The only way to explain Republican bulldozing of the first minimum wage increase in a decade through the House of Representatives last week is election year political banditry – even though it was paired with a cut in estate taxes. Before the Senate debates this bill, it is important to remind ourselves that government-mandated minimum wage helps no one in the long run. Parents of high school students and advocates for the poor should be outraged at the proposed increase, because it discourages employers from hiring teenagers and low-skilled minorities.
The current wage proposal would increase the minimum wage from $5.15 per hour in three increments, reaching $7.25 in June 2009. It also allows tips to be applied toward minimum wage increases in some states where that is now prohibited.
Emotionally, the issue is a winner — who can be against lifting the prospects of the most poorly paid workers among us? But when viewed through economic analysis, the bill appears less rosy. Such an increase actually hurts teens and low-skilled minorities in the long run because minimum wage jobs are usually entry-level positions filled by employees with limited work experience and few job skills. When the government forces employers to pay their workers more than a job's productivity demands, employers, in order to stay in business, generally respond by hiring fewer hours of low-skilled labor. Low-skilled workers become too expensive to employ, creating a new army of permanent part-timers.
Forced government wage increases are supported when people forget that the money used to cover the increase does not magically materialize. It must come from somewhere. Since Americans love the best products for the lowest prices, businesses will not likely pass the cost of the wage increase on to consumers in the form of higher prices. They will, instead, reduce their costs by laying off workers with the lowest skills, relocating the jobs (or the entire business) to another country, or skirting the law altogether by paying employees “under the table” or by hiring illegal immigrants.
SUNY Plattsburgh economics professor D.W. MacKenzie, citing figures from the Bureau of Labor Statistics, reports that the unemployment rate for everyone over the age of 16 was 5.6 percent in 2005. Yet unemployment was 19.7 percent for those aged 16-17, while in the 18-19 age group it was 15.8 percent. The unemployment rate for white teens in the 16-17 age group was 17.3 percent in 2005, while the same figures for Hispanic and black teens were 25 percent and 40.9 percent, respectively.
These numbers highlight the fact that the populations most likely to suffer from minimum-wage-caused unemployment are those that are already most at risk. University of Connecticut economics professor, Kenneth Couch, estimates that a one-dollar rise in the minimum wage in the current economic environment would further reduce teenage employment opportunities by at least 145,000 — and possibly as many as 436,000 — jobs.
The only groups who may be encouraged by the proposed increase are future illegal immigrants and Third-World developing economies as American businesses will have to scramble to find ways to continue to provide better products at the lowest prices.
Those in favor of the increase believe that they stand on the moral high ground. Rev. Suzanne Meyer, president of All God's People, a multi-faith social advocacy group located in St. Louis, calls the current $5.15 rate “a moral outrage. It effectively sentences millions of workers and their families to live in abject poverty.” Why is it not, instead, a moral outrage to increase teen unemployment, increase minority unemployment, and encourage the circumvention of the law by employing illegal immigrants and paying under the table?
Employees who become more productive by gaining experience and improving their education earn larger raises and salaries in the long term. A minimum wage set by agreement between employer and employee establishes the best entry point for people with few skills to gain experience and develop the abilities needed to advance. It is in keeping with both human dignity and economic reality to give employers and employees freedom to negotiate employment on terms set by themselves, not by politicians.