I spent part of this afternoon at my neighborhood Starbucks, where I was working on a project. As I finished up, I saw that I had a message from my wife asking me to swing by the store to pick up half a gallon of skim milk. No problem. I generally use self-checkout, but sometimes it’s a roll of the dice. This evening, I rolled the dice and lost: one of the checkout lanes malfunctioned as the person in front of me was using it, and the customers at the other self-checkout for which I was in line were having trouble with the bill acceptor. I ended up in a brief conversation with the gentlemen behind me. They were students at some of the local universities. I turned the direction toward economics and asked if they could explain our plight as a response to increases in the minimum wage.
The logic is as follows. When the price of anything rises, people search for substitutes. When governments pass laws that make low-skill labor more expensive, firms search for substitutes for low-skill labor. Some of these little bits and pieces of added cost include minimum wages, regulations on the hours that people can work, health care mandates, workplace safety regulations, and a ton of others. Firms search for substitutes, like self-checkout lanes (bonus: here’s Doug French on shadow labor).
What would the world look like if hiring low-skill labor were easier? First, people would have more and better service across the board, perhaps most especially at grocery stores and restaurants. Second, more people at the bottom of the skill distribution would be able to get their foot in the labor market door. As it stands, regulations on the low-skill labor market mean that the least of these among us have the door of opportunity slammed in their faces. Advocates of these interventions think they are redistributing resources from faceless “big business” to downtrodden workers. That isn’t what’s happening. Resources are being redistributed from some downtrodden workers to others.
Would easing the burden on the low-skill labor market mean an economic renaissance? Probably not. In aggregate, burdensome regulations on the low-skill labor market are paper cuts in the world’s largest economy. First, this doesn’t mean we should overlook the burden on the poor. Second, if you give a man enough paper cuts, he’ll bleed to death.