Minimum Wage Hikes Hurt Less-Skilled
Author: Craig Garthwaite
Publication Date: December 2003
Newspaper: The New York Sun
Topics: Minimum Wage
Governor Pataki’s lips have so far been sealed on his intentions for a statewide minimum wage hike early next year but labor and political activists have been cranking up the volume. Earlier this month, they launched a statewide campaign to increase New York state’s minimum wage a whopping 31% higher than the federal minimum.
Last year, a similar proposal passed the Legislature only to die a death in the state Senate before it reached Mr. Pataki’s desk. Activists may have more luck this year, but the Empire State’s less-skilled workers won’t be sharing it. Decades of research confirm Nobel Prize–winning economist Gary Becker’s observation : “A higher minimum will further reduce the employment opportunities of workers with few skills.”
New York state’s unemployment rate is already higher than the national average — 29% higher in the New York City metropolitan area. Not for the first time, a nationwide recession has been longer and deeper statewide than in the nation as a whole. The state unemployment rate is now 48% higher than it was at its low point in March 2001.
In many parts of the state, the jobs picture is worse than even these grim figures paint. A grand total of nearly 2 million New York state residents live in depressed cities, boroughs, and counties where the unemployment rate topped 9% last year — a figure not experienced nationwide since the recession of the early 1980s. These depressed areas include Bronx County, with an unemployment rate of 9.3%, Buffalo where it was 9.7%, and Rochester, which hit the 10% mark.
Those seeking to enlist the governor’s support to raise the state minimum wage may believe they are helping those employees who have managed to hold onto a minimum wage job in this difficult economic climate. Hard evidence suggests a reality where the increase will deprive many of these vulnerable employees of the only opportunity they have to earn a living and increase their wages.
Research out of Michigan State University found that increases in the minimum wage attract more highly skilled applicants to traditionally low-skill jobs. The study’s author, Dr. David Neumark, concluded: “[I]ncreases in the minimum wage…raise the probability that more-skilled teenagers leave school and displace lower-skilled workers from their jobs.” Employers prefer to hire talented young people over less-skilled adults to offset the increased labor costs brought on by a minimum wage hike.
Another study, from the University of Wisconsin, revealed that this displacement of adults by teenagers following a minimum wage increase was especially pronounced among women on welfare. “Mothers on welfare in states that raised their minimum wage left welfare for work 20% less than welfare recipients in states where the minimum wage was not raised,” the study’s author, Dr. Peter Brandon, found. The teenagers who are competing with these women usually live with working parents and their need for employment is arguably not as great.
Even wage-hike proponents acknowledge this displacement effect. A wage-mandate activist and union organizer, David Reynolds, says that high minimum wages cause businesses to “attract and retain the best workers” — who take the jobs of the less skilled. The union-backed Economic Policy Institute has admitted that higher minimum wages “will attract good workers” — meaning less-skilled workers need not apply.
As more teenagers enter the entry-level job market and less-skilled adults are squeezed out, these former employees lose not only their jobs but also the wage supplement that the earned income tax credit provides. This forces the least skilled among us to depend on welfare for as long as those benefits last.
Exchanging the ability to provide for oneself with welfare checks has consequences that reach far beyond the pocketbook: It harms parents’ ability to pass a strong work ethic onto their children. Research by Dr. Casey Mulligan of the University of Chicago found that for every additional year a mother spent on welfare, her child spent an extra 274 days on welfare as an adult.
While less-skilled workers do not benefit from a minimum wage increase, academic research demonstrates they can get a raise without one. Economists at Miami University of Ohio and Florida State University found 65% of minimum wage workers increase their wage between one and 12 months on the job. This refutes the out-dated notion of minimum wage workers perpetually dependent on government to get a raise.
For New York state’s most vulnerable workers, many of whom have remained in depressed localities after business and industry have left the area, raising the minimum wage will deprive them of the jobs, training and increased earnings they so obviously need. This is surely not what the wage hike’s supporters want.
Mr. Garthwaite is chief economist at the Employment Policies Institute, a nonprofit research organization dedicated to studying issues surrounding entry-level employment. To learn more, visit www.EPIonline.org