Minimum Wage Hike Threatens Healthy U.S. Economy
Artificially raising the minimum wage would destroy entry-level jobs and put low-skilled Americans out of work
Publication Date: December 2006
Topics: Minimum Wage
Washington, DC – Despite the flourishing U.S. economy and record low unemployment level, low-skilled jobs—such as the retail and leisure and hospitality industries—are in decline. These jobs will be further threatened by the prospect of a federal minimum wage hike, warns the Employment Policies Institute (EPI).
Decades of economic research prove that raising the minimum wage reduces job opportunities, particularly for people with few skills. When faced with the increase in labor costs that attend minimum wage hikes, employers often respond by hiring more skilled applicants, automating jobs, or cutting back on customer service.
Contrary to the opinion of proponents of minimum wage hikes, a rising tide doesn’t necessarily lift all boats, and an extremely healthy skilled job market often masks an ailing low-skilled job market.
“The unintended consequences of a minimum wage hike will disproportionately affect low-skilled jobs while skilled labor may continue to flourish,” said Jill Jenkins, EPI’s chief economist. “In other words, if two computer programmer jobs are created and one less grocery store checker is hired, the net job creation is positive, but you’re still seeing a decline in entry-level job opportunities.”
A study by economists at the Federal Reserve found that every 10% increase in the minimum wage leads to a 2%-3% decrease in employment overall. When you focus on the job loss suffered by low-skilled individuals such as high school drop-outs or minority teens, the increase in unemployment is as high as 8.5% for every 10% increase in the minimum wage, according to research from Cornell and the University of Connecticut.
“Instead of pushing for a minimum wage increase, lawmakers could affect real change by promoting expansion of the Earned Income Tax Credit (EITC),” added Jenkins. “The EITC effectively targets benefits to families in need without jeopardizing jobs.”