 All right, so my topic this afternoon, right after lunch, so this is I guess the nap time topic. I'll try not to use the voice I sometimes use with my kids and I'm trying to get them to sleep. Very soft and soothing, everything is okay, dad is here, you can just go to sleep. I'm not gonna try to use that voice, but if I fall into it, I apologize. So the minimum wage, certainly an important topic, but of course I should, as always, start with some kind of joke about it. So of course there's the classic joke about the minimum wage, right? It's not really a minimum, it's not really a wage. Didn't say it was a good joke, but you know, okay. Self-referential humor people, oh whatever. Okay. Okay, so getting into the minimum wage. Now it is, I think, a dangerous topic to talk about for a number of reasons, right? One being that for many people it's an extremely emotional topic, right? And this is not a new problem for us. I was just this morning kind of reviewing what did Mises say about the minimum wage and human action, and he actually starts out by talking about how for many people it's really a moral issue, right? So people say people deserve to be paid $15 an hour, and they don't mean this in some kind of productivity sense, but rather that morally they deserve as people to be paid this much, right? So for many people it's a very emotional moral issue, and that makes it difficult to discuss with people scientifically about it. And then also from those of us that are in economics, we also have the issue that in some sense it can kind of become a tired issue. We talk about it, we've been talking about it for decades upon decades and decades. I kind of want to move on to something else, right? Every semester I assign my principles of microeconomic students, one of their paper options is to do a policy analysis, right? And I just kind of pray, right, before they hand the paper in, Lord please let half of them choose something other than the minimum wage, right? And sometimes God says no, right? And so it's something we hear about a lot and a lot, and it can just get tired. But nonetheless, that doesn't mean it isn't important, right? Because I think economists have been very consistent early on before the mid-1990s or so about the harm that the minimum wage can cause. Nonetheless, we live in a world where just this week, on Monday the governor of Delaware signed a $15 minimum wage bill for that state, right? And I was just looking this morning, I thought, okay, what is public opinion like regarding the minimum wage? Turns out this past April, the Pew Research Group did a survey of Americans and found that 62% of Americans say that they do support a $15 federal minimum wage. 62%, right? So that means this is bleeding across party lines. It has to be, right, bleeding across party lines. And not only that, when you look at the 38%, right, that did not agree with the $15 minimum wage, 27 percentage points of those. So the grand majority, about 70% of those that said, no, not $15, said, well, but it should be higher than it is now, right? So added up, we have almost 90% of Americans agree the minimum wage is too low that it should be higher than what it is right now. So it appears it's not tired enough, right? We need to still talk about the minimum wage and the harm that it can cause, right? So let's do that. So I first wanna tell really kind of the typical story, what kind of the econ 101 story it's often labeled, although the people that label it this tend to do so kind of derisively. It's the econ 101 story, which makes me think, well, maybe you should offer to teach econ 101 into it, right? So just complaining about all these people teaching it wrong. Okay, let's talk about the econ 101 story because it's important and I think there is definitely truth in it, right? So the econ 101 story, very simply, the demand for labor slopes downward. That's the problem with the minimum wage. It's not that much to it, right? It was very tempting to say, well, okay, we're five minutes in, we're done, have a break, right? No, but I think there is more we need to talk about here. So let's talk about a specific example to maybe make this a little bit more clear, right? So suppose that we have three different workers, right? And they have different discounted marginal revenue products, so this, Dr. Herbner talked about in his theory of interest and how much we'd be willing to pay the various factors of production is based on the diminishing or not diminishing discounted marginal revenue product, right? So if these three different workers, let's say one of them can produce the equivalent of say $20 per hour of discounted marginal revenue product, right? Another worker can produce $15 per hour. Different skill levels, different experience, right? These types of things, right? And then we have a third person, very inexperienced, can produce $5 per hour, right? So then I want you to think about this question. So in a free market, right? Which of these workers do we hire? Of course, the correct answer is yes, right? All of them, right? You just pay them different amounts, right? So the person that can produce $20 per hour of discounted marginal revenue product, you pay them about $20 per hour in discounted based on that revenue product, right? And you would feel pressure as an employer to pay roughly that because otherwise they're going to find somebody else who will, right? So you have to pay them basically what they can produce or someone else is going to come along and bid them away, right? Meanwhile, that second worker that can produce $15 per hour, that's what you provide them, right? And the third worker that can produce $5 per hour, you don't refuse to hire them. You hire them for $5 per hour. That's what you pay them. That's what they can produce. Now it might be that when you make that offer to them, they say $5 per hour. Well, I still have some avatar the last airbender to catch up on. I'm gonna go watch Netflix instead, right? They might prefer to have leisure instead of accept that pay. That's perfectly fine, but this isn't really unemployment, right? They've just chosen leisure over labor in that case, okay? It's actually true that I do actually have avatar the last airbender to catch up on. I'm halfway through the second season, okay? I'm only 12 years behind on that. Okay. Like many things, I'm about 12 years behind. All right, so all of these people, regardless their level of productivity is hireable because we can find a wage at which it makes sense to hire them, right? What happens though when the minimum wage comes in? So let's just, I'm going to use this as my example because I like the number 10, $10 per hour. Let's see if the $10 per hour minimum wage is imposed. This is also very close to the state of Ohio's minimum wage, which is where I live, right? So $10 per hour is imposed. What happens then? Well, the $20 per hour worker, they're unaffected. The $15 per hour worker are unaffected. I don't have to change the way that I'm treating them. That $5 per hour worker, I come in once this law is passed, if I'm their employer and I say, well, I'm sorry, we're gonna have to let you go, right? It doesn't make sense, right? For me to pay you $10 every hour for you to produce a product worth five, right? So you're gone, right? So we just made this very low productivity person unemployable, right? It no longer makes sense for us to employ them. My part of the assumption here I want to make explicit is that I'm their best option in terms of jobs that I'm where they're going to be most productive, right? Like if they could in fact produce $15 per hour working for somebody else, they wouldn't be thinking about the job with me for $5 per hour, right? So they're unemployable completely, right? And that is exactly the argument we make when we say the demand curve for labor is downward sloping, right? You increase the wage that people have to pay legally by the minimum wage. We just took a group of people that might be willing to work, right? And we've made it illegal to hire them, right? So that's the problem, yeah. So one way we can think of this is that the minimum wage is effectively setting up a hurdle, right? So we're almost to Olympic season, right? Very, very close, right? They're gonna be hopping over hurdles, so we set up a hurdle and you have to get your productivity above that hurdle to be able to be hired, right? Now if you're like me, you're not gonna make it over the lowest hurdles, right? You're not gonna make it, okay? All right, now I want to deal here first with an argument you sometimes hear. It's very tempting for people on our side to make this argument is we're arguing with people that are suggesting, oh no, we can increase the minimum wage, it won't be that bad, right? So I think it's true that economists at least would agree that there are two things that are true. One would be is that if we have an extremely low minimum wage, right? Even myself, I'd say okay, it's actually not gonna be that damaging, right? So for example, imagine we have an economy like the modern United States in terms of our standard of living, productivity, that kind of thing, except we don't have a minimum wage and then Congress passes a minimum wage of one cent per hour. I strongly suspect that's not going to make people unemployable, but actually had a job before. With all these people, they're earning half a cent per hour, oh now unemployable. Odds are they were watching Avatar instead of working, is my suspicion. So sufficiently low minimum wage, if it's low enough that nobody's actually making that little, it's not going to create these negative employment effects, right? On the other hand, we have some people say, well we can increase the minimum wage, say $15 per hour without significant unemployment effects, I'll deal with this argument here in a minute, right? But I don't think the right response from us is to say, well, why not just make it a million dollars per hour and everybody's rich, right? Because even those people, if they are economists, if they're worth arguing with, you don't have to be an economist who you're arguing with, you have to be intelligent enough, okay? To understand yes, there's in fact a limit. Like any of the economists making these arguments would say there's a limit. So a million dollars an hour is past that limit. So yes, at that point, we will see negative employment effects. So the real question, the honest question that we face is what happens if we increase wages just a bit, right? So what if we make that move just an extra $1 to $5 per hour, maybe $7 per hour? Or not many people are making that $7.25, whatever it is now, okay? Push it up to $15. At most, we have 1% of people making the minimum wage in the US right now. That's not going to be a big employment effect, even if all of them are unemployed, right? Okay, so what happens if we make these small changes? What actually happens in practice? So here I want to talk about a very famous study. Cardin Kruger, so a little over 25 years ago, you've probably heard of this paper, I suspect. So Cardin Kruger in 1994 did a study. They're not the first people to try to study the minimum wage empirically. This has been done a lot before 1994. What was interesting about them is that they came to a different conclusion than basically all the research before them, right? But they came to a conclusion that lots of people found after them, right? So they seemed to be kind of a breaking point in the way that empirical work judges, right? The minimum wage before and after this point, right? So 1994, what was their study? They were looking at what are the employment effects of the minimum wage. And so naturally, we know, ideally, we'd want to have some kind of experiment, right? But very rarely can we find municipal authorities that will let us just randomly choose minimum wages and see what happens so we can't do that. So we have to look for natural experiments, right? So what they looked at was fast food restaurants. If you want to find some place where there are people working for minimum wage, it's a good place to look, right? We tend not to be much above the minimum wage if you're dealing with fast food restaurant employees in the U.S., right? And they looked along the Pennsylvania-New Jersey border. And so geographically, they're very close together, which suggests that things like the cost of living should be fairly similar in both these areas, that kind of thing. Culture should be relatively similar. It's very easy for people to move back and forth across this border for things like work or what have you. And so, and there's a point in time where the New Jersey increased their minimum wage at the state level, but Pennsylvania didn't, right? So this is a nice natural experiment. We have this artificial border between the states, right? Grouping, virtually at random, it seems, of these two groups of restaurants. So one group in Pennsylvania, one in New Jersey, New Jersey, gets stuck with this higher minimum wage. Pennsylvania doesn't. What happens to employment after this minimum wage has passed? And this would also control for things like sometimes we can say, well, it doesn't mean people actually lose their jobs. Maybe employment growth slows down or something like that, right? Well, this helps to control for that. We can watch how employment grows between these two states, right? So we can control for that. And it turns out that when they compared Pennsylvania and New Jersey, they didn't find any significant effect on employment from the minimum wage. It's fast food restaurants. They basically followed the same path in terms of their hiring patterns. All right, so this ends up ushering in, right, that new economics of the minimum wage, right? So now after a card and career, we start seeing a lot more of these studies coming out, finding either very, very small or no employment effects from the minimum wage. So just to talk a little bit about this, as I was preparing this lecture, I thought, well, why don't I go look myself, right? I'll do a little bit of not very sophisticated at all, statistical work. So I looked at, I pulled up from the Department of Labor a list of all of the minimum wage increases that happened in the US over the course of its history, starting in 1936. I pulled up our unemployment rate. It was very easy data for people to get. And then I just looked. We have an increase in minimum wage in this particular month. What happens to the unemployment rate between that time and a year later? Figure a year is long enough to have an impact on unemployment if it's going to. And what I found was that roughly half the time, an increase in minimum wage is followed by an increase in unemployment, which is what we'd expect. Lots of people are losing jobs. The other half the time it didn't happen. This increase in the minimum wage was followed then by a decrease in unemployment. And I'd be saying, professor, it doesn't sound like you controlled for anything else. That's right, I didn't, right? Okay, so it's not great statistics, right? But the point here is that the minimum wage, whatever effect it has, if it has this negative effect on employment, it's not enough to overwhelm all of these other things that may affect people being able to find employment. So that effect is something that can be overwhelmed by other things, which wouldn't be that surprising if we think about the fact that about 1% of workers are in the minimum wage. Of 99% of the workforce is being affected by other things are really, minimum wage isn't that relevant, right? 99% of the workforce, okay. All right, so my own cursory glance found that I couldn't find consistent impacts. There was also recently in the Journal of Economic Perspectives, which has the, in my mind, the distinction of being one of the most readable mainstream journals. You can actually pull up these papers and read them without having to do calculus in between the various paragraphs, right? It's nice, right? And they ran a symposium on the minimum wage. And one of the papers in there, by an author by the name of Manning, it's called the Elusive Employment Effects of the Minimum Wage. And what he did, he pulled up a bunch of data and ran the same set of data through seven different statistical specifications, right? So he controlled for different things, or he controlled in different ways, or kind of the shape of his controls were different. And what he found with these seven different specifications was that in two of them, he found significant negative employment effects, right? So yes, people did seem to lose jobs because of the minimum wage. In five of the specifications, he didn't find any significant effect, right? So this suggests then the type of test you're running is enough to flip whether we find this effect or not, okay? Okay, hmm. So how do we deal with this is the question. Now, one thing that we could do, right? We could learn a lot about statistics, right? And take Cardin Kruger to task, say, oh, you did this wrong, you did that wrong, you did that wrong, at which point, we then need to go on to the next paper that found the same thing. The next paper that found the same thing, we need to go to Manning and say, well, here's why those five tests that didn't go right, here are the problems with those and why we should prefer the other two, right? This is a strategy that we could actually follow. I don't have that much energy or time. Attacking one by one each of these studies, I can't do that in the next half hour. So I'm going to take a different approach and say, well, let's go ahead and say this is true. Let's say that there actually aren't employment effects. Does that then mean that if we increase the minimum wage, suddenly everybody's better off? It may not be the case. In fact, I'm going to suggest that if we have a richer understanding of how the job market actually works, we can show lots of other dimensions, ways that, that first, minimum wage earners are made worse off and secondly, the economy as a whole is made worse off. If we haven't increased the minimum wage, okay. So let's go ahead and look at, there's another paper in that symposium that I'm drawing from quite a bit here. So I'll be referring to some of these empirical papers. The author for this paper was Clemens. So in the Journal of Economic Perspectives again, the title of this paper was, How do businesses respond to the minimum wage? This seems like a reasonable thing to look at. So what are the various things that businesses can do in response? So one thing would be to fire workers. We've talked about that, but there are also other options available. So let's look at them. So one possibility is maybe we can imagine here, suppose that you have a manager that's not particularly good at their job, they're not very attentive to what's happening in their business or the marketplace. Minimum wage bill passes as they just give raises to all of their employees. And that's that, they don't change anything else. This is a possibility. I do believe that there might be dumb managers out there that would do this. And I think I have actually some anecdotal reason to believe that several years ago, just shortly after I got hired in my current job, I got a phone call from a cardiologist, which is an interesting thing, because I didn't have any appointment with a cardiologist. And it turns out he was part of a book club in the area where I live, where they would discuss various intellectual books. And he found out that we had an Austrian economist in the county now. So he wanted me to come and be part of this book club. They were going to talk about Hoppe's book on the Austrian method. So I went to the book club. I don't think I said anything for the entire time, which that's all right. But I was part of a discussion afterwards where we're talking with one of the prominent business people in the area, like the kind of person where like his last name appears on street signs, right? And we're talking about the minimum wage and increases in the minimum wage and how that leads to employment effects. And he said, well, yeah, if it's big enough for the business to care, it would lead to this, right? Which then implies, I have a significant business person here telling me that there are some increase in the minimum wage that you might just not care about, right? It's not worth reacting to. So in that case, what happens, right? Well, we have the fallen profits. Well, this is great if you like the minimum wage. We're redistributing well from the rich business owners to the poor minimum wage workers. This is exactly what we want, right? Except if we think about the future, right? So what happens if we start decreasing profits? When I suddenly, I as a business owner have less reason to invest in the future, right? So we accumulate less capital over time. If we accumulate less capital over time, then we see less improvement in productivity over time, right? And it becomes harder and harder to justify, right? Hiring workers that aren't very productive, right? So over the long term, we would still see, even if in the short term it's just profits are smaller, right? Then over the long term, we would still see these negative effects, okay? So here I like to deal with one argument, kind of theoretical argument that would suggest this would be what we'd actually see is the monopsony argument. So you may have heard this before. I say the idea of the monopsony argument is we imagine that we have, say, just a single employer. So it's the flip side of a monopoly. So a monopoly is a single seller. Monopsony is a single buyer. So in this case, a single buyer of labor, right? So a single employer in an area, right? So we just have the single employer. So in that case, if I have somebody that produces $20 per hour, I don't have to pay them $20 per hour. They don't have any other option but to come to me. So I'll pay them $5 per hour, say. So this is the way the theory goes. They don't have any bargaining power because they don't have any other options. So $10 minimum wage, I'm not gonna fire them, right? They're still producing $20 per hour. Just increase their wage to $10 per hour. So this is effectively the way the monopsony argument goes. This past Monday, you may have noticed I wasn't around. I was visiting one of my friends that lives up in Birmingham. I knew him from graduate school, right? And he jokingly said, yeah, you have to come visit the mainstream economist before you go and talk to all the Austrians all week and it gives you somebody to complain about. So yes, Mike, I'm gonna complain about you. Okay, right. So he asked what I'm already gonna talk about. I said, oh, I'm talking about the minimum wage and I'll mention Cardin Krueger and this kind of stuff. He said, yeah, I think there's a lot of monopsony around. I disagree, Mike, right? And here's why, right? I live in Ohio, right? In Ohio, we have lots of small towns, right? My grandma lives in a pretty small town. Literally, she lives in the middle of a cornfield, but the town near her is pretty small, right? But in that town, we have a grocery store, multiple gas stations, multiple fast food restaurants, right? So the idea that there's only one employer of minimum wage workers is just not credible to me. This tiny town my grandma lives in, we have more than one employer, right? So I have a hard time believing that story makes any sense at all, even just from the basis of it, right? All right, so if that's the case, then it's probably just not true. So we do have evidence, though, that profits do fall. Empirically, this is clear, but also we would expect this with any story, including the employment story we told, the Econ 101 story, you still see profits fall when there's increased the minimum wage, okay? All right, so what's another possibility? So another possibility, I'm gonna tell an analogy and then you'll figure out where I'm going, I suspect. So I drove down from Ohio, it's a long drive, broke it up over a couple of days, but I can assure you, when I was driving down, I was I-85 from Atlanta to Auburn, right? I was driving maybe like 72 miles per hour, right? Speed limit's 70, 72 is okay, right? And I was in the right lane, I had to be in the right lane because, beside me, right? People were flying by, right? Sometimes people don't follow the law. And believe it or not, that is possible with the minimum wage, right? It might be that people just don't follow the law, right? So the employer, legally, and I now have to pay $10 per hour, so I go to my $5 per hour employer, I say, hey, are you good? Yeah, that's fine, because otherwise I'm gonna have to fire you, yeah, that's okay. I'll keep the $5 per hour, right? It sounds kind of weird, shady, underhanded, but it's something that can happen, right? So, and there is actually some evidence that this does happen, that we do see minimum wage evasion the higher the minimum wages go. And there are perfectly good reasons to do this. So thinking about it from the employer perspective, it's obvious, right? I can't afford to keep this person on, but I am in fact earning what is actually their interest but would often show up in terms of profit, in terms of accounting, right? So I am actually earning interest on this $5 power employee. I want to keep them, if I can keep them. Similarly for them, they want to keep this job because they know that they're now unemployable, right? If they go and have to find a job that is paying legally. So they don't want to leave if they don't have to. So we both have a reason to just ignore this law that just got passed. So there was a really interesting set, it's two studies that came out of Seattle when that city passed their $15 minimum wage. So one of these studies found that, yes, there were negative employment effects that happened after this increase in the minimum wage. We did see a significant decrease in the number of hours worked. The other study, studying the same city, right? Same period of time, said, no, we actually don't see any negative employment effect at all, right? Well, this is weird, right? Studying the same data, you should come up with the same conclusion, although I guess Manning didn't. So what happened? Turns out in this case, we had, they are actually dealing with two different sets of data from the same place. So the one that found a significant employment effect was dealing with administrative payroll data. So what they found was that fewer worker hours were logged after the minimum wage has passed. Then the one that didn't find an effect was dealing with surveys of employees. Called up the employee, do you still have a job? Yes, I do. Are you working a few hours? No, I'm working the same as before. So what's going on here? I would suggest it might be possible the way we're handling this is that workers are volunteering a couple hours of their time before they start clocking in and getting paid and they might be volunteering an hour to at the end of their shift as well. So on the whole, they're no worse off than before. They're getting paid the same amount of money per week. It's just squeezed over fewer paid hours but a higher wage for those hours. So they find this acceptable. They found it acceptable before the minimum wage has passed. They still find it acceptable. It's just taking this strange way of having a combination of paid time and unpaid time. That is a way effectively of dodging the minimum wage of unpaid hours that's happening. Does this actually make the workers better off? I suspect it doesn't. So what's another possibility? So another possibility is what we call pass through. So one of the parts of the story for that $5 per hour for that worker, a part of that $5 comes from the price of the good that I'm selling. So one thing that I could do as an entrepreneur, as an employer, I could say, well, I'm just gonna double all my prices. So now this $5 per hour worker is going to be paid $10 per hour. Now I said, I'm just gonna double my prices. We understand the demand curve for products slopes down. So if I double my price, I'm gonna lose some customers. But it might be that it may make sense for me to keep some of these workers that are kind of on the edge. So I increase the price a bit. If my customers will tolerate it, I may increase my price a bit. I lay off some people because I am going to have fewer customers. But that may dampen the employment effect if I can pass through some of this cost. It's not gonna be all of it, but if I can pass through some of the cost on to the consumer instead. Now in terms of the impurex of it, there is mixed evidence regarding this. And I suspect that we should expect that. So one example, if you happen to be working in, or if your firm is in a field where you're competing with lots of imports, in that case, you have basically no ability to increase prices because of an increase in the minimum wage. And sure enough, we find if you're competing with lots of imports, you don't actually increase prices when there's an increase in the minimum wage. That's not an effect we see. On the other hand, we do see sometimes we do see increases in prices. There was a study done around the San Francisco Bay area. A lot of little municipalities, not little, but a lot of municipalities around that area have city level minimum wages. And one of them, if I recall correctly, I think it was San Jose, passed an increase in their city-wide minimum wage. And there was a study done on restaurants, very kind of Cardin Kruger style, but looking at pricing. And found that those restaurants that were just inside the city limit did increase their menu prices. While those that were just outside the city limit didn't increase their menu prices. So this suggests that there's kind of enough maybe loyalty for consumers, they like this particular restaurant, they're willing to pay a little bit of a premium, not to go across the street outside of city limits. So it does look like there may be some room for this to potentially happen. In fact, there was one study, probably the most extreme that this has been. There was a change in the Hungarian minimum wage law where this one study found that 75% of the increase in cost from the rise in their minimum wage was passed on in the form of higher prices to consumers. 75%, that's going to dampen the employment effect quite a bit or make it pretty small. All right, so this is another possibility. How about another one? So another kind of category of changes we might see are input substitution. And this can take two forms. So one possibility is that maybe what happens, and I think this is maybe a big part of what happened with Cardin Kruger, is that I take that $5 per hour employee, I say, see ya, but then I hire somebody else that can produce, say, $12 per hour worth of product. So I go out, I hunt somebody to fill that position that's going to be more productive than where it's worth paying them. So this is a possibility. We could swap out the low-skill workers for higher-skilled workers. And so if we're just looking at, say, firm level employment data, the way that Cardin Kruger did, it doesn't look like anything changed. You had three workers before, you have three workers now, no negative employment effect. Looks like you're perfectly fine. Missing the fact that that $5 power worker is, in fact, unemployed. All right, so Cardin Kruger might be right about the firm level stuff that missed the economy-wide stuff. So do we actually have evidence of this switch from low-skill to high-skill workers? Do we actually see that happen? It turns out we do have good evidence. Comes in a couple different forms. One is looking at job postings. So there have been economists that have studied job postings for minimum wage type of jobs. Before and after changes in the minimum wage. And what they found was that after we had an increase in the minimum wage, we are starting to see people asking for, no, we want to make sure you've graduated high school. We want to make sure you have a couple years of experience working in food service, right? We're demanding higher-skill levels, right? Because we have this higher level of productivity we need for you to be worth hiring. Another piece of evidence was looking at people that actually get hired and what their wage histories were. And what they found was that after an increase in the minimum wage that we saw, those workers that are hired have a history of higher wages before they took that particular job than before that increased the minimum wage. So this is a way of indicating this is somebody that is more experienced, more skilled, they had higher-paying jobs in the past. So now I'm going to go ahead and hire them now. And in fact, that one, they came up with estimates that this might cover something like one-third to a half of the difference in that minimum wage. It's just getting absorbed by the fact that we're hiring now higher productivity workers. But I think it's important to observe with this that okay, from the firm level perspective, it's looking like employment didn't change, but from the economy wide perspective, we're still seeing those low productivity workers becoming unemployable. And so we have to pay attention to what kind of study is being done, right? All right, and then one other possibility is labor capital substitution. So let's just get rid of some of these workers and put in self-order kiosks there out in the front of McDonald's, right? So we don't need as many people, we'll just put out computers instead. So replace workers with capital, okay? It turns out this is something where it's very hard to gather empirical evidence on, just because it takes time to make these decisions and changes, right? So you can't look, say, the month after and say, okay, are there more kiosks now? It takes time to rearrange things, perhaps to put in wiring and these sorts of things. These are hard to do, and that makes it very muddy with trying to do empirical work, right? So one thing, though, that we could do was let's assume that when you build a restaurant, right? You kind of have in mind how many workers are going to work there. So you can build, say, two different possible restaurants, right? So one of them is very high-tech and very low in terms of its labor requirement. So you have lots of order kiosks. Where I come from, we have sheets. So sheets is a gas station that also provides food. And I don't think that I have never been in a sheets where you actually ask a person for food, right? It's all through self-order kiosks, I see. Tap in what you want on the kiosk, and then they'll bring your food out in your gas station style as they do. So it's very capital-intensive, or we could have the opposite, right? Very labor-intensive, the way that I generally think of traditional McDonald's. I walk in, I tell somebody what I want. They take my order, and then somebody brings me the food, that sort of thing. So these are both possibilities, right? And let's say that it's difficult for us to convert one to the other. So then what would we see if we see the minimum wage come in? People are making this decision on an economy-wide level to move from labor-intensive to capital-intensive. So one thing we might see is that those restaurants that are really labor-intensive just close, right? They exit the market entirely. We can't operate the way that we are designed to operate with this higher minimum wage. Meanwhile, we then have an entrance of the higher capital model, right? So what we might see then is in restaurants, we see a lot of restaurants exit, a lot of restaurants also enter at the same time. So a big turnover in the restaurants that are there after an increase in the minimum wage. And that is exactly what we see, right? After a minimum wage is increased, we do see an increase in exit, not surprising, but we also see that increase in entry, right? Suggesting we're moving to perhaps a more capital-based structure would make sense. Okay. So I think that's kind of interesting. Though Mises talks about this, right? It turns out, this idea, oh, we're just going to switch out labor for capital. And he says, no, the problem with this argument is that there's nothing about the minimum wage that makes self-order kiosks appear, right? So we have to make a decision about how we're using resources in the economy. So we're going from producing other things, right, to producing this capital that is going to be replacing the labor that now we can no longer afford, right? So we've now just redirected the use of other resources in the economy in order to make up for what the minimum wage did. And that's going to lower overall productivity. All right, so that's import substitution, not import substitution, input substitution, okay? So the last thing I want to think about is kind of the nature of a job itself, right? So one of the underlying assumptions when we tell that Econ 101 story is that what a job is, is that I perform some specific task in a specific period of time, right? And I'm paid a certain amount of cash for that, right? I would suggest this doesn't describe most jobs, right? Instead, most jobs, there's a lot of other factors we're considering, right? So I sat there and listened to Dr. Bilan talk about how we should think about products, right? So product is not just a physical thing, it's an entire experience, right? And based on my own experience, a job is similar, right? It's not just a particular set of tasks I'm asked to perform, there's a whole experience around that job, right? That I may possibly have preferences about, right? So for example, in the form of compensation, I might be paid something other than just a wage, right? I might be offered things like, I don't know, perhaps my employer provides some money to help pay for my health insurance, right? So they cover part of my health insurance premiums. That's something that happens, I know because it happens to me. It's part of the contract I have with the university. They cover part of my health insurance premiums, right? Or it might be that we have, say, a retirement program where there's some matching involved, right? So I can put some of my money aside into a retirement account and the employer will match, maybe not dollar for dollar, but they'll provide some money as well. This is another benefit that I could potentially have. It might be if we're talking about minimum wage jobs, I have seen advertisements. I forget whether it was on a gas station or on a fast food restaurant, for things like tuition reimbursement. I understand a lot of our employees are students, right? That are going to want to go to college, right? So we'll provide some level of tuition reimbursement, right? Yeah, so this is not a cash wage. It's just an additional, right? Form of compensation of benefit you receive. Or it might be that you receive free meals, right? So free food is something. My wife, when we were first married, she worked for Walmart for a little while, right? And she got a 10% discount as an employee, right? These are all, it's not that cash wage, right? They are all virtually monetary sorts of benefits, right? Something we could measure in money, perhaps. Measure in money, oh, you didn't listen to your own professor, your own language professor. Okay, anyway. So we have these other forms of compensation. So what can happen then? So suppose that we have this imposition of a higher minimum wage. Now I have to pay my workers more. Well, it turns out what I was paying them, right? In terms of the wage, right? Was not the entirety of their discounted marginal revenue product, right? The agreement we had, either formally or often informally, was that a lot of their compensation comes in the form of, here's some payment toward your health insurance, right? Here is some matching toward your retirement. Here are some tuition reimbursement benefits, right? Then the minimum wage increases. Does it mean that I have to fire them? Not necessarily, right? It might be that I can take away enough of these other benefits, right? So in fact, we do have some research regarding health insurance. Now you might often say that minimum wage employees, at least in America, we often don't get health insurance benefits, right? Despite that often being the case. Nonetheless, there are studies showing that a minimum wage increase tends to decrease employer-provided health insurance, right? To the tune of offsetting about 15% of the minimum wage increase. So it's not enormous. We're offsetting half of it or something like that, but we are offsetting some of it, even for minimum wage employees. We're seeing this happen in the economy. I would suspect we'd also see things like, oh, remember that tuition reimbursement program? We're not reimbursing as much as we used to, or perhaps we're not reimbursing it at all anymore. We can't afford it in the company, right? So these types of things go away. That, yeah, you had that 10% off as a Walmart employee, well, now it's 5%, right? Or now it's nothing, right? Yeah, we really expect you to pay for anything you eat, right? Right, so all these other benefits start to go away and may possibly offset that increase the minimum wage, which in case I don't fire you, I'm paying you more in cash, but you've lost all it's of other things that were part of your job that you wanted when you signed up for that job. That's who you are made worse off in that way by that loss. There's also a set of what we might dub non-compensation amenities. These are kind of traits of the job that we care about. So things like, how much tolerance is there for slacking? This varies by job, right? So the stories that I hear about, say, working for Amazon, at least the ones that journalists like to cover is how horrible this is, or there's a whole bunch of pressure for you to make rate. Absolutely have to make rate. So you do things like, okay, can you scan for me while I run to the bathroom? That kind of thing. And I'll scan for you when you run to the bathroom so we're coming closer to making a rate each or something. I don't know how that would actually work logistically, but I'm not sure. So you see these kinds of stories out there. We have to make rate. There's a lot of pressure for us to be as productive as we possibly can. Then we have other jobs like I had in the summers when I was in college. So I was working in, it's kind of a manufacturing sort of facility, but we didn't make things. We were washing floor mats. That's what the business was. We rented out the kind of floor mats you see downstairs by all of the entry doors. So we actually owned those, but then rented them out to different companies and we sent out trucks that would go and pick these up, bring them to the facility that I worked in. We'd throw them into industrial washers, industrial dryers, sort them out and send them back out. So that was what we did. And I can assure you that when I worked there in the summer, we were not over the entire course of, I had generally a seven hour shift. I wasn't working that entire time, right? There was a lot of slacking that went on. This is actually, there was some dishonesty that had to go on to cover that up because they asked us for productivity numbers. So a lot of my colleagues would, a lot of my colleagues would do things like, how many mats did I put away? A thousand, right? They were actually counting. They just came up with the number they knew would hit the numbers they needed to hit, right? So there was a lot of slacking. We spent a lot of time just sweeping the floor waiting for another truck to come, right? This sort of thing. Lots of very unproductive time was built into this. And that wasn't something that was unexpected from the employer. What they really wanted was for us to be there when the truck got there, right? So we could work when it came. And we could work at our own pace as long as things were ready to go when it was time to go. There were enough of us that we didn't have to work extremely hard. So there was this choice, right? Are we going to choose a job like at Amazon which will pay more but they ensure right through their system that I'm extremely productive or am I going to take a job like I had, right? Where I don't have to work so hard, right? But I don't get paid as much, right? So these types of choices we'd expect to be out there actually in a free market economy where we'd have some employers develop a reputation for actually allowing some degree of slacking but they don't pay very well. Others have a reputation for paying very well but you better be working when you're there. What does the minimum wage do then? It eliminates one of these types of jobs. Now, does that mean that I get fired? Probably not. Instead what happens is that now my supervisor is breathing down my neck, right? You shouldn't be sitting now, it's not your break. Come on, let's get work, work, work, work, work, right? We need to be working. In fact, we do have evidence of this going all the way back to 1915 of this type of thing happening with effort requirements. So 1915, we did not have a national minimum wage at that point but Oregon passed a minimum wage law at the state level. Reports from that time were that since the minimum wage passed workers were, and this is a quote, under constant pressure from supervisors to work harder. And not only that, supervisors specifically cited the minimum wage law as the reason they had to work harder. You have to make up for that increase in pay. And more recently we do have some evidence from one of the difficulties is finding something where we can measure changes in productivity at kind of the worker level really easily. And one place we can do that is looking at agriculture workers that do things like fruit picking. So how much fruit do they pick within a particular day? And we do have more recent evidence that when you look at fruit pickers, after there's an increase in the minimum wage, suddenly they become more productive, right? So what's happening? We have this managerial pressure. We've transformed, so it's not, we lose the job that was low productivity, low pay. We just transform it into the other type of job. Now, I will confess I picked the kind of job I have because I kind of like to relax and kind of lazy. And I don't have a lot of pressure from my supervisors because I don't deal with stress that well, right? So there's a certain mental health aspect here, right? And that people are going to self-select and now suddenly people, I may be paid more but I have all the stress that I have to deal with because I have my manager breathing down my neck the entire time, right? So we've changed the type of job that I have even if I didn't lose my job. We also have other possibilities. So things like how nice is the environment in which you're working, right? So if you're working in the kitchen in McDonald's, right? Do they keep the air conditioning running for you? It's to keep comfortable, right? Maybe they do, maybe they don't, right? If they don't have to pay you as much it's much more likely that they're going to keep things comfortable so you don't quit, right? On the other hand, if they have to pay you more, all right, suddenly the job becomes less pleasant perhaps in that way. Or another possibility is to think about who is that's in control of the schedule, right? Do you as the worker get to decide when you work, right? Or is that driven by your employer, right? So going back to that $5 per hour person maybe the reason that they're so unproductive is because they have to take care of their kids so they have these really weird hours that they're available that just are not very productive for the business in question. So yes, I can work for the McDonald's between the hours of two and four, right? Not a whole lot of business happening then, right? So now if I'm allowed to pay you a low enough wage it still might be worthwhile to hire you to do this. And we know that often flexible hours are something that we do see employers advertise. I just saw this last night. A group of us, the faculty went to Vendatori's a restaurant out toward Opelika. And I noticed that, oh, now hiring, this is not a surprising sign, but they specifically list flexible days and hours. That's a selling point for the job, right? Okay, so we're going to give you some control of your schedule, interesting. Trying to attract people into having this job. So worker-driven schedules might, you might suffer in terms of productivity, but we can offset that with low pay. On the other hand, what happens then when a minimum wage comes in? Now I can't tolerate this worker-driven schedule where you're working these crazy hours that doesn't make sense from the business's perspective. Instead, what I need you to do is come in and work from 11 to once, you hit the lunch rush, then go home, come back from four to seven so you hit the dinner rush, and then go home, and then come back from 10 to 11 so you can shut things down, because you're really good at that, and then go home and then come back to open up the restaurant the next morning. Now, okay, I'm being extreme here. But we can understand, the employer now is going to start thinking more, but I have to make sure that you are productive enough, and that might mean that I have to take control of your schedule before I let you have more control. So we change the nature of the job. So then just kind of wrapping up what the last minute I have here. So what kind of effects can we see just to summarize? So the types of harms that come from the minimum wage, sometimes yes, we do see those employment effects, the Econ 101 story is in fact true, and does show up at times, but it's not the only part of the story. There are other parts as well. We do actually see losses of benefits. We do actually see a loss of worker control of your schedules and the amount of effort that you want to put in. All of these things I suggest would make minimum wage workers worse off. It's not good for your mental health, it's not good for you trying to plan the rest of your life, for you to lose control of your schedule. And then economy-wide, we also have effects. The reallocation of high-skilled labor away from whatever it was doing before to now take the place of low-skilled labor that has become unemployable. The reallocation of capital from whatever it was doing before now replaced that low-skilled labor so we now have a kiosk that I can order on instead of talking to a real person. And the decrease of capital accumulation that comes from it just not being that profitable for us to operate anymore. So I think all of these effects are certainly reasons that we can still oppose the minimum wage even if we accept, we can eliminate one of those. Okay, suppose that there is no employment effect. We still have real harms happening to those people earning the minimum wage and also to the economy as a whole. Thank you.