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A Minimum Wage Hike Will Hurt Poor, Young, Minorities

The following originally appeared on Investor’s Business Daily on January 29, 2014

Rep. George Miller, D-Calif., and Sen. Tom Harkin, D-Iowa, have introduced a bill in the House and Senate that would raise the federal minimum wage by 39% over the next two years to $10.10 per hour from today’s $7.25 and then index that wage to consumer prices. No sooner said than done, the Economic Policy Institute released a letter of support signed by 75 economists, seven of whom are Nobel laureates. We’re once again reminded of Philip Ball’s quote that “there is no scientific idea so absurd that you cannot find someone with a Ph.D. (indeed, often with a Nobel Prize) to support it.” Conceptually, of course, there is no question that raising the minimum wage will cost some people their jobs. It will also reduce the hours worked for others, raise the prices of products made by minimum-wage employees and incentivize businesses over the long run to automate and thus eliminate minimum-wage workers. Most of all, it will reduce economic growth, the only real long-run hope for alleviating poverty. Raising the minimum wage will also raise the wage rate for a number of current minimum-wage employees and perhaps even boost the wages of some employees working just above the minimum wage. What is missed by this factual but dry response is the human tragedy and political hypocrisy contained therein. Worst Jobs Recovery Ever To understand why this topic is now front and center, you need to know that the U.S. has had the single worst recovery in employment ever. It is as far below the next worst recovery as the next worst recovery is below the best recovery ever. U.S. employment as a share of population has dropped from a smidgen under 65% in April 2000 to between 58% and 59% for nigh on five years. There is no jobs recovery. Adjusting the actual jobless rate for the decline in the labor force participation rate shows that every person removed from the unemployment rolls has been offset 100% by someone leaving the labor force. Save for overall population growth, there have been no jobs created. And the pain among various segments of the adult population has not been evenly distributed. As of today, employment as a share of population for all Americans is 58.6% (down 9.4% from its high in 2000), while for all African-Americans it’s 53% (down 14%), teenagers 27% (down 42%) and black teenagers 17.7% (down 43%). These employment numbers closely correspond to the unemployment figures. The current jobless rate for all Americans is 6.7%, black Americans 11.9%, teenagers 20.2% and black teenagers 35.5%. One Wage Doesn’t Fit All Raising the minimum wage for everybody everywhere will have a disproportionately damaging impact on the poor, minorities, youth and the disadvantaged. What’s needed now is a pro-growth jobs program directed at changing bad policies, not a palliative for the unemployment consequences of those bad policies. Going through the whole rigmarole of another contentious partisan political battle in Washington, D.C., isn’t going to make anyone better off. And the minimum wage should be set by individual states, not by the federal government. A federal minimum wage ignores the huge cost-of-living differences across the depth and breadth of America. The most recent cost-of-living index puts New Yorkers at 136, Californians at 124, Floridians at 97, Texans at 92 and Tennesseans at 90. In cost-of-living terms, an $8 per hour minimum wage is worth 50% less in New York than in Texas. Or, if you prefer, from an employer’s standpoint in purchasing power terms, it costs almost 50% more to hire a minimum-wage worker in Texas than it does in New York. If the purpose of a minimum wage is to alleviate the hardship of making ends meet, surely the minimum wage should be adjusted for cost-of-living differences by state. Adding to the case for separate state minimum wages is the point made by the aforementioned economists’ letter that “persistent high unemployment is putting enormous downward pres sure on wages.” Again, unemployment is far from evenly spread across the nation. North Dakota’s jobless rate is 2.6% while Rhode Island’s is 9% and all the rest interspersed between. One-size-fits-all makes no sense. Proponents of a higher minimum wage correctly point out that, at the minimum wage, a single-earner family will have to live below the poverty level. This depressing fact often is true. And putting yourself in these workers’ shoes would chill any normal person to the bone. Not only do minimum-wage workers have to work very hard indeed — and probably not at the most exciting job — but they get paid very little. It’s totally unfair. But if you think the plight of minimum-wage workers and their families, let alone the hardship faced by those who are unemployed, is a consequence of unfair employers, you are sorely mistaken. Employers, like everyone else in this dismal economy, do the best they can for themselves. Scrutinizing the situation carefully places the cause of our malaise squarely at the feet of government policies. You can’t raise taxes on people who work, increase the payouts to people who don’t work and expect more people to work. That’s not the way the world works. Raising the minimum wage is the wrong policy applied to the wrong people at the wrong time.

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