Lost Jobs, Lost Opportunities: The Reality of the Minimum Wage Hike
In 2006, Governor Ed Rendell argued that hiking Pennsylvania’s minimum wage by 39% would not lead to lost jobs and opportunities for low-wage workers. Unfortunately, Mr. Rendell has already been proven wrong, and small employers and entry-level employees are paying the price.
With the support of the Republican-led General Assembly, Governor Rendell increased the minimum wage from $5.15 per hour to $6.25 per hour on January 1, 2007. Another increase to $7.15 will take effect on July 1, 2007 (the minimum wage increases for businesses with 10 employees or less are phased-in more slowly). In doing so, elected officials ignored a basic law of economics that says arbitrarily increasing the price of something will result in less of that something being purchased—in this case, low-skilled labor.
In addition, Governor Rendell and others also chose to ignore a 2005 study from the Commonwealth Foundation that projected the loss of approximately 10,000 low-wage jobs that would result from a minimum wage hike. Instead, they disregarded information on the likely negative impact on employment and embraced faulty analyses and claims from special interest groups.
The projected losses of jobs and opportunities for low-wage workers are no longer conjecture, but reality for many Pennsylvania workers and employers. Consider the following anecdotal reports—which can be easily masked by other general job statistics proffered by minimum wage hike supporters—that were recently brought to light by the Pennsylvania Chamber of Business and Industry:
- Roughly 70 Kennywood Park employees—largely high school and college students—were laid off and ticket prices were increased to cover the still higher labor costs.
- Another 20 employees were laid off at nearby Idlewild Park.
- A fitness chain store operator in the Lehigh Valley laid off 100 part-time workers.
- A central Pennsylvania business reduced its work force by three workers and will attempt to automate additional work and reduce healthcare benefits.
- A central Pennsylvania business that runs an apprenticeship program for engine repair had to reduce available opportunities.
- A large multi-state food retailer will raise prices to consumers to cover additional costs.
- An eastern Pennsylvania-based retailer cut hours in its stores and still surrendered profits.
- A western Pennsylvania manufacturer laid off two employees.
- A business owner with a young family must now work 15 more hours a week at his pizza shop because he cannot afford the financial hit of the increased minimum wage.
Additional evidence of the harmful effects of Pennsylvania’s recent minimum wage hike came from the Spring 2007 Keystone Business Climate Survey by the Lincoln Institute of Public Opinion Research. It revealed that employers have been forced to eliminate, reduce or postpone employment opportunities due to higher labor costs:
“The hike in the minimum wage, intended to help lower paid workers, is actually having the effect of reducing job opportunities for unskilled labor. Twenty-seven percent of the businesses surveyed by the Lincoln Institute said they have decided not to hire teen or inexperienced workers as a result of the minimum wage increase. Another 26% said they are now not hiring new employees. Twelve percent of the respondents said they have cancelled or postponed expansion plans due to the inability to afford the new government mandated wage, six percent said they have cut their hours of operation, and another 2% have had to actually lay off employees due to the minimum wage hike.”
Not-profit charitable groups—and the low-income populations they serve—are also being negatively impacted by the recent minimum wage increase. The Philadelphia Inquirer recently reported that Philadelphia mayoral candidate and State Rep. Dwight Evans—who supported the minimum wage hike—is promising $820,000 in taxpayer-funded subsidies to the Philadelphia Youth Network because the organization can’t afford the higher minimum wage for more than 1,000 inner-city teens.
The 39% hike in the minimum wage was lauded by Gov. Rendell as a means to “help people out of poverty.” Yet because of his ignorance of the laws of economics, Gov. Rendell is costing many low-wage workers the opportunity to take the first step on the ladder toward financial self-sufficiency and economic prosperity.
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Nathan A. Benefield is Director of Policy Research with the Commonwealth Foundation (www.CommonwealthFoundation.org), an independent, nonprofit public policy research and educational institute based in Harrisburg.