Increasing minimum wage won’t help jobless

Original Article:

  • Author: Craig Garthwaite

  • Publication Date: February 2005

  • Newspaper: Duluth News-Tribune

  • Topics: Minimum Wage

Some lawmakers are hailing the proposed 36 percent increase in Minnesota’s minimum wage as a life preserver for employees struggling in a stormy economic sea. But St. Paul’s minimum wage bill ensures that the thousands of low-skilled Minnesotans who need entry-level employment opportunities will find it even more difficult to keep afloat.

The statehouse ought to remember that Federal Reserve Chairman Alan Greenspan cautioned Congress just last summer against raising the minimum wage. The chairman pointed out that such a move “increases unemployment and, indeed, prevents people who are at the early stages of their careers… from getting a foothold in the ladder of promotions.”

Once they’re on the job, minimum wage employees make dramatic progress up the pay scale. Although proponents of Minnesota’s proposed wage hike often argue that minimum wage employees haven’t had a raise since Congress last increased the national rate, few entering the workforce at the minimum wage stay there for long. Nearly two-thirds get a raise within 1-12 months, according to academic studies. After improving their skills and establishing their value, these employees receive raises at a rate nearly six times larger than everyone else — all without mandatory wage hikes.

A small group of the least skilled may remain at the minimum wage for extended periods. However, these low-skilled employees are most likely to lose their jobs following a wage hike. Duke University researchers have found that after an increase in the minimum wage, the lowest skilled adults are crowded out of their jobs as better-educated teenagers (frequently from wealthier families) are drawn into the workforce. Their “need”? Simply to earn money for video games and iPods. But because they require less training, employers eagerly hire these teenagers to get the most from their higher payroll costs.

Businesses also adapt to mandatory wage increases by turning to automation or reducing service to their customers. Think this is unlikely? Just look at the proliferation of ATMs and self-checkout lanes at grocery stores. These new technologies, designed to reduce labor costs, eliminate jobs in the process.

Because of disparities in education, job losses often exact a crippling toll on minority communities. Cornell University researchers have determined that after a minimum wage hike, young African-Americans bear four times the employment loss of non-blacks.

Starting in 1948, the earliest year data is available from the Bureau of Labor Statistics, the unemployment rate for young black males averaged lower than that of their white counterparts. But in 1956, a 33 percent increase in the minimum wage precipitated an alarming turnaround. By 1960, unemployment for young black males had nearly doubled to 22.7 percent while increasing only slightly for young whites. By 1981, nearly annual minimum wage increases had greatly contributed to the 40.7 percent unemployment rate for young black males.

Artificially high wage mandates continue to price many less-educated African-Americans out of the labor market. Today, the unemployment rate for young blacks is 96 percent higher than for white youth. Nobel laureate economist Milton Friedman warned that joblessness among so many young blacks “is both a scandal and a serious source of social unrest. Yet it is largely a result of minimum wage laws.”

Proponents of wage hikes typically frame their efforts as a way to rescue society’s most economically disadvantaged — a purportedly vast underclass of single parents supporting their children on just a minimum wage paycheck. But only 5 percent of Minnesota’s minimum wage employees fit that description. The average family income of a Minnesotan who would benefit from the proposed wage hike is more than $57,000.

In fact, a Cornell University study found only 15 percent of prospective wage-hike beneficiaries across the nation are in poor families. Poverty is becoming a phenomenon confined largely to those who don’t work full-time (or don’t work at all). None of them will benefit from a minimum wage increase.

If lawmakers decide to get serious about helping low-
income Minnesotans stay afloat, they can start by sinking their minimum wage proposal.