of minimum wage hikes (fewer jobs or reduced hours).

The results they obtain of the crime responsiveness to minimum wage hikes implies that a 10 percent increase in the minimum wage between 1998 and 2016 led to nearly 80,000 additional property crimes committed by 16-to-24 year olds. This would imply that implementing the $15 per hour Raise The Wage Act today could generate another 410,000 property crimes.

No Free Lunch At Whole Foods

Recently, I wrote about “other channels of adjustment” for firms facing minimum wage increases (other than reducing hiring or laying off workers). My main point was this: though a minimum wage hike need not lead to job losses at every single firm, in the absence of firms not knowing how to incentivize their workers properly to maximize profitability, other business responses are not costless.

A good example can be seen in today’s story about Whole Foods. Under pressure from campaigners, Amazon recently raised its pay for its lowest-paid employees to $15-an-hour. Now some workers aren’t enjoying the effects:

The Illinois-based worker explained that once the $15 minimum wage was enacted, part-time employee hours at their store were cut from an average of 30 to 21 hours a week, and full-time employees saw average hours reduced from 37.5 hours to 34.5 hours. The worker provided schedules from 1 November to the end of January 2019, showing hours for workers in their department significantly decreased as the department’s percentage of the entire store labor budget stayed relatively the same.

“We just have to work faster to meet the same goals in less time,” the worker said.

            …

The labor budget and schedule cuts at Whole Foods in the wake of the minimum wage increase appear to be similar to changes Amazon made after it raised the pay of warehouse workers to a minimum wage of $15 an hour. That move was widely praised but Amazon also cut stock vesting plans and bonuses that had provided extra pay to some workers.

Some Whole Foods workers say the cuts have led to understaffing issues. “Things that have made it more noticeable are the long lines, the need to call for cashier and bagging assistance, and customers not being able to find help in certain departments because not enough are scheduled, and we are a big store,” said one worker in California.

Whole Foods and Amazon therefore seem to be adjusting to higher hourly pay in several ways: cutting hours for employees and sweating them harder during those reduced hours, cutting back on stock plans and bonuses, and passing on the extra cost to consumers in the form of worse service. None of these are costless:

-       cutting hours or bonuses negates the earnings boost from hourly pay increases

-       sweating workers harder makes the work environment less pleasant, and may reduce job opportunities for workers incapable of “upping their game”

-       a worse shopping experience is a quality-adjusted price increase for consumers

These are exactly the types of impacts I was referring to re: high minimum wages. When statutory wage floors are increased, the fact that the firm would not have opted to undertake these changes in the absence of the wage hike suggests changes would otherwise not have been profitable, and as such are still costly (though some firms are no doubt currently not efficient – making it feasible for some that higher minimum wages could jolt them to a better business model.)

There’s a great discussion of this issue towards the end of a brilliant EconTalk podcast on the minimum wage this week.

For more on the minimum wage, read here, here, here, here, here, here and here.