Four years ago, Congress pushed the minimum wage up more than 40% in a three-step process that finished in 2009. How has that worked out for those most likely to find employment at that wage level — inexperienced teenagers? As the Wall Street Journal notes, the percentage of teens employed in this economy has fallen from 42% in 2001 to 24% today, and it’s worse among black and Hispanic teens:
Perhaps you’ve already noticed around the neighborhood, but this is a rotten summer for young Americans to find a job. The Department of Labor reported last week that a smaller share of 16-19 year-olds are working than at anytime since records began to be kept in 1948.
Only 24% of teens, one in four, have jobs, compared to 42% as recently as the summer of 2001. The nearby chart chronicles the teen employment percentage over time, including the notable plunge in the last decade. So instead of learning valuable job skills—getting out of bed before noon, showing up on time, being courteous to customers, operating a cash register or fork lift—millions of kids will spend the summer playing computer games or hanging out. …
But Congress has also contributed by passing one of the most ill-timed minimum wage increases in history. One of the first acts of the gone-but-not-forgotten Nancy Pelosi ascendancy was to raise the minimum wage in stages to $7.25 an hour in 2009 from $5.15 in 2007. Even liberals ought to understand that raising the cost of hiring the young and unskilled while employers are slashing payrolls is loopy economics.
Or maybe not. The Center for American Progress, often called the think tank for the Obama White House, recently recommended another increase to $8.25 an hour. Though the U.S. unemployment rate is 9.1%, the thinkers assert that a rising wage would “stimulate economic growth to the tune of 50,000 new jobs.” So if the government orders employers to pay more to hire workers when they’re already not hiring, they’ll somehow hire more workers. By this logic, if we raised the minimum wage to $25 an hour we’d have full employment.
The logic of minimum wage hikes (or the existence of it in the first place) is hard to discern anyway. Leaving aside the argument against a legal minimum, though, the effect of raising the level doesn’t end up delivering prosperity or more buying power. It drives up business costs with no commensurate increase in value, leading to either fewer employees or higher prices.
Either way, it erodes the buying power of those making the lowest wages while at the same time also eroding their bargaining value in the job market. After all, if a business has to hire someone at $2 more per hour, why not hire the more experienced applicant and avoid taking chances on the inexperienced? In a labor market in the shape as we have currently, no one needs to make the latter choice.
I explained the problem more than four years ago at Captain’s Quarters:
Arbitrarily raising the prices of services and goods in a marketplace causes inflation, not an increase in real value. They’re forcing consumers of labor to pay more for the same service, from which they will get no increased benefit — and that means that they will have to pass the costs along to the consumers of their goods and services, all through the distribution chain.
Whose money is getting given away? Yours and mine, and all 479,000 minimum-wage workers, that’s who. [I] can absorb the incremental loss of buying power, but the people at the bottom rungs cannot. If they’re lucky, all that will happen is that their buying power will remain the same as it was after a short period of adjustment. More likely, some of their jobs will get eliminated as businesses have to support the cost increase in some other fashion than price hikes.
And it’s not even the working poor that gets helped in the increase. The working poor may have started at minimum wage, but they move up as they progress in their jobs. It is an absolute fallacy to argue that minimum-wage workers have not gotten a raise since the last federal increase of the minimum wage; they get raises as they increase their value to their employer, not from Uncle Sam. Anyone who has worked at the minimum wage since 1997 is either switching jobs too often to get a raise or is not very productive. The people making minimum wage are by and large temporary workers and people who make most of their living through tips, the latter comprising three out of every five minimum-wage workers. It’s not an accurate reflection of their standard of living.
Two years ago, I noted that David Neumark accurately predicted the results of the 2007 legislation:
Based on their comprehensive reading of the evidence, Neumark and Wascher argue that minimum wages do not achieve the main goals set forth by their supporters. They reduce employment opportunities for less-skilled workers and tend to reduce their earnings; they are not an effective means of reducing poverty; and they appear to have adverse longer-term effects on wages and earnings, in part by reducing the acquisition of human capital. The authors argue that policymakers should instead look for other tools to raise the wages of low-skill workers and to provide poor families with an acceptable standard of living.
This policy has other, non-economic consequences. Thanks to the combination of government intervention and a poor economy (also the result of government intervention), we will have record numbers of teens without jobs this summer. That doesn’t bode well for local law enforcement as teen loiter instead of being involved in productive work. That will put more pressure on local and state government budgets at a time when they can hardly afford it.