Opinion Editorial | |
| Monday, April 19, 1999 | |
New Evidence Shows Minimum Wage Hikes Increase Unemployment |
Press reports indicate that Republican congressional leaders are sympathetic to increasing the minimum wage again this year. Democrats are pressing for a $1 increase from $5.15 to $6.15, arguing that the last increase from $4.25 to $5.15 had a negligible impact on unemployment. However, while the national unemployment rate has indeed declined, that for black teenage males remains unacceptably high. The latest economic research continues to blame the minimum wage for much of this unemployment.
In 1948, before the minimum wage was widely effective, the unemployment rate for black teenage males was just 9.4 percent -- actually lower than that for white teenage males. Last month, the unemployment rate for black teenage males was 32.9 percent. The rate for white teenage males was about one-third that rate. A Wall Street Journal article noted that the unemployment rate for black teenage males would be even worse except for the large number of them in prison or otherwise out of the labor force.
Before 1995, it was conventional wisdom among economists that increases in the level and coverage of the minimum wage had contributed heavily to minority unemployment. A standard rule of thumb was that each 10 percent rise in the minimum wage caused teenage employment to fall by between 1 percent and 3 percent. But this conclusion was challenged by two economists, David Card and Alan Krueger, who argued that small increases in the minimum wage had no effect on unemployment and could actually raise employment. The Clinton Administration cited the Card-Krueger study heavily in pushing a higher minimum wage through a Republican Congress in 1996.
In a new study, economists Richard Burkhauser, Kenneth Couch and David Wittenburg review the evidence from the latest minimum wage increase and find that the old conventional wisdom still holds. The Card-Krueger results, it seems, do not stand up under rigorous statistical tests. Burkhauser, Couch and Wittenburg found that the 1996-97 minimum wage rise led to a decline in teenage employment in the range of the earlier consensus. "The preponderance of the evidence suggests that minimum wage increases are associated with significant but modest employment losses for teenagers," they conclude.
In a study published by the Federal Reserve Bank of San Francisco, Kenneth Couch translated these conclusions into raw numbers.
Even in a growing economy, this is a high cost to pay.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, April 16, 1999.
For Crouch study text http://www.frbsf.org/econrsrch/wklyltr/wklyltr99/el99-06.html
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