At min­i­mum, a bad deal

The Washington Times Weekly - - Commentary - Don­ald Lam­bro

Many, if not most, laws passed by Congress have had un­in­tended, neg­a­tive con­se­quences. Rais­ing the min­i­mum wage is one ex­am­ple.

Per­haps no other so-called eco­nomic re­form has been stud­ied more than the im­pact of the min­i­mum wage on poor-to-low in­come, un­skilled, un­der­e­d­u­cated, un­em­ployed Amer­i­cans. The pre­pon­der­ance of th­ese stud­ies has shown time and again that rais­ing the min­i­mum wage does not live up to its prom­ises. It doesn’t cre­ate em­ploy­ment for those it is sup­posed to help; it re­duces em­ploy­ment. It doesn’t help the most vul­ner­a­ble Amer­i­cans, es­pe­cially poor mi­nori­ties; it wors­ens their plight.

The Em­ploy­ment Poli­cies In­sti­tute, a non­profit re­search or­ga­ni­za­tion, re­leased a re­cent study of th­ese un­in­tended con­se­quences here last week. It found that for ev­ery 10 per­cent in­crease:

Un­em­ploy­ment among mi­nori­ties rose 3.9 per­cent.

Job­less­ness among His­pan­ics jumped 4.9 per­cent.

Teenage mi­nor­ity un­em­ploy­ment in­creased 6.6 per­cent.

Un­em­ploy­ment among African-Amer­i­can teens climbed 8.4 per­cent.

Low-skilled un­em­ploy­ment (among high-school dropouts) grew by 8 per­cent.

David Neu­mark, a Univer­sity of Cal­i­for­nia-Irvine econ­o­mist, who con­ducted the study, said his find­ings sup­ported “ear­lier re­search which found min­i­mum wages have the largest neg­a­tive ef­fects on low-skilled em­ploy­ees, such as teens and mi­nor­ity teens.”

Noth­ing is more im­por­tant to the eco­nomic ad­vance­ment of mi­nor­ity youths than ac­cess to en­try-level jobs, where they can de­velop good work habits and learn skills that can pre­pare them for other ca­reer op­por­tu­ni­ties dur­ing their work­ing life.

But an­other re­cent study by James Sherk, a la­bor-pol­icy an­a­lyst at the Her­itage Foun­da­tion, found “Rais­ing the min­i­mum wage re­duces many work­ers’ job op­por­tu­ni­ties and work­ing hours.”

As the fed­eral min­i­mum wage has risen, there has been a re­duc­tion in en­try-level jobs for young, un­skilled work­ers be­cause the “wage hikes cause busi­nesses to re­duce the num­ber of work­ers they hire and the hours they ask their em­ploy­ers to work.”

Mr. Sherk cited an ear­lier 2004 study by Mr. Neu­mark that found “work­ers who ini­tially earn near the min­i­mum wage ex­pe­ri­ence wage gains. But their hours and em­ploy­ment de­cline, and the com­bined ef­fect of th­ese changes on earned in­come sug­gest net ad­verse con­se­quences for low-wage work­ers.”

Economists es­ti­mate “each 10 per­cent in­crease in the min­i­mum wage re­duces em­ploy­ment in af­fected groups of work­ers by roughly 2 per­cent,” Mr. Sherk said. Thus, rais­ing the min­i­mum to $7.25, as the Democrats pro­pose, “would cost at least 8 per­cent of af­fected work­ers their jobs.”

This is a very con­ser­va­tive es­ti­mate of its ul­ti­mate cost to some of the most vul­ner­a­ble Amer­i­cans. The Hoover In­sti­tu­tion said 20 per­cent — or 1.6 mil­lion work­ers — could lose their jobs if there are no off­set­ting tax cuts for small busi­nesses hit by $5 bil­lion to $7 bil­lion in higher em­ploy­ment costs.

But if peo­ple don’t or won’t be­lieve the stud­ies, the ev­i­dence they point to is all around us. Em­ploy­ers have found in­creas­ing ways to elim­i­nate jobs as the min­i­mum wage has risen with lit­tle or no ef- fect on the ser­vices they of­fer. Gas sta­tions have re­placed work­ers with com­put­er­ized, self-ser­vice pumps. Su­per­mar­kets have re­placed cashiers with price scan­ners and self-ser­vice check­out sys­tems. De­part­ment stores have shrunk their sales forces and con­sol­i­dated cash-reg­is­ter check­outs, too. Air­line cus­tomers now get seat se­lec­tion and ob­tain board­ing passes at com­puter ter­mi­nals.

This job re­duc­tion will ac­cel­er­ate big time if the min­i­mum wage is raised again, even with the small-busi­ness-tax-cut off­sets sought in the Se­nate.

Small busi­nesses cre­ate twothirds of all new jobs in this coun­try, but the tax cuts would not be very help­ful to the mil­lions of new start-up firms formed each year where cash flow is of­ten prob­lem­atic in the first few years.

There are other rea­sons to ques­tion the value of rais­ing the min­i­mum wage, which has be­come in­creas­ingly ir­rel­e­vant and mis­di­rected in to­day’s econ­omy. Rel­a­tively few work­ers earn­ing the min­i­mum wage “come from poor house­holds,” Mr. Sherk’s study found. Most are work­ers be­tween ages 16 and 24 and “over three­fifths of min­i­mum wage earn­ers work part time.”

“The av­er­age fam­ily in­come of a min­i­mum wage earner is al­most $50,000, and less than 1 in 5 live at or be­low the poverty line,” he said.

But will a higher min­i­mum help poor or low in­come peo­ple? Avail­able fam­ily in­come sta­tis­tics show it does “raise the in­come of some poor fam­i­lies, but their net ef­fect is to in­crease the por­tion of fam­i­lies that are poor and near poor,” Mr. Neu­mark’s 2004 study in­di­cated.

The Democrats’ idea of rais­ing the min­i­mum wage is still pop­u­lar among vot­ers, as the 2006 elec­tions showed, but it is not tar­geted at the truly poor and most of those who ben­e­fit are not poor. This is an old post-De­pres­sion-era idea that will de­stroy en­try-level jobs for peo­ple who need them most.

What we re­ally need is a clean tax-cut bill for all small busi­nesses that will ac­cel­er­ate their growth and the higher-pay­ing jobs they will cre­ate for all Amer­i­cans.

Don­ald Lam­bro, chief po­lit­i­cal correspondent of The Wash­ing­ton Times, is a na­tion­ally syn­di­cated colum­nist.

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