Killing Minimum Wage Jobs

Posted: Jul 23, 2009 10:07 AM
Tomorrow, just as Congress has mandated, the national minimum wage will increase 70 cents to $7.25 an hour, which on the surface, appears a positive step for those workers in this wage bracket. However, economist David Neumark of the University of California, Irvine "calculates that the 70-cent-per-hour minimum wage hike this month would kill 'about 300,000 jobs for those between the ages of 16-24.'"

The matter of increasing the minimum wage is typically contentious because, on the surface, at least, it's tough to see how workers making more money can be bad for the overall health of our economy or for those workers. But if you dig a little deeper, if employers are forced to pay all their employees more, then these same employers can't afford to hire as many workers leading to increased unemployment.  Particularly in an economy like this, the pie doesn’t get any bigger, so if you’re forced to hand-out larger slices, you’ll be handing out fewer of them.

Neumark along with William Wascher of the Federal Reserve Bank have done extensive research on the effects of minimum wage hikes on unemployment, and they have come to two conclusions:

1 - "A sizeable majority of the studies give a relatively consistent (though not always statistically significant) indication of negative employment effects.”

2 - "Studies that focus on the least-skilled groups [i.e., teens, and welfare moms] provide relatively overwhelming evidence of stronger disemployment effects."

As the Wall Street Journal points out: 

“[T]hat single mom can't collect those checks if she doesn't have a job, and the tragedy of a higher minimum wage is that it will prevent thousands of working moms striving to pull their families out of poverty from being hired in the first place.”

If raising the minimum wage leads to increased unemployment, then aren't we hurting more Americans than we're helping, especially when unemployment already sits at a staggering 9.5% and is only on the rise? One of the shortfalls of legislation that comes from Washington is that it's often too short-sighted and focused on emotion rather than logic.

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