February 5, 2014
As originally published in the New Hampshire Union Leader
Proposals at the state and national level to increase the minimum wage will hurt the job market, decrease the number of jobs available, and hurt the people advocates are trying to help. Specifically, the higher wage will make it more expensive to hire entry level workers and reduce opportunities for lower skill workers trying to build job experience.
The current federal and state minimum wage is $7.25 per hour. It is a minimum that affects few employees. Nationally, only 2.7% of all wage and salary workers earn the minimum or less (1.2% of workers are at the minimum while 1.5% have jobs that can legally pay less than the minimum like golf caddies, outside sales, or farm labor).
Economists are paraded about by both sides to advocate for and against and to discuss the effects. A 2007 National Bureau of Economic Research paper reviewing the literature found “a lack of consensus about the overall effects on low-wage employment.” But lest you think the research is completely up in the air, the authors noted “the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.”
This evidence is not hard to understand. The minimum wage is not a wage people expect to make for the rest of their lives. It is not a permanent wage. In fact, two-thirds of minimum wage workers earn a raise within a year, the majority of them seeing wages increase by 24% or more.
Two-thirds of minimum wage workers are part-time and the majority are young, under the age of 25. In fact, most of us started in a minimum wage job. Data shows 55% of American workers started at or near the minimum wage. Your own experience is probably similar. My early jobs were below minimum age and at the minimum wage.
Supporters suggest that an increase in the minimum would not reduce or affect the jobs available. Common sense, and the preponderance of research, suggests this isn’t true.
We would all agree that doubling or tripling the minimum wage would naturally reduce the number of jobs available. A company that can afford a small number of employees at $7.25 will have fewer employees for fewer hours if we make them pay $15 or $21. Companies, already reluctant to add jobs because of economic uncertainty, will add fewer jobs, cut back hours.
Mandated minimums can be thought of as the price of hiring. If you make the price for an employer of hiring labor higher, he will hire less of it than he otherwise would. A smaller increase will have a smaller effect but it will have an effect.
The people most affected are people entering the job market. For most of us, our first entry into the market is through a minimum wage job – that first job through which we gain the valuable experience of having a job, getting a start doing something, being supervised, working specific hours at someone else’s direction. That entry is invaluable.
Raising the price of entry means there will be fewer opportunities. Remember that 21% of teenagers paid hourly earn the minimum wage but only 3% of hourly workers 25 and over. Obviously, the minimum wage is best thought of, for most workers, as the entry gate into the labor market.
Thought of this way, raising the minimum wage hurts the people advocates most want to help. We want more workers having an opportunity to enter the market and start building the experience needed to get their second job. We want more workers to start the process of having a beginning job, moving to an intermediate job, and then to a more advanced job.
Increasing the price of entry level jobs will reduce the number of them. For a worker whose job isn’t downsized, he or she will see more money initially. But for many more workers and potential workers their potential position won’t be created, their hours reduced, or their jobs eliminated.
At the end of the day, New Hampshire needs more jobs not fewer. Entry-level workers need greater opportunities. Raising the minimum wage will satisfy politicians who don’t understand economics but will hurt the very people they are pretending to help.