Upcoming minimum wage hike will destroy needed jobs

  • Author: Kristen Lopez Eastlick

  • Publication Date: July 2009

  • Newspaper: Union Leader

  • Topics: Minimum Wage, Teen Unemployment

There’s no question that the nation’s unemployment situation is dire. Forty-eight states reported job losses for the month of May, contributing to a national unemployment rate that’s at a 25-year high. Minority teens and young adults have been hit especially hard. The unemployment rate for black teens has skyrocketed to 38 percent, more than four times the national rate. Yet the millions of people looking for entry-level work this summer will find their efforts undercut by a disastrously timed federal minimum wage hike.

At the end of July, the federal minimum wage is set to jump for the third time in three years to $7.25 per hour. Chuck Fields, a director for the Workforce Investment Act, says his agency has had to cut services in anticipation of the minimum wage hike.

“We’ve had to account for that increase in July which you know may cut some of the number (of people) we could have helped because we have to increase our wages,” he told WALB of Georgia.

Decades of research have shown that minimum wage hikes take a sledgehammer to the entry-level job market. Economist David Neumark recently wrote in The Wall Street Journal that the coming minimum wage increase is expected to destroy an additional 300,000 jobs nationwide, concentrated among the most vulnerable and least skilled employee populations.

However, Congress has the opportunity to save these jobs. Wage hikes always cause a spike in the unemployment rate, and this year, with the country in the middle of a recession, businesses are already struggling to make ends meet. The economy will continue to hemorrhage entry-level jobs unless legislators stop this summer’s minimum wage hike from happening.

The vast majority of economists point out that unskilled workers bear the brunt of minimum wage hikes. According to a 2007 survey from the American Economic Association and the University of New Hampshire Survey Center, 73 percent of labor economists believe increases in the minimum wage will lead to employment losses, which will fall disproportionately on the least skilled workers.

Teens get hit especially hard by wage hikes. Research from the University of Georgia (2006) found that for every 10 percent increase in the minimum wage, teen employment at small businesses decreased between 4.6 to 9 percent. Last summer’s 12 percent minimum wage hike contributed to a 5 percent drop in teen employment and the losses continued this year. Since Congress began implementing the 2007 wage hike, more than 480,000 teen jobs have disappeared across the country.

Pricing teens out of the work force has long-term impacts. A job for a young employee is a chance to learn the invisible curriculum that comes from being employed. A study out of Stanford University found that youths who experienced especially long periods of unemployment were particularly prone to negative long-term effects on future wages and employment. Research from the University of North Carolina at Chapel Hill found that unemployment for teens continues to adversely affect earnings for as long as 10 years.

Adult entry-level workers will find themselves displaced as well. Businesses respond to labor cost increases by laying off workers they can no longer afford and cutting back on hours. The companies that are still hiring seek out more skilled applicants who are worth the higher wage, or in some cases switch to automated labor (like self-checkout registers at supermarkets). None of these options is heartening for unskilled workers trying to get a foot in the door and make a first step toward higher-paid job opportunities.

No matter what your age, if you don’t have a solid work history, the minimum wage hike is going to hurt you more than it will help. Congress should freeze the July 24 minimum wage increase — saving jobs for our most vulnerable workers and giving teens the opportunity to gain valuable on-the-job training this summer. Increasing the minimum wage will only prolong the nation’s affliction with high unemployment.

Kristen Lopez Eastlick is a senior research analyst at the Employment Policies Institute in Washington, D.C.