Minimum wage job loss
In the real world, full-time employees make up only a very small percentage of the total number of people earning the minimum wage. On 24 July, 2009, the Federal Minimum Wage increased to $7.25 an hour from $6.55, a rate of more than a 10 percent. Did this help or harm those who are employed in positions which pay minimum wage?
If you believe such raises cause job loss, there are statistics to support such a belief. There are also statistics supporting the other side. But one salient point remains constant: Minimum-wage legislation is and always has been the result of special-interest politics.
Behind the rhetoric of higher minimum wages equating to "fairness" or "economic justice" lie purely self-serving political considerations: Political power and vote pandering.
Reality vs rhetoric
Since most minimum-wage workers are young, inexperienced, and not of the full-time employment mainstream, common sense tells us that any minimum wage rate forced onto the market will have only negative effects on the distribution of economic justice. Minimum-wage legislation, by its very nature, rewards some at the expense of the least experienced, least productive, and poorest workers. How, you ask?
If a business (especially a small business) cannot simply pass along its new labor costs to consumers, it must somehow absorb them. This usually involves eliminating workers rendered unproductive by a higher minimum wage, eliminating young, inexperienced workers and replacing them with fewer (but more mature and experienced) workers, replacing labor with efficient machines, cutting back production, or cutting the total labor force.
Loss followed rate hike
In an article written by University of Chicago economics professor Casey B. Mulligan, The New York Times (go figure) reported that part-time employment fell sharply during the last five months of 2009, and that the mid-year federal minimum wage hike was probably to blame.
Mulligan proposed that teenagers suffered most from adjustments to the minimum-wage rate hike. These workers are generally the least experienced, least skilled, and least productive.
Supporting Mulligan, The Wall Street Journal reported that in 2009, the September teen unemployment rate hit 25.9 percent, the highest rate since World War II and up from 23.8 percent in July. Some 330,000 teen jobs vanished in two months. Hardest hit of all: black male teens, whose unemployment rate shot up to a catastrophic 50.4 percent.
The NYT chart below shows that since July 2009, full-time employment continued to fall, but there was no offsetting part-time employment increase as was the case before the wage increase. The July 24 minimum-wage increase most likely changed that pattern.
Prior to the fact, economist David Neumark of the University of California, Irvine, wrote that the 70-cent-an-hour increase in the minimum wage would cost some 300,000 jobs. The mandated increase to $7.25 took effect in July, and the August and September jobless numbers confirmed the rapid disappearance of jobs for teenagers.
Costly in an economic meltdown
Those who object to this analysis might say that the biggest explanation is of course the bad economy. But it's precisely when the economy is down and businesses are slashing costs that raising the minimum wage is so destructive to job creation. Thanks to the Democrat Congress, there are now 691,000 fewer teens working.
But Washington alone is not to blame -- state lawmakers are also at fault.
The WSJ reported that at least 10 states raised their minimum wages above the federal level in the last decade, largely in response to union lobbying and in the name of "helping the working poor." States with the highest wage rates such as California and Michigan are now also burdened with the highest unemployment rates.
Winners and losers
The Cato Institute, in a dated but brilliant policy analysis entitled Minimum Wage: Washington's Perennial Myth, lays out the argument that labor unions, their members, and their Democrat Party patrons are the most obvious beneficiaries of government-imposed minimum wages.
Big Labor is the main political force behind minimum-wage legislation. Although unions already hold privileged positions in labor markets, minimum wages further increase their gains by raising employers' labor costs. As long as union members earn wages above the minimum rate, they are made more secure by government policies that eliminate those who might undercut union wages.
That would be those who need work most: immigrants, the poor, and the young.
What has been touted as a matter of economic justice by some can also be justifiably labeled as a self-serving issue for its supporters. When the minimum wage is increased, labor unions and their influential friends in the Democrat Congress make big gains. Unfortunately, small businesses, the economy, consumers, and those who work for minimum wage all lose.
Hype and Chains.