Delay the Minimum-Wage Hike

[phk]

Delay the Minimum-Wage Hike

A recession is the worst time to raise the cost of low-skilled employment.

Despite severe economic difficulties confronting businesses, and soaring unemployment among youths and minorities, the federal minimum wage is slated to increase to $7.25 in July from $6.55 today. This will be the final step of a three-step increase enacted in the spring 2007, when the unemployment rate was 4.5%.

Based on 20 years of research, I doubt there is ever a goodtime to raise the minimum wage. However, with the aggregate unemployment rate at 9.4%, the teen unemployment rate exceeding 22%, and the unemployment rate for black teens nearing 40%, next month's increase seems like the worst timing possible.

Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence -- from scores of studies, using data mainly from the U.S. but also from many other countries -- clearly shows that minimum wages reduceemployment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.

The reduction in jobs for youths might be an acceptable price to pay if a higher minimum wage delivered other important benefits. Many people believe, for instance, that it helps low-income families. Here, too, the evidence is discouraging. There is no research supporting the claim that minimum wages reduce the proportion of families living in poverty. Research I've done with William Wascher of the Federal Reserve Board and Mark Schweitzer of the Cleveland Fed indicates that minimum wages increase poverty.

How can this be? Because the relationship between being a low-wage worker and living in a poor family is remarkably weak. Many low-wage teenagers and young adults are in higher-income families, and many poor families have no workers.

According to recent data from a study by Richard Burkhauser and Joseph Sabia, 34% of minimum-wage workers were in families with incomes exceeding three times the poverty line ($22,050 for a family of four) -- roughly the top half of the income distribution. Only 17% were in poor families.

In addition, when deciding which low-wage worker to retain following a minimum wage increase, employers may opt for a teenager, who may have high potential, over an adult who, because he still earns a low wage, likely has much lower potential. Thus, the job-destroying effects of minimum wages fall particularly hard on low-skilled adults in poor families.

There is also evidence that the short-term consequences of minimum wages have long-term effects. The principal sources of an individual's higher earnings are more schooling and the accumulation of experience and skills in the labor market. Unfortunately, increased minimum wages induce some teenagers to drop out of high school and take a job. Moreover, these dropouts take jobs away from the even lower-skilled teenagers who had dropped out earlier. With fewer opportunities to acquire labor-market experience and skills, these teenagers face lower wages as adults.

The accumulated evidence undermines the case for minimum wages even in the best of times. I recognize that there is continuing debate about some of the effects of minimum wages, and that strong public support for higher minimums -- regardless of the evidence -- will likely lead to future increases.

But let's put aside the broader debate and focus on the narrower question: Should we raise the minimum wage in the worst of times? When so many people -- especially the young -- are struggling to find a toe hold in the labor market, does it really make sense to make it harder for employers to hire them?

Minimum wages, like most public policies, confront us with trade-offs. An employed, low-skilled worker who keeps his job earns a slightly higher wage. But a worker who loses his job, or a labor-market entrant or unemployed worker who cannot find a new job, pays a much higher cost. Given present economic conditions, the imperative should be to create and enhance job opportunities.

I do not expect President Obama or congressional Democrats to give up their long-held support for a higher minimum wage. However, they should delay the increase in the minimum wage scheduled for this summer.

Mr. Neumark is professor of economics at the University of California, Irvine, and the author, with William Wascher, of "Minimum Wages" (MIT Press, 2008).

[Marokai Backbeat]

Have you ever had an independent thought in your life?

[phk]

Have you ever had an independent thought in your life?

Probably more than you have.

[Earth]

So long as the paycheck is a pittance, raise it. I understand the rate of unemployment rises when minimum wage does, but rock and a hard place, frankly.

[opebo]

So long as the paycheck is a pittance, raise it. I understand the rate of unemployment rises when minimum wage does, but rock and a hard place, frankly.

If there is a comfortable dole waiting for anyone lucky enough to lose their miserable serf-job then I don't see any downside to such a 'rise in unemployment'.

However it is important to note that this supply-sider nonsense is precisely the way to make the depression worse.   These simpletons want to reduce costs and prices during a deflation, and reduce demand during a collapse in demand.

[Associate Justice PiT]

If there is a comfortable dole waiting for anyone lucky enough to lose their miserable serf-job then I don't see any downside to such a 'rise in unemployment'.

     Fortunately there isn't. Discouraging people from working is not my kind of policy.

[opebo]

If there is a comfortable dole waiting for anyone lucky enough to lose their miserable serf-job then I don't see any downside to such a 'rise in unemployment'.

     Fortunately there isn't. Discouraging people from working is not my kind of policy.

Well, actually it is your kind of policy, pit - our whole capitalist economy is designed and built to make sure the rich don't have to work.

[Associate Justice PiT]

If there is a comfortable dole waiting for anyone lucky enough to lose their miserable serf-job then I don't see any downside to such a 'rise in unemployment'.

     Fortunately there isn't. Discouraging people from working is not my kind of policy.

Well, actually it is your kind of policy, pit - our whole capitalist economy is designed and built to make sure the rich don't have to work.

     Ideally everyone would work, but I kind of suspect production would be slightly higher if the top 1% did nothing than if the bottom 10% did nothing.

[jokerman]

A higher minimum wage actually acts as a stimulus in times of recession such as these.  Normally perhaps there is some validity to the argument that raising it is a zero sum game, but by countering deflationary pressures it is a net positive in an economy like today's.

[Ban my account ffs!]

Absolutely not.  The starting wage at my book store is minimum wage and my book sellers are depending on that raise in July since most of them are independent college students that need the money to live.

My company has remained very profitable through hours reductions this past January and a slimming down of in-store inventory.  We are still opening new stores and hiring people as needed.

While this pay hike will cut into the profits, the family that owns the business has foreseen this for a few years now and has planned for it accordingly. 

If any business is put out of business by this tiny wage hike, then they probably weren't fit to compete in the first place.  It's time for business owners to stop being the sacred cow and we shouldn't be wrapped around their finger going OMG BUT BUT.. BUT IF WE RAISE THE MINIMUM WAGE WE'RE ALL GONNA BE UNEMPLOYED!#@Q!#!1

They've known this was coming and they should already have planned for it.

Talk about a little personal responsibility here.  How about business/corporate responsibility.

[Nym90]

Increasing wages is exactly what we need to be doing to get ourselves out of the recession.

[Marokai Backbeat]

I'm undecided on minimum wage increases. Anyone want to sway my opinion?

[Southern Senator North Carolina Yankee]

I don't think it should be delayed, this was past in early 2007 so I don't see why any Business will be caught of gard by this. I agree that wages need to rise to ofset the deflation. Anyone surprised by me, Mr Business Friend's, anwser.

[MK]

Increasing wages is exactly what we need to be doing to get ourselves out of the recession.

 By keeping wages low how are you going to get people to buy - stimulate the economy if they don't have enough to spend?
Some of this now is the business men not wanting to give more of the pie to the people who helped make them.

Where's this label of low-skilled / low paying jobs come from?   In certain parts of the country you will be lucky to pull down 35k a year and that's on the high end.   Wages for the poor/ middle class is already pretty low compared to the cost of living.  Its just not a small problem relegated to youngsters and  black teens as the article tries to paint it.   RISE THE WAGES.

[justfollowingtheelections]

Delay the Minimum-Wage Hike

A recession is the worst time to raise the cost of low-skilled employment.

Despite severe economic difficulties confronting businesses, and soaring unemployment among youths and minorities, the federal minimum wage is slated to increase to $7.25 in July from $6.55 today. This will be the final step of a three-step increase enacted in the spring 2007, when the unemployment rate was 4.5%.

Based on 20 years of research, I doubt there is ever a goodtime to raise the minimum wage. However, with the aggregate unemployment rate at 9.4%, the teen unemployment rate exceeding 22%, and the unemployment rate for black teens nearing 40%, next month's increase seems like the worst timing possible.

Despite a few exceptions that are tirelessly (and selectively) cited by advocates of a higher minimum wage, the bulk of the evidence -- from scores of studies, using data mainly from the U.S. but also from many other countries -- clearly shows that minimum wages reduceemployment of young, low-skilled people. The best estimates from studies since the early 1990s suggest that the 11% minimum wage increase scheduled for this summer will lead to the loss of an additional 300,000 jobs among teens and young adults. This is on top of the continuing job losses the recession is likely to throw our way.

The reduction in jobs for youths might be an acceptable price to pay if a higher minimum wage delivered other important benefits. Many people believe, for instance, that it helps low-income families. Here, too, the evidence is discouraging. There is no research supporting the claim that minimum wages reduce the proportion of families living in poverty. Research I've done with William Wascher of the Federal Reserve Board and Mark Schweitzer of the Cleveland Fed indicates that minimum wages increase poverty.

How can this be? Because the relationship between being a low-wage worker and living in a poor family is remarkably weak. Many low-wage teenagers and young adults are in higher-income families, and many poor families have no workers.

According to recent data from a study by Richard Burkhauser and Joseph Sabia, 34% of minimum-wage workers were in families with incomes exceeding three times the poverty line ($22,050 for a family of four) -- roughly the top half of the income distribution. Only 17% were in poor families.

In addition, when deciding which low-wage worker to retain following a minimum wage increase, employers may opt for a teenager, who may have high potential, over an adult who, because he still earns a low wage, likely has much lower potential. Thus, the job-destroying effects of minimum wages fall particularly hard on low-skilled adults in poor families.

There is also evidence that the short-term consequences of minimum wages have long-term effects. The principal sources of an individual's higher earnings are more schooling and the accumulation of experience and skills in the labor market. Unfortunately, increased minimum wages induce some teenagers to drop out of high school and take a job. Moreover, these dropouts take jobs away from the even lower-skilled teenagers who had dropped out earlier. With fewer opportunities to acquire labor-market experience and skills, these teenagers face lower wages as adults.

The accumulated evidence undermines the case for minimum wages even in the best of times. I recognize that there is continuing debate about some of the effects of minimum wages, and that strong public support for higher minimums -- regardless of the evidence -- will likely lead to future increases.

But let's put aside the broader debate and focus on the narrower question: Should we raise the minimum wage in the worst of times? When so many people -- especially the young -- are struggling to find a toe hold in the labor market, does it really make sense to make it harder for employers to hire them?

Minimum wages, like most public policies, confront us with trade-offs. An employed, low-skilled worker who keeps his job earns a slightly higher wage. But a worker who loses his job, or a labor-market entrant or unemployed worker who cannot find a new job, pays a much higher cost. Given present economic conditions, the imperative should be to create and enhance job opportunities.

I do not expect President Obama or congressional Democrats to give up their long-held support for a higher minimum wage. However, they should delay the increase in the minimum wage scheduled for this summer.

Mr. Neumark is professor of economics at the University of California, Irvine, and the author, with William Wascher, of "Minimum Wages" (MIT Press, 2008).

When I saw the title, I knew it was you.  Why do you hate people so much?

[Grumpier Than Uncle Joe]

Abolish it completely.

[memphis]

There's no shortage of minimum wage jobs. Any slob can get a job at the local supermarket or fast-food place. It's the quality jobs that are in short supply.

[opebo]

There's no shortage of minimum wage jobs. Any slob can get a job at the local supermarket or fast-food place. It's the quality jobs that are in short supply.

'Quality' implies luxury or excess.  In fact what are in short supply are jobs that allow long term survival.

[Storebought]

There's no shortage of minimum wage jobs. Any slob can get a job at the local supermarket or fast-food place. It's the quality jobs that are in short supply.

'Quality' implies luxury or excess.  In fact what are in short supply are jobs that allow long term survival.

And why is that?

[opebo]

There's no shortage of minimum wage jobs. Any slob can get a job at the local supermarket or fast-food place. It's the quality jobs that are in short supply.

'Quality' implies luxury or excess.  In fact what are in short supply are jobs that allow long term survival.

And why is that?

Because that is the way the system is devised - it is not devised to benefit the worker but the owner.  So, the owner prefers to 'use people up' - giving them just enough wage to drag themselves in every day, but not enough to maintain a healthy lifestyle, or to receive health care or other necessities.  Basically the worker toils and manages to just get by during his 20s to his 40s, 50s or so, and then it will begin to fall apart.

[Storebought]

There's no shortage of minimum wage jobs. Any slob can get a job at the local supermarket or fast-food place. It's the quality jobs that are in short supply.

'Quality' implies luxury or excess.  In fact what are in short supply are jobs that allow long term survival.

And why is that?

Because that is the way the system is devised - it is not devised to benefit the worker but the owner.  So, the owner prefers to 'use people up' - giving them just enough wage to drag themselves in every day, but not enough to maintain a healthy lifestyle, or to receive health care or other necessities.  Basically the worker toils and manages to just get by during his 20s to his 40s, 50s or so, and then it will begin to fall apart.

The outcome is unequal, but that is because the game is unequal, and not in the employee's favor. In the typical 'loser job' scenario, the employer is the one who brings the money, the goods to be sold, the uniforms, and the training and organization to the agreement, whereas the employee brings only his time. He has no leverage over the terms of his work, and in fact, should receive a great deal worse out of it than what he does.

[12th Doctor]

So long as the paycheck is a pittance, raise it. I understand the rate of unemployment rises when minimum wage does, but rock and a hard place, frankly.

About 100,000 steelworkers around Pittsburgh made that same gamble back in the 1960's.  Where is the steel industry today?  Of course, their "hard place" was making $50/hour, but they all still figured they were better off yelling "gimme, gimme, gimme" than taking a few pay/benefits cuts here and there so that the comapnies could afford to keep jobs.

[12th Doctor]

Same thing with the auto industry over the past decade.

Of course, minimum wage hikes will also equal price hikes, which is just what you need in a bad economy.

[phk]

From Forbes

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