Least-skilled workers lose with minimum-wage hike
Author: Craig Garthwaite
Publication Date: March 2005
Newspaper: Uniontown Herald-Standard
Topics: Minimum Wage
Some lawmakers are hailing a proposed 39% increase in Pennsylvania’s minimum wage as a life preserver for employees struggling in a stormy economic sea. But Harrisburg’s minimum wage bill ensures that the thousands of low-skilled Pennsylvanians who need entry-level employment opportunities will find it even more difficult to stay 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 state-level wage hikes 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. 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 a minimum wage salary for extended periods. However, these are actually the people 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. McDonald’s, one of the most reliable sources of job opportunities for young people, is already experimenting with fully automated self-serve kiosks instead of cashiers. These new technologies, designed to reduce labor costs, eliminate entry-level 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 their white counterparts’. But in 1956, a 33% increase in the minimum wage precipitated an alarming turnaround. By 1960, unemployment for young black males had nearly doubled to 22.7% while increasing only slightly for young whites. By 1981, nearly annual minimum wage increases had greatly contributed to the 40.7% 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% 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.”
Harrisburg needs to take a different approach toward improving the lives of Pennsylvania’s low-skilled employees. Instead of bogging down in another debate over the minimum wage, the statehouse should be working to adopt an earned income tax credit (EITC) for low-income Pennsylvanians. State EITC programs (patterned after their hugely successful federal predecessor) provide substantial tax-free income, but only to those with a job. Economists from the Federal Reserve and Michigan State University have found that EITC recipients increase their work output and enjoy higher earnings, leading them toward self-sufficiency. And unlike minimum wage increases, the EITC doesn’t lead to unemployment.
Lawmakers who still consider wage floors the most effective way to help low-skilled employees are ignoring the changing demographics of the minimum wage labor force. Old picture: few women worked outside the home. Most teenagers had limited job opportunities. Consequently, in 1950, 77% of the families living in poverty received most of their income from a single low-wage adult employee. That number dropped to 45% by 1970. New picture: today, approximately 30% of families in poverty are dependent on the earnings of a low-wage employee.
While proponents of minimum wage increases typically frame their efforts as a way to rescue society’s most economically vulnerable – seniors trying to supplement their Social Security checks or single parents struggling to raise their children – beneficiaries of the law are more likely to have a household income over three times the poverty line. A Cornell University study found only 15% of prospective wage hike beneficiaries across the nation are in poor families. Poverty is becoming a phenomenon confined largely to nonworkers. None of them will benefit from a minimum wage increase.
Pennsylvania’s low-wage employment debate needs new approaches to a changing workforce, not blind adherence to outdated labor policies.
If lawmakers decide to get serious about helping low-income Pennsylvanians stay afloat, they can start by sinking their minimum wage proposal.