Minimum Wage: How government kills real jobs
Published 12:00 am Tuesday, July 6, 2004
Raising the minimum wage is back.
Presidential candidate Senator John Kerry (D-MA) 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 Senator Ted Kennedy (D-MA) to boost the minimum wage as part of an amendment to welfare reform reauthorization.
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It’s unlikely that the amendment will be adopted, but Kennedy has vowed to attach the minimum-wage measure to every bill that hits the Senate floor.
Proving that minimum wage is an equal opportunity crowd pleaser, 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 completely 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.
Before such policies were enacted in the 1930s, unemployment rates among whites and nonwhites were virtually identical — slightly under 6 percent — according to census data spanning three decades.
Today, 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 is also 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 to 3 percent for every 10 percent increase in the minimum wage.
Teenagers already suffer from high unemployment, with about one in six being out of work.
The reason for this deleterious effect on employment is straightforward: 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.
Of course, layoffs don’t necessarily occur en masse because of the minimum wage. Employers try to absorb higher labor costs by increasing prices, reducing non-wage benefits, cutting on-the-job training, and raising job requirements.
But over the long-run, job creation stagnates because businesses are slow to expand when wage costs are higher.
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 individuals 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 over a 10 year period.
Fewer than 3 percent of all minimum wage workers remain in such jobs for their entire lives.
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, policymakers push for minimum wage increases because it gives the perception they are fighting poverty without spending taxpayer money.
Such policies also net the support of organized labor because they raise the cost of hiring low-skilled workers which tends to protect higher priced union jobs.
Rest assured, a higher minimum wage may well score political points for politicians like Kerry and Kennedy, but the poor and unskilled will end up paying for them.
Pete du Pont is Policy Chairman of the National Center for Policy Analysis and is former Governor of Delaware.