Minimum-wage hike won’t aid poor, will hurt Ky.

Original Article:

  • Author: Michael Saltsman

  • Publication Date: February 2016

  • Newspaper: Lexington Herald Leader

  • Topics: Minimum Wage

The two largest cities in Kentucky have approved a higher minimum wage. That doesn’t mean the rest of the Bluegrass state should follow suit. Recently, Kentucky Democrats rallied behind raising the state minimum wage nearly 40 percent from $7.25 to $10.10 by July 2018.

They argue that this will stimulate the state’s economy and give much-needed relief to families in poverty. House Speaker Greg Stumbo even went so far as to declare, “Beyond the budget, no other bill the General Assembly considers this year would do more for our economy and improve the livelihood of hundreds of thousands of families.”

For the sake of Kentucky, we hope Stumbo isn’t betting the livelihood of these families on a minimum-wage hike. Despite his good intentions, mounting evidence and state-specific research suggest that a minimum-wage increase delivers results that are a far cry from their promises.

Although it is too early to tell how the newly implemented higher minimum wages will impact the economies of Lexington and Louisville, Bob Quick, the president and CEO of Commerce Lexington, commented that a higher wage will make it harder for the city to create jobs.

The evidence suggests that he is on to something: Economists at the University of California-Irvine and the Federal Reserve Board reviewed two decades of research on the subject and found that the overwhelming majority of studies on minimum wage point to job losses for less-skilled employees and little impact on reducing poverty.

More recently, the nonpartisan Congressional Budget Office’s 2014 report estimated that a $10.10 minimum wage implemented nationwide could cause half a million Americans to lose their jobs.

Economists at Trinity and Miami universities replicated the CBO’s methodology to estimate Kentucky’s share of the job loss. The study finds that $10.10 legislation, if implemented in Kentucky, would lead to roughly 5,000 lost jobs when fully implemented. (The analysis takes account of the increases occurring in Lexington and Louisville.) Women would bear the brunt of the suffering, accounting for just under 65 percent of the losses.

Some proponents have argued that lost jobs from a minimum-wage increase are worth it, given the benefits to everyone else. But here, too, the evidence isn’t on their side. There were 28 states that raised wages between 2003 and 2007, and economists at Cornell and American University found little evidence that the new mandates reduced poverty.

One reason is that the raise is poorly targeted at the poor. Contrary to popular belief, only about 1 in 10 Kentuckians affected by a $10.10 minimum wage are single parents; by contrast, nearly 60 percent either live with family, or are secondary earners where both spouses work. (Their average family income is nearly $45,000 a year.)

The other problem with the “raise the wage to reduce poverty” theory is that it wrongly assumes there are no drawbacks from the policy for employees. If an employee’s hourly pay rate rises, but they lose hours or even their job as a consequence, then they’re actually worse off than before the wage increase took place. Indeed, research published in the Journal of Human Resources finds that’s exactly what has happened after past increases in the minimum wage.

If Stumbo is in fact dedicated to his goal of reducing poverty, he should advocate a more efficient alternative to wage hikes such as a state supplement to the Earned Income Tax Credit. It supplements the incomes of low-income employees through the tax code without all the negative consequences. The EITC has a track record of reducing poverty and it garners support from economists and politicians on both sides of the aisle.

Kentuckians are right to support policies that would reduce poverty, but they owe it to those affected to seek an economically sound solution that doesn’t hurt the very people it purports to help.