Only Thing ‘Living Wage’ Raises Is Unemployment, Especially Among Teens
Author: Michael Saltsman
Publication Date: February 2011
Newspaper: Washington Examiner
Topics: Living Wage
An organization called Respect DC has called for retail giant Wal-Mart to pay its employees a “living wage” if they want to locate in the District.
Our neighbors to the north of Eastern Avenue have gone a step further; a coalition of labor unions and advocacy groups have launched a “Raise Maryland” campaign to convince that state’s legislature to create a statewide minimum of “living wage” proportions – $10 an hour by 2013, and indexed to inflation to rise higher thereafter. A bill to accomplish that goal has been introduced in the state Senate.
The only thing this “raise” will raise is the number of unemployed Marylanders. Contrary to the Raise Maryland rhetoric, minimum wage increases lead to job losses, provide no boost to state economies, and do a poor job lifting people out of poverty.
Raise Maryland is operating with a veneer of academic support, citing a list of 650 economists that agree with the campaign’s claim that higher labor costs won’t affect business’ hiring decisions.
An analysis by the Employment Policies Institute (EPI) revealed that hundreds of the signatories on that list either aren’t economists – i.e., they don’t have doctorate or have a doctorate in a subject other than economics – or have specialties in subjects other than labor economics, including gender economics and economics of religion.
There are a handful of contrarian studies that Raise Maryland might selectively cite, but the evidence is overwhelmingly against them. A 2008 book by labor economists from the University of California-Irvine and the Federal Reserve Board examined research from both sides of the minimum wage debate over the last two decades and found that 85 percent of the best studies on the subject pointed to job loss following an increase in the minimum wage.
That consensus continues to grow. A new study from Dr. Joseph Sabia, a labor economist at West Point, found that each 10 percent increase in a state’s minimum wage leads to a drop in teenage employment of 3.6 percent.
You don’t need to be an economist to understand what a 40 percent jump in the Maryland minimum wage could mean for the state’s teens, especially considering their unemployment rate is already averaging 23 percent.
You might hear proponents of this wage hike argue that losing a few teen jobs is a small price to pay for a positive bump in the state’s economy. But their rhetoric doesn’t pass a simple fact check.
The aforementioned study from Dr. Sabia study also found that, contrary to claims made by groups like Raise Maryland, increases to the minimum wage have had no positive impact on the state’s gross domestic product (GDP). Indeed, Sabia found a slight decrease in output in certain industries that rely on less-skilled labor after wage hikes.
Ultimately, in campaigns like this one, activists turn to the emotional appeal that a minimum wage increase will help lift people out of poverty. But if Maryland legislators really want to reduce poverty in the state they should find out what government data says about who is actually earning the minimum in Maryland.
According to Census Bureau numbers, close to 60 percent of those who benefitted from the last federal minimum wage increase in Maryland were teens or others living with a parent or relative; the average family income of a minimum wage earner was $67,728. In fact, only one in eight beneficiaries of that minimum wage increase was a single earner raising children alone.
Because minimum wage increases aren’t well-targeted to the poor, they have a terrible track record of reducing poverty. This is why seven out of 10 labor economists surveyed by the University of New Hampshire agreed that the most effective way to target poverty is through an expansion of the Earned Income Tax Credit (EITC).
Maryland already offers an EITC supplement of 25 percent, and expanding the program would be a far more precise way of reducing poverty. It also avoids the disastrous unintended consequences of minimum wage increases. If Raise Maryland – and state legislators – really wants to raise Marylanders out of poverty, they need to rethink their strategy.
Michael Saltsman is the research fellow at the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.