Minimum wage rise results in job cuts
by Pete du Pont
July 04, 2004
The Myrtle Beach Sun-News
Raising the minimum wage is back. Presidential candidate Sen. John Kerry, D-Mass., has announced his intention to increase the minimum wage from $5.15 an hour to $7 an hour by 2007. This latest proposal follows an earlier plan by Sen. Ted Kennedy, D-Mass., to boost the minimum wage as part of an amendment to welfare reform reauthorization.
Even Republicans are putting together their own minimum wage proposals, largely to diffuse a potentially hot issue in the November election.
Kerry and others stress the tangible benefits of higher wages but ignore the indirect harm imposed on others when they are achieved by government regulation. Indeed, there are few issues on which economists have reached a greater consensus: The minimum wage kills jobs.
Sadly, minorities bear the brunt of this impact. The unemployment rate for blacks is 9.7 percent, about double the rate for whites. Historically the unemployment rate for blacks has closely paralleled changes in the real minimum wage.
The job-killing impact of the minimum wage also is prominent among teenagers, a demographic group that holds about 40 percent of all minimum-wage jobs. Research overwhelmingly confirms an oft-cited 1981 estimate by the congressionally mandated Minimum Wage Study Commission that teenage employment declines by 1 percent to 3 percent for every
10 percent increase in the minimum wage.
The reason for this deleterious effect on employment: When employers are forced to pay someone more than their productivity warrants, they tend to reduce the number of individuals they hire. New hires and lower-skilled workers are the most expendable because they are generally the least productive.
This wouldn't be so negative if the poor - the purported targets of the minimum wage - actually benefited from this kind of legislation. According to Census Bureau figures, 65 percent of working-age people in families with incomes less than $10,000 don't have a job. These individuals don't have low incomes because of low wages but because of no wages. In fact, 80 percent of those helped by the minimum wage live in families that are not poor.
Also, low-paying work and poverty tend to be temporary conditions. Census data show about two-thirds of the lowest-income earners move up at least one income bracket in a 10-year period.
Thus, the goal should be to foster conditions that create jobs and encourage income mobility. Entry-level jobs at lower pay give unskilled workers an opportunity to learn new skills and a chance to move up the economic ladder.
Unfortunately, raising the minimum wage doesn't help the unskilled climb the economic ladder. By discouraging job creation, the minimum wage puts the ladder out of their reach. Nevertheless, policy-makers push for minimum wage increases because it gives the perception they are fighting poverty without spending taxpayer money.
Rest assured, a higher minimum wage may score political points for politicians such as Kerry and Kennedy, but the poor and unskilled will end up paying for them.