Employment Policy Group Urges California Legislators to Consider Unintended Consequences of Wage Hike

New Analysis Finds Proponents Using Creative Economics Instead of Fact
  • Publication Date: March 2011

  • Topics: Minimum Wage

Today, the Employment Policies Institute (EPI) denounced California’s proposal to increase the state’s minimum wage and criticized proponents’ use of creative economics to defend the bill.

Introduced by Assemblyman Alejo (D-Watsonville) and co-sponsored by Assemblyman Allen (D-Santa Rosa), the bill would increase California’s minimum wage from $8.00 an hour to $8.50 an hour and index the wage to inflation thereafter.

The legislation (AB 10) being considered tomorrow at 1:30 pm in the Assembly Labor and Employment Committee has real unintended consequences. EPI research fellow Michael Saltsman said, “This proposed increase will destroy entry-level job opportunities for less-skilled workers, including teens. It won’t help California’s economy, but it will help put more people in California out of work.”

In defense of the legislation, Assemblyman Alejo has cited a study from professors at the University of California–Berkeley and the University of Massachusetts to show that minimum wage increases do not reduce employment among teens. However, this research does not hold up to closer scrutiny.

A new analysis, released today by the Employment Policies Institute, reveals the flawed methods used by the researchers at the Institute for Research on Labor and Employment (IRLE).

“In their study, the economists at IRLE have discarded nearly 97 percent of the information about how minimum wage hikes affect teen employment,” Saltsman continued. “That’s like losing your car keys at home, and being barred from looking for them every place but the kitchen pantry—you’re guaranteed to get bad results before you even start looking.”

The analysis points out that, using the flawed IRLE study design, the states of New Jersey, New York, and Pennsylvania could all raise their minimum wage to $50 an hour simultaneously, and no job loss would be attributed to the wage hike.

Saltsman concluded: “Despite advocates’ rhetoric, there is no evidence to support the claim that an increase in the minimum wage would boost the economy. And new research from West Point shows that past increases in the minimum wage have had no positive effect on economic growth. In fact, each 10 percent increase in the minimum wage has decreased low-skilled employment by as much as 3.6 percent.”

“California’s legislators would be wise to consider these unintended consequences and look for more ways to put people back to work rather than putting them out of work.”

Analysis: http://epionline.org/downloads/CA_doc.pdf