This week the U.S. Senate may vote to raise the federal minimum wage from $7.25 per hour to $9.15 next year (26 percent), $10.10 the following year (37 percent) and then every year there after based on inflation. The sharp initial increase and the automatic annual hikes would put upward pressure on wages all the way up the scale. The issue has strong emotional appeal to politicians and advocates who worry about the so-called working poor who are struggling to raise their kids on minimum wage.
There are two problems with their argument: the truth and basic economics.
According to the federal Bureau of Labor Statistics, only three percent of hourly workers over the age of 25 earn the minimum wage. In New Hampshire, only 1.4 percent of all hourly workers, about 5,000 people, make $7.25 per hour. According to the same data, only 1.6 percent of never-married adults (25 and over) and less than one percent of married adults earns the minimum wage.
Based on the facts, it isn't possible for more than a handful of minimum wage workers to be full-time working adults raising kids. What the advocates say about all of those desperate parents just isn't true. Who is making minimum wage? Exactly whom you'd expect. They're typically teenagers and young adults working part time. A relative few are married adults who are not the primary bread-winners.
In New Hampshire, many work in the tourism and hospitality industries that are central to our economy. Very often they work for tips. The Senate bill would increase the tipped employee wage rate by over 70 percent, and it would keep going up from there. Many of the restaurants, taverns, tourist attractions, hotels and recreational businesses that bring millions of visitors to New Hampshire every year wouldn't survive with a minimum wage on auto pilot. If they disappear, so will the part-time jobs on which so many depend.
There have been numerous studies over the decades on the effect of the minimum wage. According to economist David Neumark of the University of California, 80 percent of all of the studies has found a loss of jobs, especially on the lower end of the wage scale. The National Federation of Independent Businesses' own research predicts similar results.
There are two forces at work. Obviously, employers that can't afford to pay more find ways to do business with fewer workers. Entry-level jobs disappear. Companies eliminate positions, cut worker hours or automate low-level functions so they don't need people. Also, a higher minimum wage makes entry-level jobs more attractive to older candidates. So the youngest workers with the least experience find themselves competing for fewer jobs against older workers with higher skills and more experience. And they usually lose. Older workers require less training and less supervision. For employers, it's not a difficult choice.
But it's a terrible shame for teenagers and young adults for whom entry-level jobs are valuable far beyond the hourly pay. That's where they can break into the labor force, gain experience and learn the skills and habits that will enable them to move up the ladder. Raising the minimum wage by 37 percent (and for tipped employees by 70+ percent) will price them out of the market.
It will also devastate the New Hampshire economy, where more than 95 percent of all employers are organized as small businesses. Small business is the beating heart of every local community, and there's a heavy concentration in the tourism and hospitality industries that need part-time, entry-level workers. Hiking their labor costs by 37 percent would be entirely unreasonable. Could they wave a magic wand and increase their sales by 37 percent? Could they call their suppliers, lenders and insurers and demand lower prices? Of course not. Neither could you.
U.S. Sens. Jeanne Shaheen and Kelly Ayotte could be the deciding votes on whether Washington can impose another massive cost on the New Hampshire economy. It should be an easy decision. Small businesses can't afford sharply higher labor costs. Consumers can't afford higher prices. And our kids badly need the same opportunities that we've all had to start at the bottom, acquire skills and experience, and then work their way up to better jobs that can someday support their familes.
Bruce Berke is New Hampshire state director for the National Federation of Independent Business (NFIB).