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December 11 2014

U.C. Study: Minimum Wage Hikes Drive Low-Level Workers Out

Patrice J. Lee

This week we saw a new round of minimum wage protests across U.S. cities. Fast-food workers and supporters took to the streets of Chicago, Boston, and Milwaukee advocating for a $15 minimum wage and other labor rights demands.

United under the organization Fight for 15, such demonstrations are planned for 160 cities. According to NBC News, workers are expected to stage strikes and walkouts from fast-food restaurants such as McDonald’s, Burger King and Wendy’s as well as airports like J.F.K. Airport in New York City.

The problem is these people are marching for their own demise when they advocate for higher minimum wages.

A new study from the University of California at San Diego confirms past patterns and the economic principle that minimum wage hikes drive up the costs of workers leading employers to reduce their costs by firing low-level workers. Analyzing employment statistics provided by the National Bureau of Economic Research, the $7.25 minimum wage passed in 2007 contributed to job losses for entry level and low-skilled workers while it had no impact on the wages of anyone else. Furthermore, while on paper wages were higher, low-skilled workers saw their average incomes or take-home pay fall.

One of the most troublesome findings from this report is that that the minimum-wage increases of the late 2000s lowered the employment-to-population ratio of working-age adults by 0.7 percentage point. That translates into 14 percent of the total decline during that period, or some 1.4 million people.

Here’s more from the study:

We find that increases in the minimum wage significantly reduced the employment of low-skilled workers. By the second year following the $7.25 minimum’s implementation, we estimate that targeted workers’ employment rates had fallen by 6 percentage points (8 percent) more in bound states than in unbound states,” the report says. “Binding minimum wage increases resulted in an increase in the probability that targeted individuals work without pay, perhaps in internships, by 2 percentage points.”

Minimum wage increases hardly ever achieve the goals they are designed to meet.

While these Fight for 15 fast food protestors argue they want to help families survive, studies show that very few low-wage workers actually come from families in poverty. Minimum wage hike more often harm teens and young workers starting out in their first job, not those who would otherwise be unemployed. For 18-29 year olds the unemployment rate according the Generation Opportunity is 14.5 percent with 1.8 million young workers discouraged from even looking. (In full disclosure, I am employed by GenOpp.)

It’s unfortunate that President Obama and many of our national and state lawmakers think raising the minimum wage is the best way to raise incomes for Americans.

The non-partisan Congressional Budget Office projected that the President’s 40-percent wage hike would lead to our economy shedding 1 million jobs. For an economy that’s sputtering along and adding jobs at a moderate pace, minimum wage hikes would torpedo those recovery efforts. Government is not the answer here, in fact it’s the problem.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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