Wednesday, November 25, 2009

One Minimum Wage Increase With a Side of Fries, Please

Copyright, The New York Times Company

Economists have debated the employment effects of the minimum wage. A recent study of obesity now weighs in on this debate.

Many economists expect the minimum wage, if it has any effect, to (among other things) raise employer costs and therefore reduce employment, especially among people who are likely to work in minimum wage jobs like teenagers and restaurant workers.

However, inspired by a study of a 1992 minimum wage increase in New Jersey, some economists have suggested that minimum wages can increase employment, by helping to cure pre-existing problems in the labor market. In their view, a higher minimum wage could increase employment and output at employers of low-wage workers, and a lower minimum wage would reduce them.

The typical example is a fast-food restaurant.

The minimum-wage-cures-labor-markets view says that a higher wage level causes fast-food restaurants (like other employers of low-wage workers) to hire more workers, produce more fast food and sell more fast food.

More fast food sold also probably means more obesity. Thus, if the minimum-wage-cures-labor-markets view was correct, a higher minimum wage would, all things being equal, probably result in higher obesity rates.

More conservative economists would argue, though, that high minimum wages restrict employment by fast-food restaurants, which means less fast food produced, which means less obesity.

In other words, the traditional economics view implies a lower minimum wage would, all things being equal, result in more obesity.

As you may know, Americans have indeed been getting more obese over the last couple of decades, with increased consumption of fast foods contributing to that enlargement. During most of that period, the inflation-adjusted federal minimum wage had been falling.

A recent study by the researchers David Meltzer from the University of Chicago and Zhuo Chen from the Centers for Disease Control and Prevention now finds that low inflation-adjusted minimum wages are partly to blame for increased obesity.

If their study is correct, it suggests that a higher minimum wage indeed reduces employment and output at fast-food restaurants, and makes it a bit easier for Americans to adopt healthier eating habits.

As with any new study, time is needed to digest the methodology and results, and integrate them with the previous literature. But expect the fight against obesity to weigh in on the debate about low-wage labor markets.

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