New Visions Commentary
The National Leadership Network of Conservative African-Americans
President Clinton's Plan to Increase Unemployment: Raise the Minimum Wage
A New Visions Commentary
paper published March 1996 by The National Center
for Public Policy Research * 20 F Street, NW #700, Washington, DC 20002, (202) 507-6398, Fax 202-543-5975, E-Mail [email protected], Web http://www.nationalcenter.org.
Reprints permitted provided source is credited.
This year's State of the Union Address proves once again that you can't teach an old dog, or perhaps a New Democrat, new tricks.
For the third year in a row, President Clinton has called for an increase in the minimum wage. Predictably, he invokes the populist rhetoric that the minimum wage must be raised to give working families a "decent living wage." And as before, his argument is riddled with errors.
The effects of raising the minimum wage are no longer an enigma. While the Administration, usually in the form of Labor Secretary Robert Reich, sporadically trots out tattered and discredited studies citing the purported salutary effects of a minimum wage hike, the overwhelming number of studies have concluded that the deleterious effects of minimum wage hikes far outnumber the positive ones. Indeed, a University of New Hampshire poll of the nation's economists shows that nearly 80% acknowledge that minimum wage hikes cause job losses.
The effects of a minimum wage hike are particularly devastating to black youths, whose unemployment rate exceeds 65% in some areas of the country. Forty years ago, when Jim Crow was alive and well but before substantial increases in the minimum wage, the unemployment rate for black youths was virtually identical to that of white youths. But with the rise in the minimum wage, there has been a rise in the unemployment rates of black youth.
The reason is not complex. An increase in the minimum wage displaces unskilled or low-skilled workers whose labor is not worth the new arbitrary wages mandated by the government. The displacement affects not only those earning the minimum but those whose wages are bumped upward by the new minimum. A disproportionate share of the unskilled workforce consists of black teens.
At least one analysis has concluded that total job losses from minimum wage hikes may not be as great as some suspect. But even if that is the case, more recent studies reveal several phenomena nearly as disturbing as aggregate job loss.
For example, Kevin Lang of Boston University found that minimum wage hikes caused unskilled or low skilled adults to be supplanted by (possibly more educated) teenagers in less need of the income. Consequently, the displaced adults often end up on welfare. In fact, a University of Wisconsin study found that welfare recipients in states with recent increases in the minimum wage spent over 40% more time on welfare than recipients in states with no increase.
Moreover, Dr. David Neumark of Michigan State University has found that minimum wage hikes also significantly alter the composition of the entire teen workforce. In a review of state-level minimum wage data from 1979 through 1992, Dr. Neumark concluded that raising the minimum wage to the $5.15/$5.25 hour level advocated by the President would have a number of adverse effects upon unskilled teens.
First, the general effect of the hike increases the likelihood that unskilled teen workers will be displaced by more highly skilled teens. Teens still in school may leave to find work when the minimum increases, bumping their less educated brethren in the process.
Second, the number of teens working while in school decreases by 8%-15%. Rather than straddle both work and school, teens leave school altogether to pursue the higher minimum wage.
Finally, the domino effect of the displacement increases the number of teens who are neither working nor in school by up to 20%. This is because the new minimum has priced unskilled dropouts out of the market.
The pernicious effects of a minimum wage hike are most acutely felt among black youths. An increase such as that suggested by the President would not only produce a dramatic rise in the number of black youths leaving school to embark upon an unsuccessful job search, but it also causes the number of black teens who are neither in school nor working to skyrocket. The reason is plain to anyone not preoccupied with attracting potential voters: a higher minimum lures those with better skills into the job market and creates barriers to entry for those without skills.
It's time the Administration stopped pulling the minimum wage rabbit out of its hat. It only makes jobs disappear.
Peter Kirsanow, a member of the national Advisory Council of Project 21, is a labor lawyer in Cleveland and serves on the Board of Directors of the Center for New Black Leadership.
Note: New Visions Commentaries reflect the views of their author, and not necessarily those of Project 21.
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