Raising minimum wage is maximum stupidity

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  • .@nickschulz: Higher minimum wage laws are good intentions, but they do harm in the long and short run

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When economic times are tough, it’s tempting to want to push for an increase in the minimum wage.

Supporters see it as giving the deserving poor a badly needed raise. If we only mandate that employers raise the pay floor for their employees, those who earn the least will see a nice pay bump.

And if there were no unintended consequences from government-mandated minimum wages, perhaps it would be a fine idea. But there are harmful knock-on effects that hurt some of the economy’s most vulnerable participants: young workers and those with few skills.

Scholars David Neumark and William Wascher looked at the academic research on the effect of laws mandating wage floors for their book “Minimum Wages” (MIT Press). They found that these laws lead to a “reduction in employment opportunities for low-skilled” workers. The authors also found that minimum wage laws do not help reduce the number of families living at the poverty line. In fact, the minimum wage may harm low-income families by reducing the number of jobs available for which they are qualified. Neumark and Wascher’s final conclusion is perhaps the most important.

They found that “minimum wages appear to inhibit skill acquisition by reducing educational attainment and perhaps training, resulting in lower adult wages and earnings.”

"Given that labor market picture, it’s a mistake to enact any regulations that make it harder for employers to hire." -- Nick Schulz

When they summarized the evidence, they concluded that minimum wage laws do harm in the short run and in the long run. The laws “have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital.”

What is this “human capital” Neumark and Wascher are talking about? It’s the knowledge, experiences, skills and know-how that make a person able to earn an income.

People acquire lots of valuable human capital in their first jobs. Even if they are flipping burgers, pumping gas or mowing lawns, they learn basic practical skills that stay with them and bolster their employability down the road: Show up on time; work hard; help your colleagues; be polite; listen to your boss.

The longer those first jobs are pushed out of reach, the longer it takes low-skill workers to develop crucial capacities that can put them on a promising career path.

Now consider what an increase in the minimum wage might mean in the context of the employment picture for young people today.

The Great Recession has been particularly hard on teen and other young workers. While the national unemployment rate is bad enough at over 8 percent, the teen rate is over 25 percent.

To put that in perspective, the teen rate in the mid 2000s was between 14 percent and 18 percent.

Teen unemployment today is even more alarming when we consider that a smaller percentage of teenagers is looking for work today than in the past. This means many teens are so discouraged by the anemic jobs picture they don’t even bother entering the labor force.

It’s not just teens that are discouraged, either. The broader labor force participation rate has been dropping since the early 2000s, a trend that accelerated during the recession and continues today.

Given that labor market picture, it’s a mistake to enact any regulations that make it harder for employers to hire.

Many American kids will be graduating from high school soon and looking for their first jobs. Many others will be hoping to land a summer job that gives them valuable work experience. Artificially boosting the minimum wage will make it less likely they will get that important entry-level job.

There’s little doubt that those who receive a bigger paycheck thanks to a higher minimum wage law are better off, and no doubt that the intentions of minimum wage boosters are good. But good intentions aren’t good enough, especially given the harm done to those Americans who most need a break.

Nick Schulz is a fellow at AEI.

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