Minimum wages and the manufacturing sector

The discourse on minimum wages and policy opinions around it are likely going to become more pronounced as the upcoming US presidential election nears. The two sides of the camp are essentially for and against a hike in minimum wages, or their presence at a national level. Recently, the Democratic Party candidate Senator Bernie Sanders announced that a national $15 minimum wage is a part of his agenda.

A previous post on this blog talks about the negative impacts of hiking minimum wages. The essence of the argument is that increasing wages will increase the cost of production for a firm. Since labour will become costly, more producers will think about replacing it with capital, or rather, the use of capital to become more technologically sound and efficient.

The Cafe Hayek blog has some excellent discourse impact of minimum wages on the economy.

A recent article on Dismal Scientist has analysed the impact of increasing minimum wages from $15 on the manufacturing sector of the US economy.

The potential for lost jobs is particularly acute given that many manufacturers face global competition. If wages become too high in one place, it’s easier for a manufacturer, than say a restaurant, to relocate operations. After all, the huge decline in manufacturing employment in previous decades is in part a warning about the unsustainability of above-market wages in a globally competitive environment.

Despite the decline of manufacturing employment over the last few decades, low-paid manufacturing workers are still a significant part of the economy for some states. In Mississippi, 7.3% of all workers in the state are manufacturing workers who make less than $15 an hour. Losing many of these jobs would have a serious negative impact on the state.

Originally published at logiconomics.wordpress.com on September 1, 2015.