Rising Minimum Wages Cut Employment and Opportunity

Posted July 23rd, 2009 at 3.31pm in Enterprise and Free Markets.

On Friday, the federal minimum wage will increase from $6.55 to $7.25, an increase of almost 10.6%. This increase is the final installment of the minimum wage increase that Congress added to the 2007 Iraq War spending bill. The program will raise the income level of many Americans who are currently employed in minimum-wage, often entry-level positions. Unfortunately for Congress and the American public, this legislation will have several unintended consequences.

Raising Minimum Wages Will Increase Unemployment - As any Economics 101 student could tell you, if the price of labor increases, employer demand for labor will decrease. This increase will exacerbate the already-gloomy employment climate in the United States. An increase in minimum wage will directly impact industries that are most reliant upon minimum wage workers, fast food restaurants, hotels, and independent retailers. Workers in these sectors will be most impacted by the minimum wage increase, “A 10% increase in the minimum wage is associated with a 1% decline in retail trade employment” according to Dr. Joseph J. Sabia, of American University.

Raising Minimum Wages Will Reduce Opportunity - Positions that pay minimum wage provide an opportunity for employees to gain invaluable work experience. These experiences, such as customer service and basic retail skills, allow employees to increase their productivity. Increases in productivity lead directly to increases in wages; two thirds of minimum wage workers earn a raise within their first year of employment. Eliminating these entry-level positions will have a negative impact on the economy. 62% of minimum wage earners under twenty-five years old work part-time. These workers are employed in positions that allow them to acquire skills and experience that will allow them to garner raises as their productivity increases. Raising the minimum wage will only decrease these workers’ access to entry-level positions, and deprive them of the opportunity to increase productivity and wages in the future.

Considering the current economic landscape, Friday’s federal minimum wage increase, which will affect businesses in the thiry states that currently do not have a minimum wage of at least $7.25, will hurt the economy. It will increase unemployment and raise prices in impacted industries. Raising the federal minimum wage is not sound policy in the current economic climate.

6 Comments

July 23, 2009 jeff kenkel springfield mo. writes:

unreported forever is the fact that an increase in minumum wage is a tax increase and revenue producer for the states and federal coffers…. the percentages when figuring s.s.i go up as well as other taxes collected by the government. yet this is never reported.

July 24, 2009 Tom Page, New York City writes:

Well, you’re entitled to your opinions, but your arguments that raising the minimum wage will have a negative impact on employment are on shaky ground. True, Econ 101 (”Micro”) would lead one to conclude that an increase in the cost of labor will cause an employer to buy less of it. But if any of your experts went on to take Econ 201 or 301, you would realize that increased wages generally increases demand for goods & services. Macro economic theory would predict an increase in the minimum wage would result in long-term benefits to the entire economy.
Unfortunately, there would be a few short-term negative effects on some employers who insist on paying the very least. I’m thinking of a fast food fanchise that makes hundreds of thousands of dollars for it’s owners. And a hotel that earned $60 million/year (before depreciation, appreciation, & income taxes), but violated it’s union contract to hire an “outside contractor” to bring in minimum wage workers (without any benefits).

July 24, 2009 Higher minimum wages means fewer jobs « The Cotton Boll Conspiracy writes:

[...] often entry-level positions, but unfortunately will also have several unintended consequences, according to the Heritage [...]

July 24, 2009 Minimum Wage Hike is Right Path To Recovery | Economic Recovery writes:

[...] as the federal minimum wage rises from $6.55 to $7.25. Despite grumblings from some economists, conservative pundits, and members of the business community about the dire consequences of a seventy-cent raise for the [...]

July 24, 2009 Better than Bare Minimum Is Good for Us All | Politics writes:

September 16, 2009 J. Garrett Hohenwald, TN writes:

I agree with your theory but is the solution to leave minimum wage as is and keep bailing out big corps and providing CEOs with multi-million dollar bonuses? The average American needs help—he is the one who is carrying the bulk of our nation’s debt!

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