NCPA - National Center for Policy Analysis

Research Confirms Ill-Effects Of Minimum Wage Increases

May 5, 1999

Congress will probably raise the minimum wage this year, from $5.15 to $6.15 over three years. It is too bad there will be no real debate on the efficacy of raising the minimum wage, since almost all economic research continues to show that it has extremely harmful effects on the poor.

Highlights from the latest academic studies:

  • Labor economists estimate on average that a 10 percent rise in the minimum wage will reduce youth employment 2.1 percent, according to a survey in the September 1998 Journal of Economic Literature, published by the American Economic Association.
  • For those earning less than the new minimum, the impact is much greater -- for example, before the 1996 increase from $4.25 to $5.15, 74.4 percent of workers ages 16 to 24 earned more than $5.15, 4.3 percent were exempt and 21.3 percent earned the minimum or slightly more.
  • Employment losses among the last group -- according to economists David Neumark, Mark Schweitzer and William Wascheris -- are 10 percent for each 10 percent rise in the wage.

Furthermore, increases in the minimum wage add almost nothing to the incomes of poor families, since employment losses reduce the incomes of some workers more than higher wages increase the incomes of others.

Most of those affected, especially teenagers, live in families that are not poor. 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, and almost half went to families with incomes more than 3 times the poverty level.

Neumark and Wascher also found that a higher minimum wage causes employers to reduce on-the-job training, encourages students to drop out, and displaces low-skilled adults who become long-term unemployed. Student dropouts, of course, face lower lifetime earnings due to lack of education and skills.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 3, 1999.


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