In the course of a long, thoughtful post on the complications involved in dealing with unemployment, Felix Salmon writes:
But if workers at places like Wal-Mart start being paid a decent living wage, that is surely a significant improvement on where we are now. And if we raise the minimum wage to a point where employees are less likely to quit and more likely to learn reasonably high-level skills, that will help get us to Richard Florida’s promised land. Without unions and minimum-wage laws, corporations compete on who can pay the least. With them, they compete on who has the best employees and they invest significantly in those employees. Which is exactly what we want, especially since raising the minimum wage is unlikely in and of itself to increase unemployment visibly.
A respectful quibble. How do we know that with a higher minimum wage, employers will "compete on who has the best employees" and "invest significantly in those employees"?
It seems just as possible that employers would react by doing one of the following, or some combination thereof:
- Hiring fewer workers and asking existing workers to do more (a tactic employers are more likely to get away with in an environment of sustained unemployment)
- Investing more in capital (whose price relative to labor obviously declines as the minimum wage increases) to help the company do the same work with fewer people
- Simply continuing to compete on price, even if the prices will be higher across the board as the increased minimum wage affects all employers in the same industry
These probably read like libertarian talking points. But my impression it that the issue of the minimum wage's impact on employment and wages is more sharply debated by economists than was implied in Salmon's post, though it's likely that the kinds of changes typically proposed by legislators are small enough to have only have a marginal effect.
Regardless, I've never seen the argument that employers react to higher minimum wages by increasing their investment in human capital. I'm not saying Salmon is wrong about any of this, but I'm genuinely curious to know what the evidence is for it.
UPDATE: Thanks to Felix for responding here.