Opinion Editorial | |
| Wednesday, May 5, 1999 | |
Research Confirms Ill-Effects Of Minimum Wage Increases |
Press reports indicate that Republican leaders in Congress have all but conceded that there will be an increase in the minimum wage this year, probably raising it from $5.15 to $6.15 over three years. The only thing left is for them to decide is what sort of face-saving amendments can be added to the legislation in order to minimize the impact on small businesses. Republican leaders are said to be considering a variety of tax breaks and labor law changes.
It is too bad that Republicans have chosen to forego any real debate on the efficacy of raising the minimum wage. The fact is that the vast bulk of economic research continues to show that the minimum wage has extremely harmful effects on the very people it is designed to aid; i.e., the poor. Following are highlights from the latest academic studies.
The minimum wage unambiguously reduces employment. The September 1998 issue of the Journal of Economic Literature, an official publication of the American Economic Association, contains a survey of labor economists on the employment effects of the minimum wage. When asked to estimate the impact of raising the minimum wage, the average effect was estimated at minus .21 percent, meaning that a 10 percent rise in the minimum wage will reduce youth employment by 2.1 percent. This would seem to put to rest any notion that economists have changed their view that in general higher minimum wages reduce employment.
The impact on teenagers and the poor is disproportionate. The minus 2.1 percent figure is an overall impact. For those currently earning less than the new minimum wage, the impact is much greater. For example, before the last increase in the minimum wage in 1996, from $4.25 to $5.15, 74.4 percent of workers between the ages of 16 and 24 already earned more than $5.15, and 4.3 percent were legally exempt from the minimum wage law. Thus the employment losses were concentrated among the 21.3 percent of workers making the minimum wage or slightly more. When one attributes total employment losses entirely to this group, it turns out that the employment loss figure is not minus .21 percent, but minus 1.0 percent, according to economists David Neumark, Mark Schweitzer and William Wascher. This means a 10 percent rise in the minimum wage reduces employment by 10 percent.
Increases in the minimum wage add almost nothing to the incomes of poor families. There are two reasons for this. First, employment losses reduce the incomes of some workers more than the higher minimum wage increases the incomes of others. Second, the vast bulk of those affected by the minimum wage, especially teenagers, live in families that are not poor. Thus a study by economists Richard Burkhauser and Martha Harrison found that 80 percent of the net benefits of the last minimum wage increase went to families well above the poverty level. Almost half the benefits went to those with incomes more than 3 times the poverty level. (The poverty level is about $17,000 for a family of four.)
The minimum wage reduces education and training and increases long-term unemployment for low-skilled adults. Neumark and Wascher found that higher minimum wages cause employers to reduce on-the-job training. They also found that they encourage more teenagers to drop out of school, lured into the labor force by wages that seem high to them. These teenagers often displace low-skilled adults, who frequently become semi-permanently unemployed. Lacking skills and education, these teenagers pay a price for the minimum wage in the form of lower incomes over their entire lifetime.
Whatever the political realities may be, raising the minimum wage is still a bad idea. Republicans should at least say so before conceding the inevitable.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 3, 1999.
For a Bibliography of Some Recent Minimum Wage Studies go to http://www.ncpa.org/hotlines/min/minwagbib.html
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