Monday, July 17, 2017

About That Danish Minimum Wage Study

On the heels of the debate about the specious Seattle minimum wage study, a new Danish study is currently making headlines.  Denmark has a de facto minimum wage (set by collective bargaining) of over $20/hour, or about $14.50/hour when adjusting for purchasing power parity.  That is the rate for adults 18 and over.  Prior to that age, the de facto minimum wage is significantly lower, and suddenly jumps by 40% upon turning 18.   The researchers did a regression discontinuity design to determine what effects on employment that would have, and they found a 33% drop in employment within the first month after turning 18.  And it apparently takes a full two years for the employment rate to fully recover to what it was just prior to one's 18th birthday.

So what do we make of this finding?   This study actually leaves the reader with more questions than answers.  One should note that age discrimination in employment is illegal in Denmark, with one exception:  it is in fact perfectly legal to fire someone upon turning 18 in order to avoid paying the higher minimum wage.  Yes, really.  Thus, it doesn't take a rocket scientist to see how that creates a powerful incentive to preferentially hire 16 and 17 year olds temporarily, use them up, and throw them away like so much garbage upon turning 18.

However, this study does not actually prove that a higher minimum wage is a bad idea overall.   The biggest takeaway from this study is that age discrimination is a bad idea across the board, not that the minimum wage is too high.  So close the goddamn loophole in the age discrimination law.  And if they still see a need to set the minimum wage lower for workers under 18, at least make it graduated and less of a difference from the adult minimum wage.

For example, the TSAP party platform calls for the minimum wage in this country to be raised to $15/hour for all workers over 18, with the minimum wage for workers under 18 set no less than 80% of the adult minimum wage (i.e. $12/hour), on a sliding scale rather than one sudden and sharp jump. And it should go without saying that firing someone upon turning 18 (or any age, for that matter) just to avoid paying them a bit more should be illegal, period.  As this latest study shows, caveat lector, anything less is basically asking for trouble.

No comments:

Post a Comment