Vernuccio’s View: Increased Minimum Wage Increases Unemployment

Frank VernuccioIncreased Minimum Wage Increases Unemployment

By Frank Vernuccio, Jr., J.D.  


The debate over raising the minimum wage has become a significant factor in the presidential contest. The evidence indicates that, contrary to the claims of Senator Sanders and former Secretary of State Clinton, increasing pay for the lowest paying jobs will increase unemployment and harm the very people the concept purports to assist.

The concept that hiking the minimum wage will not cause increased unemployment was satirized recently by Rep. Chris Collins (R-NY) when he asked his Democrat colleagues “If raising the minimum wage to $15 won’t hurt the economy or produce increased unemployment, why not raise it to $50 instead?”

The Mises Institute notes:

“The minimum wage is constantly sold as good for workers, or minorities or women. In truth, it hurts the most vulnerable and those its well-intentioned sponsors intend to help. A study by Jeffrey Clemens and Michael Wither evaluated the effect of minimum wage increases on low-skilled workers during the recession and found that minimum wage increases between December 2006 and December 2012 … reduced the national employment-population ratio by 0.7 percentage points.” That amounts to about 1.4 million jobs. And more noteworthy, that ‘… binding minimum wage increases significantly reduced the likelihood that low-skilled workers rose to what we characterize as lower middle class earnings.’

“Yes, it’s hard to make ends meet with a minimum wage job and such jobs certainly aren’t enviable. That being said, cutting out the bottom rung from people just makes it all the harder to get by. A bad job is better than no job and it is often the first step to something better.”

One reason raising minimum wage causes unemployment is that it increases the viability of automating positions. The Brookings Institute reports:

“The movement pushing for a $15 per hour minimum wage has succeeded in several large cities like New York, Los Angeles, San Francisco, and Seattle. These minimum wage increases coincide with falling prices for computers that can replace human labor in some low-skill jobs. A higher minimum wage changes cost considerations for businesses seeking to automate more of their operations. Increasingly, low-skill workers will not only have to compete with each other for jobs at higher wages, but also with computers. Staying competitive in a changing job market will require workers to specialize in tasks that computers cannot easily perform.”

In a study on the impact on increasing the minimum wage in New York State, the Empire Center  found:

“Advocates of such a policy believe that low-income workers will be its primary beneficiaries…the poorest New Yorkers would have the most to lose from a sharp rise in the government-mandated wage floor. The authors, economists Douglas Holtz-Eakin and Ben Gitis of the American Action Forum, draw on three credible research models to estimate low, medium and high impacts from raising the statewide minimum wage to $12 or $15.

“The key finding: a $15 minimum wage ultimately would cost the state at least 200,000 jobs, with proportionately larger employment decreases in upstate regions. That’s the authors’ “low-impact” scenario, based on a model developed by the Congressional Budget Office, of which Holtz-Eakin is a former director.

“The other two models point to even bigger losses, indicating that a $15 an hour minimum wage would lead to 432,200 and 588,000 fewer jobs under the “medium impact” and “high impact” scenarios, respectively.

“Job losses would be smaller, but still more than New Yorkers should be willing to tolerate, if the state was to set the minimum at $12 an hour, according to Holtz-Eakin and Gitis.

“Based on national labor force data, the authors of this paper estimate less than 7 percent of the wages generated by a $15 wage, and less than 6 percent of the wages generated by a $12 wage, would actually go to households in poverty.”

The Employment Policies Institute verifies that study on a national level:

“An overwhelming majority of American labor economists agree that minimum wage hikes are an inefficient way to address the needs of poor families, according to a new national survey of the American Economic Association (AEA). The survey was conducted by the University of New Hampshire Survey Center and sponsored by the Employment Policies Institute. Over 73 percent of AEA labor economists believe that a significant increase will lead to employment losses and 68 percent think these employment losses fall disproportionately on the least-skilled. Only 6 percent feel that minimum wage hikes are an efficient way to alleviate poverty.”

Frank Vernuccio serves as editor-in-chief of the New York Analysis of Policy & Government

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