CBO report warns of upcoming jobs crisis

Original Article: http://www.delawareonline.com/story/opinion/2016/05/16/cbo-report-warns-upcoming-jobs-crisis/84454162/

  • Author: Michael Saltsman

  • Publication Date: May 2016

  • Newspaper: Delaware News Journal

  • Topics: Minimum Wage

Nearly one in six American men between the ages of 18 and 34 is jobless or incarcerated, up from about one in ten in 1980. The story is even worse for less educated and black men, among whom nearly one in three young black men is jobless or incarcerated.
These are the startling findings from a new Congressional Budget Office report released last week, which provide a sobering start to the summer jobs season.
The CBO suggests several reasons for the significant increase in the fraction of jobless young men, including globalization and slow economic growth after the Great Recession. But it also cites a factor more directly within policymakers’ control: numerous state and local minimum wage increases that raise the costs of hiring.
The implication that higher minimum wages have contributed to the youth employment crisis flies in the face of many progressive policymakers and activists who portray dramatic wage hikes as all gain, no pain propositions.
But the CBO’s conclusion is in line with the best economic research on the topic. The San Francisco Federal Reserve Board recently concluded that the last round of federal minimum wage increases cost the country between 100,000 and 200,000 jobs. Its summary of the latest research finds that “a higher minimum wage results in job loss for the least-skilled workers—with possibly larger adverse effects than earlier research suggested.”
The CBO’s report also cites the automation of jobs and the lack of job seekers’ “soft skills” like punctuality and teamwork as additional factors for the high jobless rate among today’s male youth. These employment headwinds are exacerbated by minimum wage increases.
Wage hikes make automated alternatives like self-checkout kiosks look comparatively more attractive from a cost standpoint than traditional employees. As former McDonald’s CEO Ed Rensi warned in a Forbes op-ed last month: “In higher-cost European countries, these kiosks are already the norm.”
And fewer job openings means fewer opportunities for entry-level job seekers to gain a toehold in the labor market where they can learn valuable soft skills to make them more employable. Research from the University of Virginia and Middle Tennessee State University concludes that the soft skills learned during early career work experience – even part time or seasonal jobs – translates into 10 percent higher hourly earnings throughout careers.
The significant proportion of men out of the workforce has profound economic, budgetary, and societal implications. The report points out, for instance, that jobless men not only don’t pay taxes but also receive more social welfare than employed men.
This increased social welfare use among the jobless helps explain why minimum wage increases are not a boon for taxpayers, as proponents often claim. A recent study by San Diego State economists Joseph Sabia and Than Tam Nguyen analyzed the past 30 years of minimum wage increases and found no associated reduction in the six major public benefits programs, partially because the reduced use of those who gain from wage hikes is counteracted by the increased use of those who lose job opportunities.
Reversing the increasing jobless rate among young men is an important policy objective for many economic and societal reasons. Given broader economic trends, it’s debatable how much policymakers can actually do to help. But they should at least aim to first do no harm by resisting the siren song to raise the minimum wage.