by Richard B. McKenzie
National Center for Policy Analysis
April 15, 2014
Both proponents and opponents of federal minimum-wage hikes are convinced that if Congress raises the minimum wage the welfare of tens of millions of low-income workers will rise by a comparable amount. Those in favor of a minimum-wage increase are willing to accept minor employment losses—between 1 and 3 percent—for the few in exchange for income gains for the many. But this view fails to recognize that there are many other forms of employee compensation beside wages. The competition among employers and workers will not disappear with a wage increase but will merely be redirected into the components of compensation packages not covered by the wage mandate. Wage floors, therefore, restrain competitive pressures in only one way. With a minimum-wage increase, employers will move to cut labor costs in other areas, likely by reducing fringe benefits and/or increasing work demands.