Posts Tagged ‘negative employment effects’

Miniumum Wage Increase Means Maximum Employment Decrease

July 27, 2009

The Democrats raised the national minimum wage from $6.55 to $7.25.  They claim that the additional earnings will help the economy.  Just like their stimulus did (right?).

Of course, raising the minimum wage is effectively a tax increase imposed primarily on small businesses.  Things always seem so easy when your spending other peoples’ money.

The road to hell is paved with good intentions, goes the saying.  Whoever first said that surely must have had Democrats in mind.

The economist who literally wrote the book on Minimum Wages predicts that the minimum wage hike will result in the loss of 300,000 jobs.  And that’s a HUGE number, consider there are only 2.8 million minimum wage workers; it’s 10.7% of the total minimum wage work force!

THAT’S the way to help the economy!  THAT’S the way to help poor workers!

Anthony Randazo at Reason.org has an article entitled, “My Plan to Save 300,000 Jobs by Monday,” writing:

Supporters of the minimum wage like to believe that they are helping to raise wages. But since the pool of earnings for any business is not infinite, any increase in wages decreases the firms profitability. Generally this leads to some people getting fired, and many, many others not getting a job in the first place. With an unemployment rate of 9.5%, the government should be doing everything possible to encourage firms to hire people. How does making businesses pay their employees more in this down economy help create jobs?

U. Cal-Irvine economist David Neumark estimates in a study for the National Bureau of Economic Research that the impending wage increase will kill “about 300,000 jobs for those between the ages of 16-24.” The White House has projected (not counted) that the stimulus money has created 150,000 jobs so far. Even if that is true, it will soon be wiped out by this new limitation of business development. It is pretty simple math. If you don’t raise the minimum wage, the jobs are saved. End of story.

The U.S. Bureau of Labor Statistics is on the record essentially saying that the Obama administration’s claim of having “created or saved” 150,000 jobs is tantamount to looking at clouds and seeing animals in the sky.  Which is just one among many, many reasons to laugh at the Obama “job creation” record.  Sadly, 300,000 actual real jobs lost is twice as many as the fake pretend jobs Obama claimed to “create or save.”

The Wall Street Journal has another catchy-titled article, “Mandating Unemployment: Congress prepares to kill more jobs:

Here’s some economic logic to ponder. The unemployment rate in June for American teenagers was 24%, for black teens it was 38%, and even White House economists are predicting more job losses. So how about raising the cost of that teenage labor?

Sorry to say, but that’s precisely what will happen on July 24, when the minimum wage will increase to $7.25 an hour from $6.55. The national wage floor will have increased 41% since the three-step hike was approved by the Democratic Congress in May 2007. Then the economy was humming, with an overall jobless rate of 4.5% and many entry-level jobs paying more than the minimum. That’s a hard case to make now, with a 9.5% national jobless rate and thousands of employers facing razor-thin profit margins.

There’s been a long and spirited debate among economists about who gets hurt and who benefits when the minimum wage rises. But in a 2006 National Bureau of Economic Research paper, economists David Neumark of the University of California, Irvine, and William Wascher of the Federal Reserve Bank reviewed the voluminous literature over the past 30 years and came to two almost universally acknowledged conclusions.

First, “a sizable majority of the studies give a relatively consistent (though not always statistically significant) indication of negative employment effects.”
Second, “studies that focus on the least-skilled groups [i.e., teens, and welfare moms] provide relatively overwhelming evidence of stronger disemployment effects.”

Proponents argue that millions of workers will benefit from the bigger paychecks. But about two of every three full-time minimum-wage workers get a pay raise anyway within a year on the job. Meanwhile, those who lose their jobs or who never get a job in the first place get a minimum wage of $0.

Mr. Neumark calculates that the 70-cent per-hour minimum wage hike this month would kill “about 300,000 jobs for those between the ages of 16-24.” Single working mothers would also be among those most hurt.

Keep in mind the Earned Income Tax Credit already exists to help low-wage workers and has been greatly expanded in recent years. The EITC also spreads the cost of the wage supplement to all Americans, not merely to employers, so it doesn’t raise the cost of hiring low-wage workers.

For example, consider a single mom with two kids who earns the current $6.55 minimum at a full-time, year-round job. In 2009 she receives a $5,028 EITC cash payment from Uncle Sam — or about an extra $2.50 per hour worked. Other federal income supplements, such as the refundable child tax credit, add another $1,900 or so. Thus at a wage of $6.55 an hour, her actual pay becomes $10.02 an hour — more than a 50% increase from the current minimum. (See nearby table.)

But that single mom can’t collect those checks if she doesn’t have a job, and the tragedy of a higher minimum wage is that it will prevent thousands of working moms striving to pull their families out of poverty from being hired in the first place.

If Congress were wise and compassionate, it would at least suspend the wage hike for one or two years until the job market recovers. We know this Congress won’t do that, but someone has to speak up for the poorest, least skilled Americans.

Democrats speak up all the time, of course, but that’s just rhetoric and demagoguery.  They create mess after mess, and disaster after disaster, in the name of “saving the day.”  And then they ride off to let the American people suffer the consequences of their policies, realizing that with the mainstream media’s willing participation they can attribute the agony inflicted on the poor to the Republican’s “lack of compassion.”

Minimum wage hikes clearly have more impact at the lower end of the wage distribution.  They effect low skilled workers and the primarily small business employers who hire them.  Minimum wages reduce employment.  There’s been a substantial body of evidence accumulated over 20 years of recent research and still another 80 years of other research.  And it clearly shows that, essentially – just like when the price of gas goes up people use less gas, or just like when taxing cigarettes people smoke less – when you raise the wages of extremely low-skilled labor employers invariably will try to use something else.

The 300,000 jobs won’t hit tomorrow.  You won’t pick up the paper the day after the wage hike to read the headline, “300k jobs lost,” although given our level of media propaganda you might well see a headline that reads, “300k jobs not lost, dire predictions about the minimum wage hike false.”   But the fact remains that low wage labor market is filled with jobs that turn over very quickly.  And if an employer simply slows down his or her hiring, employment will nevertheless fall pretty quickly.

This is just another in a long line of terrible economic policies in the name of “helping the poor” that will invariably end up HURTING the poor.

According to polls, 57.4% of Obama voters had no idea which party controlled the Congress for the last two years when our economy went from strong to terrible.  That makes it easy for Democrats to demagogue fiction out of fact.  For the record, it was Democrats.  The Dow Industrial Average was at 11,986.04 on November 3, 2006 when Republicans were last in control of Congress. The unemployment rate for October of 2006 was at 4.4% when Republicans last ran things.  Nancy Pelosi, Barney Frank, Harry Reid, and Chris Dodd brought us from 4.4% to 9.5% unemployment which by nearly all accounts is going to get worse and worse.

The fact of the matter is, the Republicans tried to regulate the housing industry, and Democrats – true to form – denied there was a crisis, blocked the Republican effort, and clung to Titanic-sized economic landmines in the name of “helping the poor.” Even right before the housing mortgage industry completely imploded, Barney Frank was claiming that Freddie Mae and Fannie Mac (which DOMINATE the housing mortgage industry) was “fundamentally sound.”

What we come to find out is that “fundamentally sound” just means that liberals are getting everything they want and it hasn’t completely blown up yet.

Democrats are like nurses who bring thirsty patients their very favorite brand of Kool-Aid.  It’s a tasty beverage; don’t worry about the fact that it is  contains arsenic (which just happens to be the primary ingredient in rat poison).  It’s ultimately a terrible way to die, but what the heck, it sure taste good going down.