What Lies Behind Lost Jobs
Author: Rick Berman
Publication Date: May 2010
Newspaper: Chicago Tribune
Topics: Minimum Wage
America is still waiting for “the recovery,” hoping that one morning we’ll read a newspaper headline declaring that the problems of the last few years are behind us. The real recovery, however, is unlikely to be so tidy. While the stock market is up 65 percent from its low last year, millions of Americans are still unable to find a job. In Illinois, the unemployment rate is stuck at 11.5 percent, while the jobless rate among teens nationally is more than 25 percent.
But if jobs are in short supply, one thing that’s not is economic advice from people who have never run a business. Bob Herbert, columnist for The New York Times, has written prolifically about the problem of teen unemployment. His prescription, to raise the minimum wage, is emblematic of an all-too-common syndrome: self-proclaimed experts who suggest “solutions” that bear no resemblance to practical possibilities. Armchair economists like Herbert appear to inhabit a world in which businesses have unlimited resources, there is no federal budget deficit and everything will be all right if our intentions are good enough.
Back here in the real world, forcing new costs on businesses does not create jobs — it kills them. And while there’s a chance borrowing billions of dollars to pay for half-baked stimulus schemes will put some people to work in the short term, we know with absolute certainty that it will drive up the national debt and push us even closer to the precipice of bankruptcy.
We need to stop pretending that the minimum wage is a policy without negative consequences. It’s not hard to see how a mandatory wage level kills job creation: Imagine you are a teenager looking for work in San Francisco. You go to a restaurant and offer to wash dishes for $8 per hour, but the manager replies, “It is illegal for me to hire you.”
That’s right; it’s illegal to pay someone $8 per hour in San Francisco. The minimum wage there is $9.79 per hour — but restaurants survive on razor-thin margins, and paying $9.79 to someone without a marketable skill is a nonstarter. What ends up happening is that the current employees have to work harder for the same pay, and eventually the restaurant invests in a new automatic dishwashing machine. And you go home without a job.
This isn’t just some abstract scenario. Businesses respond to all kinds of rising costs by finding substitutes or new efficiencies. In some cases this can be a positive thing: When the price of electricity goes up, businesses switch to fluorescent light bulbs or install double-paned glass to cut their heating bills. But when the price of an entry-level employee goes up, businesses respond by replacing jobs with technology.
In America today, hundreds of thousands of teens are jobless because they have been priced out of the labor market. Earlier this year, an analysis by the Center for Business and Economic Research at Ball State University found that roughly 310,000 teenagers have lost out on part-time employment because of the minimum wage hikes of 2008 and 2009.
Those teens aren’t just losing out on the money they’d be making in those jobs. When the recession ends and America gets back on its feet, today’s displaced teens will still be looking for a first job and a foothold in the new economy.
The minimum wage is hardly the only cause of the unemployment crisis — but it is a cause. This much is certain: The economic recovery is going to come from entrepreneurs and small businesses hiring new workers, not from pundits and bureaucrats telling the private sector what to do. And the sooner we can get government out of the way, the faster we can move ahead.
Rick Berman is executive director of Employment Policies Institute, a nonprofit research organization that studies public policy issues surrounding entry-level employment.