It’s been a recurring theme in my posts – unintended consequences. I find the topic fascinating because the unintended consequence is usually something I would have never thought of.
- A couple of weeks ago I wrote about a possible downside to peace – the destruction of rainforests.
- I’ve also written about the unintended consequences of a drop in the crime rate – the closing of prisons in small towns that rely on the prison for jobs and the economic benefits associated with people in a small town having a job.
- I also wrote about the unintended consequences of winning – it can elicit future unethical behavior.
- One post looked at what is known as the Charity Paradox. While most people would assume that charitable giving is a good thing, the enormous amount of such giving to many developing countries such as Haiti has created harmful distortions in the local economy because when what would otherwise be traded or produced by Haitians is given away, it drives entrepreneurs out of business.
- Finally, one of my earliest posts looked at the disconnect between using incentives to reward certain behaviors, and what behavior may actually result.
The most recent example was an editorial in the Wall Street Journal that looked at the potential downside to increasing the minimum wage.
The editors at the WSJ ask if it is merely a coincidence that New York City’s full-service restaurants have fallen into a jobs recession at the same time the minimum wage has risen from $11 per hour to $13 per hour to $15 per hour over the past couple of years.
The editors note that January employment in New York City restaurants dropped 3.7% year over year, even as overall city employment is up around 2% year over year.
A team of researchers at the University of Washington found that when politicians arbitrarily set the price of labor, young workers without skills can be locked out of the job market.
In a more recent National Bureau of Economic Research working paper posted last month, three economists examined whether minimum-wage increases had any effect on crime from 1998 to 2016. “We find robust evidence,” they write, “that minimum wage hikes increase property crime arrests among teenagers and young adults ages 16-to-24, a population for whom minimum wages are likely to bind.”
The economists go on to say that “our estimates suggest that (a nationwide $15 minimum wage mandate) would generate over 410,000 additional property crimes and $2.4 billion per year in additional crime costs.”
So while I have seen arguments against the minimum wage hike for other reasons that are a bit easier to recognize, I would have never thought of a higher minimum wage leading to higher rates of crime.
While it’s just one research paper, if you think about it, you can see the logic for such an argument.
I’ll be curious to see what happens in New York City as a result of these minimum wage hikes.
Apparently, as all of these examples suggest, there’s some truth to that old saying, “no good deed goes unpunished.”
*image from Identity Specialist
4 thoughts on “Add One More to My Growing List of Unintended Consequences”
Have you read much about Australia’s use of minimum wage being based on your age? It’s always sounded interesting to me but I never looked into the economics of it.
I have not heard about that; sounds like a clever approach.
History of Unintended Consequences Dating Back to John Locke — https://en.wikipedia.org/wiki/Unintended_consequences#History
Examples of Unintended Consequences — https://en.wikipedia.org/wiki/Unintended_consequences#Examples
All those lottery winners who go broke
Tragedy of the Commons (think free medical care) — https://en.wikipedia.org/wiki/Tragedy_of_the_commons
Unintended Externalities (called non-convexities in mathematical programming) — https://en.wikipedia.org/wiki/Externality
Price Controls in Venezuela (suddenly shelves were bare)
Imposing 70% income taxes on physicians and then wondering why there’s growing shortage of them
Capitalism in communist China results in all those venture capitalist billionaires — https://en.wikipedia.org/wiki/List_of_Chinese_by_net_worth
Income Equality in Cuba
Why did Cuba abandon its socialist/communist dream of equality for everybody?
The Guardian: This was the egalitarian dream of Cuba in the 1960s: For years in Cuba, jobs as varied as farm workers and doctors only had a difference in their wages of the equivalent of a few US dollars a month.
Bob, thanks for all of these great links!
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