Minimum wage: Credible Studies Show Raising it Costs Jobs

Original Article:

  • Author: Michael Saltsman

  • Publication Date: April 2013

  • Newspaper: San Jose Mercury News

  • Topics: Minimum Wage

This week, a bill from California Assemblyman Luis Alejo (D-Salinas) to raise the state minimum wage to $9.25 will receive a hearing in the legislature’s Labor and Employment committee. His proposal, like a federal $10.10 minimum wage bill promoted on these pages recently by Rep. George Miller (D-CA), would index the minimum wage to rise with inflation.

It’s a policy that’s more than just unnecessary. It would actively harm entry-level and less-experienced job seekers.

Miller and Alejo both argue that the inflation link is necessary to keep the entry-level wage from losing value. Had the minimum wage kept up with inflation since 1968, the argument goes, it would actually be above $10 an hour today.

But inflation can rise and fall. A minimum wage that truly kept up with inflation since its inception would only be $4.12 today — far below the current $7.25 federal level or the $8 California level.

More to the point, very few people in California (or any other state) are waiting for the federal government to give them a raise. Recent research from economists at Florida State University and Miami University shows that two-thirds of minimum wage earners already receive raises within the first year on the job.

These employees are not stuck. They are simply climbing the rungs of the employment ladder.

Both Miller and Alejo understand the value of entry-level experience: There is no minimum wage for interns in both of their offices. These young adults are generally being paid through their on-the-job experience and training instead. Unfortunately, the proposed wage hike policy would makes it more difficult for young adults–who already face a 34 percent unemployment rate in California–to receive that same experience in the private sector.

The economics are straightforward. Businesses that hire minimum wage employees, such as restaurants or grocery stores, keep just 1-3 cents in profit from each sales dollar, and can’t just absorb well-meaning legislators’ desire to increase business’ labor costs. Absent the ability to raise prices–which could reduce sales in these cost-conscious times–employers are forced to provide the same service at a lower cost.

That means less full-service and more customer self-service, like bagging your own groceries or pumping your own gas. These “conveniences” used to be part of someone’s job description.

This drop in opportunities for young people isn’t just anecdotal. It’s been measured empirically. University of California-Irvine economist David Neumark recently teamed up with Federal Reserve economist William Wascher to summarize the research on the minimum wage from the last two decades. They found that 85 percent of the most credible studies pointed to job loss for less-experienced teens following a wage hike.

Miller and Alejo reject this overwhelming economic consensus. Their protests have been bolstered by a team of left-wing economists affiliated with UC-Berkeley, who published a claim that minimum wage increases have no effect whatsoever on employment levels.

Unfortunately for Miller and Alejo, another study by Neumark, Wascher, and UC-Irvine’s Ian Salas, systematically analyzed the methods used by the UC-Berkeley economists and concluded, “[N]either the conclusions of these studies nor the methods they use are supported by the data.”

Legislators in both Congress and Sacramento would do well to remember these entry-level lessons as they debate whether to price their constituents out of the jobs they need. Minimum wage hikes may be popular, but that doesn’t mean that good intentions will translate into good policy for the Californians who want to get or keep a job.