New study: raising minimum wage hurts young, minority workers most

This report is from the libertarian Cato Institute.

Except:

A new working paper from the National Bureau of Economic Research finds that significant minimum wage increases can hurt the very people they are intended to help. Authors Jeffrey Clemens and Michael Wither find that significant minimum wage increases can negatively affect employment, average income, and the economic mobility of low-skilled workers. The authors find that significant “minimum wage increases reduced the employment, average income, and income growth of low-skilled workers over short and medium-run time horizons.”  Most troublingly, these low-skilled workers saw “significant declines in economic mobility,” as these workers were 5 percentage points less likely to reach lower middle-class earnings in the medium-term. The authors provide a possible explanation: the minimum wage increases reduced these workers’ “short-run access to opportunities for accumulating experience and developing skills.” Many of the people affected by minimum wage increases are on one of the first rungs of the economic ladder, low on marketable skills and experience. Working in these entry level jobs will eventually allow them to move up the economic ladder. By making it harder for these low-skilled workers to get on the first rung of the ladder, minimum wage increases could actually lower their chances of reaching the middle class.

Most of the debate over a minimum wage increase centers on the effects of an increase on aggregate employment, or the total number of jobs and hours worked that would be lost. A consensus remains elusive, but the Congressional Budget Office recently weighed in, estimating that a three year phase in of a $10.10 federal minimum wage option would reduce total employment by about 500,000 workers by the time it was fully implemented. Taken with the findings of the Clemens and Wither study, not only can minimum wage increases have negative effects for the economy as a whole, they can also harm the economic prospects of  low-skilled workers at the individual level.

With that in mind, I have some bad news for everyone who likes the idea of young people of color finding work.

The Daily Signal explains: (H/T Dad)

At the stroke of midnight today, 19 states increased their minimum wage. Residents of three more and the nation’s capital can expect hikes later on this year.

[…]Federal legislation was met with resistance. though. Republicans argued raising the minimum wage would cause an increase in prices for consumers and low-wage workers likely would face layoffs as companies grappled with the higher costs associated with hiked wages.

Some of those concerns were validated last month by a University of California, San Diego, study. For three years, researchers followed low-income workers residing in states that saw wage hikes and those that did not. The study found that minimum wage hikes had negative impacts on employment, income and income growth.

[…]“Minimum wage supporters have good intentions, but those good intentions cannot repeal the law of unintended consequences,” James Sherk, an expert in labor economics at The Heritage Foundation, told The Daily Signal. He added:

Minimum-wage increases reduce the total earnings of low-wage workers — the higher pay for some workers gets completely offset by the nonexistent pay of those no longer employed.

In its study, UCSD researchers found that after minimum-wage increases, the national employment-to-population ratio decreased by 0.7 percent points between December 2006 and December 2012.

In addition, the study found that minimum-wage increases hindered low-skilled workers’ ability to rise to lower-middle -lass earnings.

So we need to be really careful about setting economic policy based on emotions. Things that sound nice, which we feel will help the poor, actually hurt the poor. We have to have evidence-driven public policy, not feelings-driven public policy. People’s lives are depending on it.

4 thoughts on “New study: raising minimum wage hurts young, minority workers most”

  1. Yes, it does. It’s a real tragedy. Especially aggravating in my state which now has one of the highest minimum wages in the country and we know this just makes people poorer and yet we still insist on doing the same stupid thing over and over again.

    Like

  2. I don’t understand how increasing minimum wage has a negative impact. At 23 years old i have work at 2 jobs so far mcdonalds and toys r us. At the 1st job i was paid 7.25 an hour and my 2nd job i was paid 7.75 – if i was living on my own that would not be enough to pay my bills and buy myself basic things like hygiene products and food

    Like

    1. Let me explain it to you.

      You are working for $7.25-$7.75 per hour. That means your labor, for the jobs you do, is worth that amount to your employer. Your employer is willing to pay a person of your skills $7.25 or $7.75/hour to do the job you do. Your employer might be willing to pay a little more than that, especially if he’s getting more efficiency or experience for that price. Thus, if you show that you’re hard working or as you gain more years of job experience, the employer gives a raise because he is getting more valuable work from you.

      However, if the minimum wage were raised to $10/hour (or more), your employer may decide that the work you do isn’t worth $10/hour. If he isn’t willing to pay $10/hour for the job you do, he may eliminate that job altogether and simply not pay anyone to do that job. Or he may eliminate the position and divvy up the responsibilities of your job to other people he is already paying. For example, maybe a couple of managers will be required to do your work, in addition to the work they are already doing, and no one will be paid for the job you do. Or perhaps a machine will be bought that can do your job instead of paying you to do it. Thus, in that scenario, when your work isn’t worth $10/hour but the minimum wage is $10/hour, you will have NO JOB. In case you haven’t figured this out, having no job is worse than having 2 jobs at $7.25 and $7.75/hour.

      Even if your employer doesn’t eliminate your job entirely, he may decide that he can’t afford to pay you $10/hour for as many hours as you now work. He might cut your hours back in order to save money. Thus, even if you still have a job and get paid $10/hour, if you work fewer hours, you won’t really be ahead. And not only will you probably not actually have more take home pay because your hours will be cut, but everything will be more expensive because all the stores and other businesses will have to pay their employees more (due to a minimum wage increase) and thus will have to charge more for their goods and services.

      Of course, there will be a few people who don’t get their hours cut and keep their jobs. These are the few who get a little benefit from a minimum wage increase. They’re the lucky ones. But most people of low skills will be hurt by a minimum wage increase because they will find it harder to get jobs and harder to get enough hours to survive, all while prices are going up.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s