Raises reduce job opportunities
Author: Michael Saltsman
Publication Date: February 2016
Newspaper: Philadelphia Inquirer
Topics: Minimum Wage
Gov. Wolf proposed raising Pennsylvania’s minimum wage by 41 percent, to $10.15, last week as part of his 2016-17 budget. Perhaps he’s thinking second time lucky. Last year, as part of his first budget, he proposed raising the minimum wage to $10.10.
While the nickel-higher proposal is new, the economics of it remain the same.
In 2014, the nonpartisan Congressional Budget Office analyzed the effects of a $10.10 minimum wage applied nationally. It concluded that 500,000 jobs would be lost nationwide if it took effect.
Last year, David Macpherson of Trinity University and William Even of Miami University used Census Bureau data to replicate the CBO methodology to determine how many jobs would be affected in Pennsylvania if the minimum wage were raised to $10.10. They concluded that 30,000 jobs would be lost in the state, around two-thirds of them held by women.
Though proponents try their best to downplay it, the overwhelming majority of economic evidence finds that minimum-wage increases reduce job opportunities. This consensus was reaffirmed in December when the San Francisco Federal Reserve released a report showing that the last round of federal minimum-wage increases (and their concurrent state hikes) cost the country between 100,000 and 200,000 jobs.
Pennsylvanians only need to look across state lines to see the negative effects of a minimum-wage increase up close. New York state recently dramatically increased its minimum wage for fast-food and table-service employees. As a consequence of the current and forthcoming costs associated with the wage hikes, restaurants like McGirk’s Irish Pub in Binghamton, Pizzetteria Brunetti in Manhattan, Longway’s Diner in Watertown, and Betty’s in Buffalo have all been forced to cut employee hours and jobs. (Many other similar stories can be found on Facesof15.com.)
But maybe some job loss in the state is acceptable if it reduces poverty or taxpayer spending on public benefits. Here, too, the minimum wage fails.
Researchers from Cornell University examined the 28 states that raised their minimum wages from 2003 to 2007 and found no associated poverty reduction. And in a seminal report published in December, Joseph Sabia and Thanh Tam Nguyen of San Diego State University analyzed 35 years of government data across multiple data sets and concluded that minimum-wage increases have had no effect on participation in or spending on social-welfare programs like Medicaid.
Sabia and Nguyen’s conclusions about why minimum-wage increases have no record of reducing public benefits use are instructive. They demonstrate that minimum-wage increases don’t effectively target those who need financial help the most. For instance, just 13 percent of those affected by a $10.10 minimum wage nationwide are on Medicaid, and only 16 percent are on food stamps. That’s largely because a majority of those affected by the wage hike are second or third earners in a household, supplementing a family’s income. In fact, the average income of Pennsylvania households that would benefit from a $10.10 minimum wage is $61,800.
Sabia and Nguyen also find that rather than increasing the incomes of entry-level employees, minimum-wage hikes redistribute income among workers. Those who keep their jobs gain, while those whose hours or jobs are cut lose. The net effect for the taxpayer, therefore, is usually a wash.
Despite this data, Wolf has chosen to double down on his minimum-wage increase this year. Doing more of the same is not the leadership that entry-level employees need.