Minimum wage hike: What’s next?

  • Author: Kristen Lopez Eastlick

  • Publication Date: August 2009

  • Newspaper: Macon Telegraph

  • Topics: Minimum Wage, Teen Unemployment

There’s no question that the nation’s unemployment situation is dire. Thirty-eight states reported job losses for the month of June, 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. Georgia has an unemployment rate of 10.1 percent, an increase of more than 65 percent since last year. The state ranks third in the nation in teen unemployment. Unfortunately, entry level job seekers will find their efforts undercut by the disastrously timed federal minimum wage hike.

Friday, July 24, the federal minimum wage increased for the third time in three years, to $7.25 per hour. The federal unemployment rate has skyrocketed 70 percent from June 2008 to June 2009, with no regard to current economic conditions. A small business with 20 entry-level employees will see more than $30,000 in new labor costs due to the July 24 increase. That doesn’t include the ripple effect on employees making higher than the minimum wage or the increase in taxes the employer has to pay.

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 minimum wage increase is expected to destroy an additional 300,000 jobs nationwide, concentrated among the most vulnerable and least skilled employee populations.

Economists are nearly unanimous in pointing out that unskilled workers bear the brunt of minimum wage hikes. According to a 2007 survey from the American Economic Association at 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 by 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, 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 making a first step toward higher-paid job opportunities.

What’s worse, the higher wage rate won’t decrease poverty. Census Bureau data shows that only 16.8 percent of low-wage employees are currently living in poor households and only 6.8 percent are heads of poor households.

The average family income of a minimum wage earner is $47,023. (For reference, the 2009 federal poverty guidelines for a family of four in the contiguous 48 states and District of Columbia was $22,050.) Consequently, attempting to target poor families by manipulating wages is an inefficient means of addressing the problem while still placing a burden on employers in an exceptionally weak economy.

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. The July 24 minimum wage hike will only prolong the nation’s affliction with high unemployment — hurting job prospects for our most vulnerable workers and denying teens the opportunity to gain valuable on-the-job training.

Kristen Lopez Eastlick is the senior economic analyst at the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.