Raising Minimum Wage Causes Job Loss
In his 2019 budget address, Governor Wolf lamented “too many hardworking people are struggling to get by.” The solution is attracting high-wage jobs and encouraging more Pennsylvanians to gain valuable work experience so that they can obtain those jobs.
Unfortunately, Governor Wolf has taken a wrong approach. His proposed solution is to raise the minimum wage from $7.25 an hour to $12 by July 1, 2019, and to $15 by 2025.
Governor Wolf argues that raising the minimum wage will help more people earn enough to live independently and opt out of welfare. These savings, Governor Wolf claims, would amount to $36 million in the 2019-2020 budget.
It sounds simple enough, but raising the minimum wage to reduce dependence and poverty doesn’t actually work.
According to a 2017 research paper by Joseph J. Sabia, a professor of economics at San Diego State University, “minimum wage increases are largely ineffective at reducing net participation in public assistance programs.” Furthermore, “Only 16.0 percent of those who would be affected by a $10.10 federal minimum wage are SNAP recipients and just 13.1 percent are Medicaid recipients.”
A recent National Bureau of Economic Research case study of Seattle’s minimum wage increase to $15 an hour found the “reduction in hours would cost the average employee $130 per month, while the wage increase would recoup only $56 of this loss.” After the gains and losses, the average worker has a “net loss of $74 per month” or $888 a year. That equates to a 3 percent annual pay decrease.
Graph: Effects of Minimum Wage in Seattle
Other states aside, research and experience shows a minimum wage increase would harm Pennsylvanians who need work and experience the most—the young and the poor.
According to the Independent Fiscal Office (IFO), raising the minimum wage could destroy 33,000 jobs.
At a recent House Labor and Industry hearing, Gordon Denlinger, state director of the National Federation of Independent Business in Pennsylvania, said;
Many small businesses like restaurants or small shops simply cannot afford to hire inexperienced or unskilled workers at a rate of $15 per hour. The business owner may not be able to raise prices because customers won’t pay a higher price.
Duquesne University economics professor Antony Davies warned businesses will have three options:
- Higher prices
- Lower profits
Lawmakers focused again on the negative impact of a higher minimum wage at Monday’s IFO hearing. Representative Jim Struzzi commented, “A number of jobs we have are filled by young people looking for a basic start.” Representative Struzzi’s concerns are justified, as research shows minimum wage increases hurt teens looking for their first jobs.
Despite Governor Wolf’s best intentions to raise wages and reduce welfare participation, minimum wage hikes won’t work. Those that can’t afford to hire more workers simply won’t. Some will be laid off. Others will see their hours and benefits cut.
The best way to bolster prosperity across Pennsylvania is to free resources for more employees via state tax reform, reducing regulatory burdens, eliminating occupational licensing, and promoting work experience through welfare work requirements.
Raising wages through government mandates doesn't work, but lawmakers can create the economic conditions for jobs that pay a higher wage.