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Raising The Minimum Wage Hurts Those It
Purports To Help
By Grant R. Gulibon
Gubernatorial candidate Bob Casey's proposal to immediately raise the state's
minimum wage by $1 and by another 50 cents by 2004 is a well-intentioned but
economically damaging move that would harm the very people that it is supposed
to help.
Billed as a tool for raising the standard of living for low-wage workers and
their families, in practice, minimum wage increases make it more difficult for
entry-level job seekers to climb up the economic ladder. And, in an ironic
twist, minimum wage increases mostly benefit families well above the poverty
line.
Economic analyses of the employment effects of minimum wage increases are
virtually unanimous: Raising the minimum wage destroys jobs. This happens
because higher minimum wages increase the costs of employment for businesses,
especially small firms, and those firms respond to the higher mandatory wage by
employing fewer people. The following are some additional reasons why
artificial wage increases are bad economic policy.
The overwhelming majority of the people who benefit from minimum wage increases
are not poor. The Employment Policies Institute, a research organization
dedicated to the study of entry-level employment issues, reports that an
increase from $5.15 to $6.65 would benefit Pennsylvania
employees with average annual family incomes greater than $47,300-more than
double the 2000 federal poverty line for a family of four. Why? Because nearly
9 out of 10 minimum wage earners live with their parents or another relative,
live alone, or have a working spouse. Just 12 percent of minimum
wage workers in Pennsylvania are sole earners in families with children.
Higher minimum wages actually tip the hiring balance in favor of higher-skilled
workers by reducing the availability of employer-provided training for
low-skilled workers. As labor costs increase, worker productivity becomes even
more crucial to employers, who tend to allocate more of their resources toward
high-skill, higher-wage workers who do not require the intensive job training
that many lower-skilled workers require.
Many businesses-especially small ones-simply cannot afford these additional
costs. Indeed, economists Neumark and William Wascher have found that
increasing the minimum wage decreases the amount of employer-provided training
that is aimed at increasing the skill level of current job holders.
Higher minimum wages undermine efforts to reduce the number of Pennsylvanians on
welfare. One of the keys to successful welfare reform is a strong economy that
produces jobs for former recipients leaving the rolls. However, as noted
above, the low-wage, entry-level jobs most likely to be filled by those moving
from welfare to work will be the first jobs to
disappear due to a minimum wage increase. Dr. Peter D. Brandon of the Institute
for Research on Poverty at the University of Wisconsin, Madison, found that the
average length of time welfare mothers spent receiving welfare benefits was 44
percent higher in states that increased the minimum wage than in states that did
not raise their wage floor.
Virtually all minimum wage employees will experience increases in their wages as
they prove their value to employers. According to analysis of US Census Bureau
data, the average income of minimum wage employees increases 30 percent within
one year of employment. The Employment Policies Institute notes that the
traditional growth out of entry-level jobs explains why only 2.8 percent of
employees above the age of 30 are working at the minimum wage-the very people
who lose their jobs when the minimum wage is hiked.
While wanting to increases workers' wages is a laudable effort, it is clear that
raising the minimum wage would hurt most those it purports to help by
eliminating entry-level jobs. The reality is that an increase in the minimum
wage would further damage Pennsylvania's ability to attract and retain job
creators by escalating the costs to do business in the Keystone State.
The best way to improve the economic situation of unskilled workers in
Pennsylvania is to provide more jobs, not less. Instead of destroying
entry-level positions by artificially increasing the minimum wage, policymakers
would be wise to repeal the minimum wage altogether.
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Grant R. Gulibon is senior policy analyst at The Commonwealth Foundation, a
non-profit, independent, non-partisan, research and educational institute based
in Harrisburg, Pa.
For more information please visit
http://www.CommonwealthFoundation.org
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