Charles Arlinghaus: A minimum wage hike will hurt low-income Granite Staters
February 04. 2014 6:24PM
Proposals at the state and national levels to increase the minimum wage will hurt the job market, decrease the number of jobs available, and hurt the people advocates say they are trying to help.
Specifically, the higher wage will make it more expensive to hire entry-level workers, and it will reduce opportunities for lower-skill workers trying to build job experience.
The current federal and state minimum wage is $7.25 per hour. It is a minimum that affects few employees. Nationally, only 2.7 percent of all wage-and-salary workers earn the minimum or less (1.2 percent of workers are at the minimum while 1.5 percent have jobs that can legally pay less than the minimum, such as golf caddy, outside sales or farm labor).
Economists are paraded about by both sides to advocate for and against and to discuss the effects. A 2007 National Bureau of Economic Research paper reviewing the literature found "a lack of consensus about the overall effects on low-wage employment." But lest you think the research is completely up in the air, the authors noted that "the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups."
This evidence is not hard to understand. The minimum wage is not a wage people expect to make for the rest of their lives. It is not a permanent wage. In fact, two-thirds of minimum wage workers earn a raise within a year; the majority of them see wages increase by 24 percent or more.
Two-thirds of minimum wage workers are part-time, and the majority are young, under the age of 25. In fact, most of us started in a minimum wage job. Data show that 55 percent of American workers started at or near the minimum wage. Your own experience is probably similar. My early jobs were both below minimum age and at the minimum wage.
Supporters suggest that an increase in the minimum would not reduce or affect the jobs available. Common sense and the preponderance of research suggest this isn't true.
We would all agree that doubling or tripling the minimum wage would naturally reduce the number of jobs available. A company that can afford a small number of employees at $7.25 per hour will have fewer employees for fewer hours if we make it pay $15 or $21 per hour. Companies, already reluctant to add jobs because of economic uncertainty, will add fewer jobs and cut back hours.
Mandated minimums can be thought of as the price of hiring. If you make the price of hiring labor higher, an employer will hire less of it than he otherwise would. A smaller increase will have a smaller effect, but it will have an effect.
The people most affected by minimum wage increases are people entering the job market. For most of us, our first entry into the market is through a minimum wage job — that first job through which we gain the valuable experience of having a job, getting a start doing something, being supervised, working specific hours at someone else's direction. That entry is invaluable.
Raising the price of entry means there will be fewer opportunities. Remember that 21 percent of teenagers paid hourly earn the minimum wage, but only 3 percent of hourly workers ages 25 and over do. Obviously, the minimum wage is best thought of, for most workers, as the entry gate into the labor market.
Thought of this way, raising the minimum wage hurts the people advocates most want to help. We want more workers to have an opportunity to enter the market and start building the experience needed to get their second job. We want more workers to start the process of having a beginning job, moving to an intermediate job, and then to a more advanced job.
Increasing the price of entry-level jobs will reduce the number of them. For a worker whose job isn't downsized, he or she will see more money initially. But for many more workers and potential workers, their potential position won't be created, their hours will be reduced, or their jobs will be eliminated.
New Hampshire needs more jobs, not fewer. Entry-level workers need greater opportunities. Raising the minimum wage will satisfy politicians who don't understand economics, but it will hurt the very people they are pretending to help.
Charles M. Arlinghaus is president of the Josiah Bartlett Center for Public Policy, a free-market think tank in Concord.