Higher minimum wage can be harmful

  • Author: Craig Garthwaite

  • Publication Date: January 2004

  • Newspaper: Times Union

  • Topics: Minimum Wage

Higher minimum wage can be harmful

Gov. George Pataki’s lips have so far been sealed on his intentions for a statewide minimum wage hike early next year. But labor and political activists have been cranking up the volume. Earlier this month, they launched a statewide campaign to increase New York’s minimum wage 31 percent higher than the federal minimum.

Last year, a similar proposal passed the state Assembly only to die in the state Senate.Activists may have more luck this year, but the Empire State’s less-skilled workers won’t be sharing it. Decades of research confirm Nobel-Prize-winning economist Gary Becker’s observation: A higher minimum will further reduce the employment opportunities of workers with few skills.

New York’s unemployment rate is already higher than the national average. Not for the first time, a nationwide recession has been longer and deeper statewide than in the nation as a whole. The state unemployment rate is now 48 percent higher than it was at its low point in March 2001.

In many parts of the state, the jobs picture is worse than even these grim figures paint. Nearly 2 million New Yorkers live in depressed cities, boroughs and counties where the unemployment rate topped 9 percent last year, a figure not experienced nationwide since the recession of the early 1980s.
Those seeking to enlist Pataki’s support to raise the state minimum wage may believe they are helping those employees who have managed to hold on to a minimum wage job in this difficult economic climate. Hard evidence suggests a reality where the increase will deprive many of these vulnerable employees of the only opportunity they have to earn a living and increase their wages.

Research out of Michigan State University found that increases in the minimum wage attract more highly skilled applicants to traditionally low-skill jobs. The study’s author, Dr. David Neumark, concluded: “Increases in the minimum wage … raise the probability that more-skilled teenagers leave school and displace lower-skilled workers from their jobs.” Employers prefer to hire talented young people over less-skilled adults to offset the increased labor costs brought on by a minimum wage hike.

Another study, from the University of Wisconsin, revealed that this displacement of adults by teenagers following a minimum wage increase was especially pronounced among women on welfare. Mothers on welfare in states that raised their minimum wage left welfare for work 20 percent less often than welfare recipients in states where the minimum wage was not raised, the study found. The teenagers who are competing with these women usually live with working parents, and their need for employment is arguably not as great. Even wage-hike proponents acknowledge this displacement effect.

Wage mandate activist and union organizer David Reynolds says that high minimum wages cause businesses to attract the best workers, who take the jobs of the less-skilled. The union-backed Economic Policy Institute has admitted that higher minimum wages will attract good workers, meaning less-skilled workers need not apply. As more teenagers enter the entry-level job market and less-skilled adults are squeezed out, these former employees lose not only their jobs but also the wage supplement that the earned income tax credit provides. This forces the least skilled among us to depend on welfare for as long as those benefits last.

For New York’s most vulnerable workers, many of whom have remained in depressed localities after business and industry have left the area, raising the minimum wage will deprive them of the jobs, training and increased earnings they so obviously need. This is surely not what the wage hike’s supporters want.

Craig Garthwaite is chief economist at the Employment Policies Institute in Washington, D.C. (http://www.EPIonline.org).