The Real World Consequences of a High Minimum Wage
Increasing the minimum wage sounds like a great idea to a lot of people—at least until they realize increases in minimum wage result in fewer jobs for the very people minimum wages are supposed to help.
A survey released by the Employment Policies Institute shows 81 percent of respondents support raising the minimum wage. That approval plummets to 46 percent when presented with research showing the wage increase makes it more difficult for young, inexperienced and minority workers to find employment.
According to the U.S. Department of Labor, only four percent of workers over the age of 25 earn the minimum wage. So teens and young workers, not adults, by far comprise the biggest sector of minimum wage earners.
Study after study has concluded that artificially increasing the cost of creating jobs (via a mandated minimum wage) has the predictable effect of reducing the number of jobs created. The result is decreased job opportunities, especially for young and unskilled workers who are essentially priced out of the job market.
- Economists from Miami and Trinity University found the last increase in the federal minimum wage reduced teen employment by over 114,000.
- A study by labor policy researchers at Cornell University found a 10 percent increase in the minimum wage causes four times more employment loss for employees without a high school diploma and African American young adults than it does for more educated and non-black employees.
- Economists at the University of California-Irvine and the Federal Reserve reviewed the economic evidence and found a majority in support of “the view that minimum wages reduce the employment of low-wage workers.”5
The bottom line; the burden of job loss caused by increased minimum wage falls disproportionately on those who can least afford it—low-skill workers, such as young adults just entering the work force. Experience in Washington State bears this out—we have the highest state minimum wage in the nation at $9.04 per hour. We also have one of the nation’s highest youth unemployment rates.
The issue goes beyond the immediate and obvious problems associated with young workers unable to find a job because they’ve been squeezed out of the market. Economists have shown long-term effects of youth unemployment—a “wage scar” that leaves a lasting impact on a worker’s earning trajectory. The longer the period of unemployment for a young worker trying to enter the workforce, the bigger the affect.
Research published in the Journal of Labor Economics found high school students who worked part-time had a greater likelihood of higher wages and better benefits in future employment, as compared to their classmates that didn't have a job. Another study by economists at Bristol University concluded the wage scar from youth unemployment into middle age is significant, with “persistently lower wages from a person’s youth unemployment experience.”
Washington Policy center has long recommended youth employment opportunities be expanded by allowing employers to pay a “temporary training wage” of 85 percent of minimum wage for young workers up to age 25. The law currently allows this temporary training wage for 14 and 15 year olds, but given Washington’s youth unemployment rate is nearly 30 percent, it is obvious a much larger segment of young workers is in need of relief.
What do you think about our state’s high youth unemployment rate and what are your ideas to address the problem? Fill out this survey and help WPC earn grant money and gather valuable information on this important issue. We’ll incorporate the results of the survey into a special report on the issue of youth unemployment, which will be shared with elected officials and community leaders across the state.