When 2018 turned into 2019, the minimum wage in New York rose to $15 per hour. Now the New York Times reports that “Fast Food Workers Now Battle Unfair Firings.” The Times discusses several examples of people who were dismissed for what look like small offenses. These firings aren’t inexplicable or arbitrary. They are the predictable consequence of a binding minimum wage in a competitive labor market.
How? First, according to the very simple version of the labor market economists teach in introductory economics courses, a minimum wage raises quantity supplied and reduces quantity demanded. The minimum wage, therefore, reduces employment. It’s a robust thesis with ample empirical support from (for example) University of California-Irvine economist David Neumark and Texas A&M University economist Jonathan Meer, both of whom are affiliated with the National Bureau of Economic Research.
The firings documented by the New York Times illustrate another hidden cost of minimum wages that goes beyond the disemployment effect. Indeed, Meer and his coauthors have explored parts of this empirically, and I discussed some of their work on this issue last year: minimum wages change how workers are compensated. Even if no one is fired immediately, workers can still be made worse off.
Workers do not live on wages alone. Think of all the things that go into a job. There are fringe benefits, for example, like health coverage, stock purchase programs, and incentive pay. The AP reported in October that when Amazon loudly raised the minimum it would pay to $15, it more quietly cut a lot of other kinds of compensation. Some jobs are fun and rewarding (like being an economics professor). Other jobs pay relatively little but offer great work-life balance and a lot of schedule flexibility. Low wage jobs—like some of the jobs I held as a teenager—offer a lot of opportunities to build skills and, in some cases, to make mistakes without consequences that are too dire.
A minimum wage, however, restricts the variety of arrangements to which employers and employees might agree. In a competitive market, requiring workers to take higher wages means getting rid of some of the other things that would have made the job attractive. These might include things like free meals and uniforms. It might also include flexibility with one’s schedule and forgiveness when one has to miss a shift.
The Times reports on the case of Princess Wright, a student a few months from graduation, who was fired from a Brooklyn McDonald’s where she has worked since 2014 after she missed a shift. According to the Times, “she had called several hours in advance of a scheduled shift to tell her boss that she was staying home to help her landlord out of a jam by babysitting.” Her employer “cited some tardiness that she said resulted from conflicts with her classes at Mercy College” in her dismissal.
At lower wages, we would expect firms to be a little more forgiving. As a teenager in 1993, I earned $5 an hour. Adjusted for inflation using the Consumer Price Index, that’s around $8.50 an hour today. New York City’s minimum wage was $13 an hour in 2018, and it rose to $15 an hour in 2019. For $8.50 an hour, firms might be willing to put up with a bit of uncertainty as to whether a worker will always show up on time or always cover shifts. For $13 an hour—and now $15 an hour—it isn’t that surprising that fast food restaurants prefer to dismiss people who ask for periodic scheduling accommodations. Or maybe they don’t hire them in the first place and instead replace them with people who are willing to make sacrifices and endure all sorts of stress and inconvenience. This, incidentally, is exactly what the supply-and-demand model economists teach in introductory economics predicts.
As the economist David Henderson has put it, “(s)omeone who intentionally gets you fired is not your friend.” While I very much doubt that a lot of minimum wage advocates wake up in the morning intending to get New York City fast-food workers fired, her dismissal is a predictable consequence of the minimum wages and other regulations they advocate.