RSS FEEDSJANUARY 27, 2011
Minimum Wage Insanity
Let's start with sanity, some logic.
Theorem: A firm cannot pay workers more than the value that they add to the firm and remain in business.
Corollary 1: Imposing a minimum wage will determine who can get a job and who cannot.
Corollary 2: A minimum wage does not impact the salaries of workers who add more value than the minimum if wages are set in a market environment.
Corollary 3: Eliminating the minimum wage will create employment opportunities for those who add value less than the prevailing minimum and will not result in reductions in wages for workers who add value in excess of the prevailing minimum.
GM is an example of a firm that was compelled to pay more than the value workers added and it failed as predicted a decade ago. Only huge contributions of capital by those stock and bond holders who lost their investment and taxpayers who bailed it out have made today's GM possible. Whether it can survive on its own is still unknown.
OK, makes sense, workers must "pay their own way" or the firm loses money hiring them. The minimum wage sets this hurdle - a worker must bring at least 2,000 hours x minimum wage to the firm to be employed. The higher the minimum wage, the higher the hurdle the worker must surmount. Thus, setting the minimum wage determines who can get a job and who cannot.
Here's a recent "real world" example.
In the first half of 2009, the economy shrank at an alarming -4%, part of the worst recession since the Depression. In the first half, teen employment fell by 270,000. This is reasonable, a much weaker economy requires fewer workers to take care of customers.
According to the NBER, the recession ended in June, 2009 and sure enough, the economy grew at a hot 4% rate in the second half. This should have produced an end to teen job loss at a minimum or maybe an increase in jobs. Teen employment fell by 580,000 jobs. Why? Well one BIG reason is that Congress raised the minimum wage in July, 2009 by 10.7%. In a lousy economy, Congress compelled owners to give a huge raise to unskilled workers OR NOT HIRE THEM. Hello!!
Job growth has been very slow in the recovery, and Congress has passed much legislation allegedly to encourage hiring. Yet the White House is now talking about raising the minimum wage to $9. All this will do is relegate more youth to the street corner economy, not just when it happens but forever since the minimum wage sets the hurdle to be beaten every year from the time it is passed. Are these people connected at all to reality? Not exactly "pro-jobs" policy, and it has even worse long term implications as those displaced by the higher minimum will not get the "on the job" training that we all experienced and needed to develop into productive workers.
William Dunkelberg, PhD is an Economics Professor at Temple University and a Commonwealth Foundation Board Member
posted by WILLIAM DUNKELBERG | 10:19 AM | 1 comment
JUNE 24, 2010
Video: How Minimum Wage Laws Kill Jobs
The Center for Freedom and Prosperity has a new video out explaining how minimum wage laws kill jobs.
From 2006 to 2009 the minimum wage rate increased over 40%. Recent research from Ball State University found a 10% increase in the minimum wage results in an increase in unemployment, affecting youth and the poor the most severely. You can read more about the affects of minimum wage rates here.
posted by KATRINA CURRIE | 09:10 AM | 0 comment
MARCH 10, 2010
Is Minimum Wage the Panacea or the Disease
A new report by the Bureau of Business Research at Ball State University found that the recent minimum wage increases account for 550,000 fewer part-time jobs. According to the analysis of Bureau of Labor Statistics data, most these losses are among workers between the age of 16 and 19. (HT: Americans for Tax Reform)
The minimum wage hike during a downturn had a significant impact, especially on part-time workers, because it as business could no longer afford the additional costs. As a result, jobs losses among younger workers were especially pronounced.
Federal and state governments legislate minimum wage to help the poor and unskilled. Yet, studies and consensus among economists have found that minimum wage laws have a negative effect on employment. Indeed countless studies of minimum wage laws have found that they reduce employment, primarily among the low-skill workers and disproportionately affect the young.
posted by ABHILASH SAMUEL | 10:38 AM | 0 comment
JANUARY 18, 2010
How Government Hinders Job Creation
Economist Mark Hendrickson has a good piece for The Center for Vision & Values at Grove City College explaining why federal policies aimed at "creating jobs" or even helping workers are actually fostering higher unemployment. While pointing out the flaws of the "jobs created" claims from the stimulus, Hendrickson points to other policies that drive up unemployment.
In June, the minimum wage rate increased 75 cents. This government intervention priced many young Americans out of jobs, with the unemployment rate for black teens rising from an already-too-high 39 percent to an abominable 50 percent. ...
Another factor that has aggravated unemployment this year is that Uncle Sam's enormous budget deficit has consumed virtually all the available credit, crippling the ability of private businesses to hire new workers. ...
What about the Obama hype about creating new "green" jobs? Lots of luck! Germany's government tried this, and every "green" job cost $240,000 and raised the overall unemployment rate. Each solar energy job in sunny Spain resulted in the loss of 2.2 other jobs.
Hendrickson could also have mentioned extending unemployment benefits - which simultaneously encourages workers to stay unemployed (paying them to do so) and discourages companies from higher workers, by driving up their costs for unemployment coverage.
Hendrickson summarize why government "jobs" programs don't work.
When a job exists only because of a government subsidy (whether in the form of a grant, a tax credit, or any other policy device), then what the job produces is worth less than the worker is being paid. Society as a whole is made poorer by the difference between the value of what the worker produces and what the government pays him, and that wealth is withdrawn from the private sector.
posted by NATHAN BENEFIELD | 09:01 AM | 0 comment
DECEMBER 3, 2009
The Minimum Wage Myth
As unemployment continues to rise and talk of a jobs stimulus circulates some are advocating for another increase in the minimum wage. But such a move would destroy jobs instead of spurring employment, especially for younger workers.
Under President Bush the minimum wage increased from $5.15 to $7.25 over the last 3 years. But instead of aiding unskilled workers it actually hurt their ability to find jobs. Unemployment among white youth age 16-19 is at a 10 year high, with 25.3% unemployed in October - up 36% from a year ago. Among African-American youths, the unemployment rate is 41.3%, up 25% from 2008, and young Hispanics have a 35.6% unemployment rate.
Numbers from the Bureau of Labor Statistics show a rise in unemployment for the 16-19 age group immediately following the last three minimum wage increases.
Source: Bureau of Labor Statistics
posted by ELIZABETH STELLE | 09:00 AM | 3 comments
JULY 22, 2009
Minimum wage up again
On Friday, Pennsylvania’s minimum wage will increase ten cents, to $7.25 an hour. During already troubling economic times, the increase in minimum wage will hurt business, and will not help the minimum wage earners either. Reluctant to absorb further decline in profit, businesses will pass the new cost on to consumers, or even lay off workers.
Some argue that the increase in minimum wage will stimulate the economy by putting more in the pockets in workers, allowing them to spend more on food, clothing and entertainment. This argument over-looks the fact that there is evidence showing fewer minimum wage earners, mostly young adults or teens, will be hired. Furthermore, workers may find their hours cut, in order for the company to reduce costs.
Continuing to increase the minimum wage is just perpetuating a cycle of cost increases and job loss.
posted by NATALIE ROGOL | 02:23 PM | 0 comment
JUNE 9, 2008
Is the minimum wage behind higher unemployment?
Mark Perry makes the case that the recent uptick in unemployment in the US is partially due to the increase in the federal minimum wage (and the pending increase next month).
His evidence is that the bulk of the increase in unemployment is in the 16-19 year old range and the 20-24 year old range – i.e. those who often earn minimum wage or slightly above.
posted by NATHAN BENEFIELD | 11:16 AM | 0 comment
MARCH 4, 2008
Did the PA min. wage increase cost jobs?
The PA Department of Labor and Industry released their report on the state minimum wage increase. As this Post-Gazette story indicated, the report doesn't attempt to address what the effect on jobs lost.
We have commented and testified both anecdotal and survey evidence of employers laying off workers, reducing hours and costs elsewhere, and not hiring new employees. The report does not include this evidence, focusing solely on state and national data, and does not draw any conclusions about the employment effects of the minimum wage increase.
It is, of course, virtually impossible to tease out the impact of the minimum wage increase from state employment data. Nonetheless, the data present does allow for some interesting observations:
As the above table shows, salaried employees - i.e. those unaffected by the minimum hourly wage - represent all or most of the jobs added in 2007. Hourly jobs declined over the full year average, and were up only slightly during the 2nd half of 2007.
This table shows job growth/decline by wage. Interestingly, hourly low-wage jobs declined, while job growth occurred among higher paying jobs. This could be interpreted to mean that many slightly-above-minimum wage workers got raises, or, as our study predicted, many low-wage low-skill jobs were eliminated. Most likely, both trends were in effect.
posted by NATHAN BENEFIELD | 08:20 AM | 0 comment
AUGUST 17, 2006
Mythology Of The Minimum Wage
CBS News article on how raising the federal minimum wage increases poverty and unemployment
posted by NATHAN BENEFIELD | 00:53 PM | 0 comment
AUGUST 10, 2006
Sowell on the Minimum Wage
Thomas Sowell on minimum wage laws, from Real Clear Politics: "Minimum wage laws play Russian roulette with people who need jobs and the work experience that will enable them to rise to higher pay levels."
posted by NATHAN BENEFIELD | 02:56 PM | 0 comment
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