Does Minimum Wage Kill Jobs?

  • Author: Richard Berman

  • Publication Date: May 2010

  • Newspaper: Dayton Beach News-Journal

  • Topics: Minimum Wage, Teen Unemployment

America is still waiting for “the recovery,” hoping that one morning we’ll read a newspaper headline declaring that the problems of the last few years are all behind us. The real recovery, however, is unlikely to be so tidy. While the stock market is up 65 percent from its low last year, millions upon millions of Americans are still unable to find a job. In Florida, the unemployment rate is at 12.3 percent, while the jobless rate among teens nationally is over 25 percent.

But if jobs are in short supply, one thing that’s not is economic advice from people who have never run a business. Bob Herbert, columnist for The New York Times, has written prolifically about the problem of teen unemployment. His policy prescription, to raise the minimum wage, is emblematic of an all-too-common syndrome: self-proclaimed experts who suggest “solutions” that bear no resemblance to practical possibilities. Armchair economists like Herbert appear to inhabit a world in which businesses have unlimited resources, there is no federal budget deficit, and everything will be all right.

Back here in the real world, forcing new costs on businesses does not create jobs — it kills them. And while there’s a chance borrowing billions of dollars to pay for half-baked stimulus schemes will put some people to work in the short-term, we know with absolute certainty that it will drive up the national debt.

When it fits his agenda, Herbert has no trouble recognizing the dire consequences of teen unemployment. In a column last year, he wrote: “Young men and women who remain unemployed for substantial periods of time find it very difficult to make up that ground. They lose the experience and training they would have gained by working. Even if they eventually find employment, they tend to lag behind their peers when it comes to wages, promotions and job security.”

We need to stop pretending that the minimum wage is a policy without negative consequences. It’s not hard to see how a mandatory wage level kills job creation.

Businesses respond to all kinds of rising costs by finding substitutes or new efficiencies. In some cases this can be a positive thing: When the price of electricity goes up, businesses switch to fluorescent light bulbs or install double-paned glass to cut their heating bills. But when the price of an entry-level employee goes up, businesses respond by replacing jobs with technology.

In Bob Herbert’s perfect world, maybe all unskilled labor would be done by robots while everyone went to college and got jobs writing newspaper columns. But that’s not the world we live in. In America today, hundreds of thousands of teens are jobless because they have been priced out of the labor market. Earlier this year, an analysis by the Center for Business and Economic Research at Ball State University found that roughly 310,000 teenagers have lost out on part-time employment because of the minimum wage hikes of 2008 and 2009.

Those teens aren’t just losing out on the money they’d be making in those jobs. When the recession ends and America gets back on its feet, today’s displaced teens will still be looking for a first job and a foothold in the new economy.

The minimum wage is hardly the only cause of the unemployment crisis but it is a cause. This much is certain: the economic recovery is going to come from entrepreneurs and small business hiring new workers, not from pundits and bureaucrats telling the private sector what to do. And the sooner we can get government out of the way, the faster we can move ahead.

Rick Berman is the Executive Director of the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.