Opinion Editorial

Monday, January 26, 1998  

A Higher Minimum Wage?

Tomorrow, President Bill Clinton gives his State of the Union address. Among the initiatives he is expected to offer is an increase in the minimum wage. Congressional Democrats have been pushing the White House to raise the minimum wage by 50 cents per year for the next three years, raising it to $6.65 by the year 2000 (see figure). If President Clinton asks for a higher minimum wage, he undoubtedly will argue that the 1996 increase from $4.25 to its current level of $5.15 had no impact on unemployment.

To be sure, the national unemployment rate shows no indication of having risen in response to a higher minimum wage. However, this is not true for all segments of the population.

Historically, the main impact of the minimum wage has been on black teenage males, and this continues to be the case.

  • In September 1996 the unemployment rate for this group was 36.6 percent.

  • After the minimum wage rose from $4.25 to $4.75 on October 1, 1996, their unemployment rate jumped to 38.6 percent and to 41.1 percent in November 1996.

A similar jump in unemployment occurred last year as well, when the minimum wage rose from $4.75 to $5.15 on September 1, 1997.

  • In August, the unemployment rate for black teenage males was 33.9 percent.

  • In September their unemployment rate leaped to 37.6 percent.

  • As of December, the unemployment rate for black teenage males was still above its pre-increase level at 36.2 percent. (All of these data are available from the Bureau of Labor Statistics at http://stats.bls.gov.)

Unemployment, however, is only part of what is wrong with the minimum wage. A number of studies have shown that increases in the minimum wage lead employers to cut back on work hours and training. When people are priced out of legitimate jobs, many turn to crime or jobs in the underground economy. The minimum wage encourages the hiring of illegal aliens because they are less likely to report violations of labor laws. It has also been blamed for welfare dependency by making it harder for those on welfare to find legitimate jobs. And the minimum wage has been found to encourage high school dropouts.

Even supporters of the minimum wage must admit that it is very badly targeted. For example, a recent study from the union-backed Economic Policy Institute shows that 60 percent of the benefits of the 1996 minimum wage increase went to middle class and wealthy families. The reason is because many of those benefiting were teenagers and secondary workers living in well-to-do families. At a minimum, this shows that the poor benefit from the minimum wage much less than is commonly believed.

Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), January 26, 1998.

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