Paul Krugman tells us all that the liberals (actually, the statists, not the liberals in the sense I would use but…) are right about the minimum wage. We can indeed raise it without jobs being lost, at least not to any great extent. It is, of course, entirely possible to argue with this conclusion, as something like more than half the literature on the minimum wage does argue with it. There’s enough of said literature that says that modest raises in the minimum wage have modest effects on employment, so that’s a supportable position even if not one that I’m persuaded by (and Krugman appears to be). What there isn’t is any room for thinking that large raises in the minimum wage won’t have large effects. Nor that actually, labour isn’t a good like any other, with a downward sloping demand curve, which is what Krugman really does seem to be arguing:
Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment. But they found, if anything, a positive effect. Their result has since been confirmed using data from many episodes. There’s just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.
How can this be? There are several answers, but the most important is probably that the market for labor isn’t like the market for, say, wheat, because workers are people. And because they’re people, there are important benefits, even to the employer, from paying them more: better morale, lower turnover, increased productivity. These benefits largely offset the direct effect of higher labor costs, so that raising the minimum wage needn’t cost jobs after all.
The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages.
That’s really not a reasonable reading of that academic literature. That there might be minor costs to raising the minimum wage, ones that are outweighed by those increased incomes, could be, but that really is a dangerous flirtation with the idea that there are no costs at any level of said minimum wage rise. However, we can in fact leave that almost theological debate to one side and point to another part of Krugman’s column to show that this contention simply isn’t so:
The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages. But there are broader implications, too: Once you take what we’ve learned from minimum-wage studies seriously, you realize that they’re not relevant just to the lowest-paid workers.
For employers always face a trade-off between low-wage and higher-wage strategies — between, say, the traditional Walmart model of paying as little as possible and accepting high turnover and low morale, and the Costco model of higher pay and benefits leading to a more stable work force. And there’s every reason to believe that public policy can, in a variety of ways — including making it easier for workers to organize — encourage more firms to choose the good-wage strategy.
Well, OK, let us imagine exactly that case. What would happen if Walmart were to move to the Costco labour model? Well, the most obvious outcome would be that 700,000 people would lose their jobs at Walmart. Which is, I think you’ll agree, a fairly large result and one that casts a certain amount of doubt on the idea that raising wages has no unemployment effects.
The logic and numbers are laid out here:
At which point here’s a few fun numbers culled from the recent annual reports. WalMart has some 1.3 million US associates. WalMart US sales are some $280 billion (as ever with numbers here we’re not trying to be accurate, just within range of accuracy). $215,000 in sales per member of the (non-management) workforce then.

Costco doesn’t seem to break out US sales in quite the same manner but total sales are $102 billion and 451 of 634 stores are in the US. Assuming, incorrectly but possibly accurately enough, that sales are equal per store whatever the geography we can then say that US sales are 451/634 x 102 billion. $73 billion then: and they’ve 184,000 employees, of whom we’ll assume the same portion are in the US. 451/634 x 180,000 is 130,000. That’s $560,000 in sales per member of the workforce.
The number of part timers to full timers is not greatly different between the two companies. And even if it were we’ve a big enough difference here to make it obvious what is going on.
Costco gets more than twice the sales per member of staff than WalMart does. Another way of saying this is that Costco uses its staff more productively. A third way to say the same thing is that Costco is an intensive user of labour and WalMart is anextensive user of labour.
 There’s nothing wrong with either business model either. Not in business logic, not in theory nor even in morality is there anything wrong with either of them.
However, it’s not possible to mix and match the two business models. You cannot double the pay for the WalMart workers, maintaining the same number of them, and still be hitting the same selling price points that Costco has. Nor, of course, could Costco double the number of people it employs at those $20 an hour and up wages and still maintain either its own prices or profit margins. It’s very much an either or set there, you can have less and better paid labour or you can have more and worse paid.
If Walmart were to adopt that Costco labour model in regards to wages then it will also adopt that same model with regard to the amount of labour that it employs. And that’s where the 700,000 jobs losses come from: Walmart reducing the number of people it employs as it concentrates on raising the productivity of what it does employ. Those numbers are a couple of years old now but that logic does still stand.
And given that it does still stand it’s also not true that intervening in the labour market to push employers towards that good-wage strategy does not have employment effects. So the general contention being put forward, that higher wages won’t mean job losses, is simply incorrect, incorrect as a result of one of the very examples we’re supposed to admire of the contention itself.