Green Room

“The minimum wage for the self-employed is $0.00”

posted at 2:43 pm on February 25, 2013 by

My good friend King Banaian has returned to political and economic analysis after a well-regarded term in the Minnesota state legislature, and now writes at the American Experiment Blog.  Last week he tackled the minimum-wage debate and brought his expertise in economics to bear on the debate, but not without reminding us that the self-employed don’t have a minimum wage — and yet seem to do all right as long as they bring value to the transaction:

Still, an increase in minimum wages from $6.15 to $9.50 is a large increase.  By my estimate that total effect reduces teen employment by approximately 5.5%.  Other estimates could place that anywhere between 3% and 16%.  Some of this has already happened with the rising federal minimum wage.  This effect was not nearly as large as the unemployment of teens due to the Great Recession (teen employment fell from 165,000 in 2005 to 108,000 in 2009) but the rise in the minimum wage did not help.

In Minnesota 93,000 workers made the minimum wage in 2011.  32,000 of them are teenagers, of which 29,000 work part-time.  The number of workers who work at the minimum wage full-time and are over age 24 is only 18,000 of that number (there are almost 2.5 million workers in Minnesota.)  According to a 2007 CBO study, workers below 200% of the family poverty guidelines receiving higher wages due to a minimum wage increase only received 44% of the total rise in wages; the rest went to those above 200% of the family poverty guidelines.

A decline in employment, if true, is a serious issue for those with low skills.  Teens, particularly those from difficult circumstances, must find ways to signal employers that they have the skills needed to hold jobs.  Often those involve little more than courtesy, punctuality, the ability to make change, to work with others, etc.  Teens take low wages to gain that opportunity, and they are frustrated by higher minimum wages.  The employer will be less likely to “take a chance” on a young person, the higher the wage that must be paid.  That loss of experience may lead to lower wages throughout the rest of that teen’s life.

Moreover, the wage is only one feature of an employment contract.  Stricter discipline is possible on almost any job that makes it less enjoyable for the employee.  So too could work conditions change, such as fewer coffee breaks, less heating and air-conditioning, buying your own uniform, fewer vacations and fringe benefits.  Employers will seek workers who are willing to tolerate worse working conditions.  Competition still pushes the value of the job down, even when that is not expressed by wages.  Workers who do not want these worse conditions either must find work in industries uncovered by the minimum wage or work for themselves.

The minimum wage for the self-employed is $0.00.


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