Minimum wage increase bad for economy, jobs

Obama said what?

I was watching the State of the Union address last week with my usual hopeful yet suspicious attitude with which I treat most political presentations. I watched as Obama, just like all those before him, painted a lovely image of our nation on the path to recovery and on the verge of something better. The overplayed rhetoric aside, I thought it was a solid speech. That was until he said this,

“…and raise the federal minimum wage to nine dollars an hour”

I was shocked. It was incomprehensible that he was discussing raising the minimum wage, especially in a time of fragile growth. While it is clear his goal is to raise the well being and income of the working poor, countless studies have indicated that in fact, minimum wage laws do the exact opposite.

Let me explain.

Just as Obama said, and I think most would agree, it is right and just to help those less fortunate, especially the working poor. They work long hours for little pay and the cost of living in many areas is too high to maintain a reasonable lifestyle for somebody making the minimum wage.

However, you may be surprised to learn that an increase in the minimum wage will help some, but could hurt many. What is seen by the public and discussed by ‘thoughtful’ politicians is the pay bump received by some; in this case it is an extra $1.75 per hour that will go a long way towards making ends meet. What escapes the public view is the extra cost this adds to employers, and the jobs lost by hundreds of thousands of minimum wage employees across the country as a consequence.

It makes sense if you break it down. A minimum wage employee is overwhelmingly young, has little education, and is generally low skilled and inexperienced. Their minimum wage job is their entry into the work force. The skills they pick up in such a job can be translated into higher pay later on, and the advancement of a career.

Yet when a government institution tries to increase this minimum wage, it does not explain where this extra money is going to come from. Indeed, there is no extra money to be had. We would love to believe that big CEO bonuses are getting redistributed to the minimum wage employees, but that is far from reality. When companies are forced to pay employees more, they look to cut costs, and do so by cutting employees or replacing them with machines.

Statistics back up this claim. Separate from the political jargon of our president and the compassion we feel to help the poor, data produced indicates that increasing the minimum wage results in job loss, especially for those in most need of a job.

Economist David Neumark of UC Irvine and William Wascher, a Federal Reserve economist, reviewed more than 100 academic studies on the impact of the minimum wage in 2007. They found “overwhelming” evidence that the least skilled and the young suffer a loss of employment when the minimum wage is increased.

Further Data suggests that along with increases in the minimum wage in the years 2007, 2008, and 2009, teen unemployment skyrocketed. Teen employees represent a large fraction of minimum wage workers as they fit the criteria of being less educated, low skilled, usually part-time, and new to the labor force.  In fact, as of 2008 only 1.1 percent of employees working 40 or more hours a week earn minimum wage, and just 3 percent of employees over the age of 25 according to the Bureau of Labor Statistics.

Neumark later researched the specific effect of the 2009 minimum wage increase that brought the wage from $6.55 to $7.25. Just as he predicted, the effect was devastating to the low-skilled working community. After just two months, 330,000 minimum wage jobs were lost and teen unemployment rose to 25.9 percent, the highest rate since World War II and up from 23.8 percent in July when the new wage took effect. Hardest hit of all: black male teens, whose unemployment rate shot up to an incredible 50.4 percent, up from a dismal 39.2 percent just two months earlier. While college educated employment moved very little, those without such privileges were hit hard.

Now it is true that some individuals will reap the benefits of a new minimum wage.  Their lives will improve and the increase in income will be a big help. But many will not see their pay rise to nine dollars an hour, they will see it drop to zero.

But how could such a simple economic example be lost on so many politicians.  Obama, if raising the minimum wage is such a great idea, why stop at 9 dollars? Why not 15? 20?

A higher minimum wage law does not state that every current worker gets a pay increase; it means the ones lucky enough to keep their jobs will.

It is painfully ironic that the very policies meant to help and improve the lives of the less fortunate in our country will do the opposite. This wage tactic has proven to be a thorn in the side of the poor, and those desperate for a source of income. Minimum wage laws have terrific intentions, but deliver detrimental results.

At the root of this problem is a fundamental difference in the way we think about government policies and accept political rhetoric. The contrast is quite simply between emotional desires and factual outcomes. While Obama got a standing ovation for his remarks, I remained firmly in my seat. I do want to help the poor and underprivileged, but I know that raising the minimum wage is not the way to do it.