New Wage Rates Will Cause Additional Lost Jobs

States with Already High Teen Unemployment Rates Will See Unintended Consequences
  • Publication Date: October 2011

  • Topics: Minimum Wage, Teen Unemployment

WASHINGTON – Today, the Employment Policies Institute (EPI) responded to recent announcements of minimum wage increases in four states (Montana, Ohio, Oregon, and Washington). These increases come with a myriad of real unintended consequences that are particularly harmful to less-educated and minority groups.

Each of these states is already suffering a high average teen unemployment rate (see below) and is at risk for creating further job loss. Activists in Missouri are pushing for a minimum wage increase to $8.25 an hour through a 2012 ballot initiative. That state’s average teen unemployment rate as of August 2011 was 32.8 percent.

Recently Announced Wage Rates

State – Old Wage – New Wage* – Teen Unemployment Rate**

Montana – $7.35 – $7.65 – 26.8%

Ohio – $7.40 – $7.70 – 23.0%

Oregon – $8.50 – $8.80 – 27.4%

Washington – $8.67 – $9.04 – 33.3%

*Effective January 1, 2012

** Average as of August 2011

Recent economic research from West Point found that past minimum wage increases in these states have decreased teen employment; specifically, each 10 percent increase has reduced employment for 16-to-19 year-olds by over 3.5 percent.

For minority groups, the consequences are even worse: New research from economists David Macpherson (Trinity University) and William Even (Miami University) found that each 10 percent increase in the minimum wage decreased employment for less-educated white 16-to-24 year-olds by 2.5 percent, while for black 16-to-24 year-olds employment dropped by 6.5 percent.

Michael Saltsman, research fellow at the Employment Policies Institute, explained: “Between 2003 and 2007, 28 states—including Missouri, Montana, Ohio, Oregon, and Washington—raised their minimum wage above the federal level, with the stated goal of helping the lowest-paid workers. Yet, despite these good intentions, award-winning economic research published last year found no resulting reduction in poverty.”

The reasons are two-fold: First, minimum wage increases are poorly targeted to low-income families, and often benefit part-time employees in a higher-income family instead of the intended recipients. Second, wage hikes make it more expensive to hire less-skilled and less-experienced jobseekers, and the unintended consequence is fewer hours and jobs for people who need them most.

Saltsman concluded: “Especially at a time when this country’s labor market is stagnating, we shouldn’t be celebrating a policy that creates more barriers to employment.”