Minimum Wage Hikes Result in Job Loss for Affected Employees

  • Publication Date: April 2004

  • Topics: Minimum Wage

Washington – Decades of economic research, including some dating back to the FDR administration, prove that an increase in the minimum wage leads to overall job loss for affected employees, particularly the least skilled. So reported Craig Garthwaite in testimony today before the U.S. House Subcommittee on Workforce, Empowerment and Government Programs on the economic effects of minimum wage increases.

“The most damaging effect is the fact that job loss is concentrated on the least skilled employees—the very individuals that supporters of a minimum wage increase are attempting to help,” Garthwaite said. “These low-skill employees lose their jobs because of increased competition from more experienced and higher skilled employees attracted to the new wage. The end result: Low-skill Americans face extreme difficulty finding the entry-level employment necessary for future economic success.”

This year, Duke University economists found that this new competition following a wage increase comes primarily from teenagers in wealthy families entering the labor market and competing with current employees for their jobs. This new competition results in a 2.9% decrease in the probability of job seekers finding a job for every 10% increase in the mandated wage.

In similar findings, a Boston University study noted that low-skill adults in states that raise their minimum wage are often crowded out of the job market by teens and students. Research from Michigan State University echoed this conclusion, finding that high-skilled teens, or those who are perceived as “desirable” employees, often displace low-skill employees in minimum wage jobs after a mandated wage hike.

In a cruel twist of fate, University of Wisconsin researchers found that this displacement effect is often concentrated on welfare participants attempting to work their way out of government assistance. Mothers in states that raised their minimum wage remain on public assistance an average of 44% longer than their peers in states where the minimum wage remains unchanged.

While the Employment Policies Institute presented years of economic research by respected labor economists on the negative economic realities of the increasing the minimum wage, Senator Ted Kennedy (D-MA) relied on Hollywood actor Ben Affleck to score political points for his 38% increase.

“Celebrities may support increasing the minimum wage as a ‘feel good’ measure, but among respected labor economists the consensus of job loss resulting from wage hikes couldn’t be clearer. No amount of Hollywood star power can change these devastating consequences,” Garthwaite concluded.