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Faced with what seems to be an increasing level of misleading rhetoric about conservative positions on public policy issues, The National Center for Public Policy Research has resolved to help bridge the gap between rhetoric and reality.
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Published by The National Center for Public Policy Research
Employment: Do Minimum Wage Increases Benefit Workers and the Economy?
But the job-killing effect of higher mandatory minimum wages is well documented. As Alex Adrianson of The Heritage Foundation points out: "Raising the minimum wage increases the prices of goods produced by minimum wage workers. Consumers respond by buying less, and employers respond by making less, which means fewer jobs. Employers also respond to relatively more expensive labor by investing in labor-saving technology, which again means fewer jobs."2
At the federal level, the National Federation of Independent Business (NFIB), an advocate on behalf of small and independent businesses, estimates a federal increase to $6.65 an hour would result in 217,000 workers losing their jobs.3 Some 146,000 workers in the restaurant industry lost their jobs following the last federal minimum wage increase Congress enacted in 1996, according to the National Restaurant Association.4
At the state level, raising the wage level by $6.75 to $8.25 per hour in Massachusetts would result in an estimated 26,970 lost jobs and $371 million in lost wages across the state if implemented, according to David Tuerck and Paul Bachman of The Beacon Hill Institute at Suffolk University. Low-wage workers, women and workers over the age of 20 would suffer disproportionate employment losses.5
Federal minimum wage increases are also harmful to small business. The NFIB explains:
Moreover, mandatory increases remove the flexibility of business owners to decide how much to pay their own employees. As a result, it may be difficult for small businesses operating at the margins to find ways to cut costs while continuing to offer a competitive service and attractive employee benefits. As Mark Alesse and Matthew Guilbault of the New York chapter of the NFIB write:
In addition to hurting 'mom-and-pop' businesses, the minimum wage also tends to “price out” low-wage workers and those with minimal educational and skill attainment.
For instance, in Santa Fe, California the unemployment effects of mandated wages have been most pronounced among the least-skilled workers. In 2004, the city mandated a minimum wage increase to $9.50 per hour - an additional increase to $10.50 is scheduled to take effect in 2008 - on private city businesses employing more than 25 people. According to University of Kentucky economist Dr. Aaron Yelowitz, the likelihood of unemployment increased 3.3 percent among city workers and 8.3 percent among less educated individuals (those with fewer than 13 years of education).8 Usual hours of work also fell most sharply among the less educated group - 3.2 hours per week, compared to only 1.0 hours for the general workforce.9
Economic research shows that mandatory minimum wage increases offer little help to the working poor. According to analysis of 2003 Current Population Survey (CPS) data by Richard Burkhauser and Joseph Sabia of Cornell University, over 70 percent of workers living in poor families - the "working poor" - earn hourly wages greater than $7.00 an hour.10
Ironically, the primary beneficiaries of a minimum wage increase would be those workers already living in higher-income families. As George Mason University economist Walter Williams points out using U.S. Bureau of Labor Statistics data, the overwhelming majority of minimum wage earners do not fit the poverty-stricken demographic that the minimum wage is intended to assist.
Instead of forcing employers to pay what the "legislative gods" deem appropriate, James Dorn of the Cato Institute argues that legislatures should focus on establishing positive conditions for economic prosperity. Dorn writes, "If legislators really want to help the poor, the best thing they can do is abolish, not increase, the minimum wage."12 Dorn concludes, "Policies that increase competition and choice in public education, reduce marginal tax rates on capital and labor, and protect private property rights would be positive steps toward increasing economic freedom, workers' dignity, and prosperity."13
Issue Date: January 2, 2007
1 The Young Turks Radio Show, "Representative George Miller Interview on the Minimum Wage and the Estate Tax," House Committee on Education and the Workforce, June 26, 2006, available at http://edworkforce.house.gov/democrats/statements/transcript62606.html as of Nov. 22, 2006.