New Federal Minimum Wage Rate Will Cause Continued Job Loss Among Vulnerable Groups

Wage Hike Will Further Hurt Employment In Struggling Economy
  • Publication Date: July 2008

  • Topics: Minimum Wage, Teen Unemployment

WASHINGTON – As the United States approaches yet another increase in the federal minimum wage rate on Thursday, the Employment Policies Institute (EPI) released new preliminary data showing the relationship between minimum wage increases and unemployment. The study, which is being published this fall and is authored by professors Joseph Sabia (University of Georgia) and Richard Burkhauser (Cornell University), analyzed the effects of the 2005-06 increase in New York State’s minimum wage and found that the employment decline among vulnerable groups like teenagers and adults without a high school diploma was substantial.

The study found that for every 10% increase in the minimum wage, employment among 16-29 year olds without a high school degree decreased between 6 and 14 percent.

This study buttresses scores of other recent research papers. A study from the University of California at Irvine found that for every 10 percent increase in the minimum wage, employment for high school dropouts and young black adults and teenagers falls by 8.5 percent. Research from Duke University found that minimum wage increases cause low-skilled employees to lose their jobs to more skilled applicants—often second and third earners from wealthier families who wouldn’t have taken a job paying the previous wage.

The job loss is a result of the burden government places on small businesses by consistently increasing labor costs with auto-pilot wage hikes regardless of economic conditions. For a business with 20 entry-level employees in states at the current federal minimum wage, Thursday’s $0.70 hike will increase labor costs by approximately $30,000 in the next year. Businesses with small profit margins would need to sell hundreds of thousands of dollars in additional goods or services to recoup those increased costs, a virtual impossibility in this stagnant economy.

“Decades of economic research clearly demonstrate that minimum wage hikes result in job loss for the most vulnerable members of the economy,” said Rick Berman, Executive Director of the Employment Policies Institute. “The unintended consequences of Thursday’s hike is pricing low-skilled working Americans out of the job market and increasing unemployment among those groups that need help the most.”

“When you put increased labor costs on autopilot, while consumer demand is shrinking and commodity costs are rising, you create a recipe for job loss among the least employable workers.”