Wednesday, July 29, 2015

Minimum wage hurts most those the government tries to help

By VANCE GINN. Ginn is an economist in the Center for Fiscal Policy at the Texas Public Policy Foundation. Excerpts:
"Minimum-wage supporters forget or ignore the law of demand that states the quantity demanded of a good will decrease from an increase in its price. The labor market is no different.

By artificially raising the wage without expecting more value from workers, employers have an incentive to fire them.

Who will the employer fire first? The least skilled, of course.

In a 2014 paper, Jeffrey Clemens and Michael Wither found that the latest minimum-wage increase explained 14 percent of the 4.8 percentage point drop in the national share of the population employed from December 2006 to December 2012. This is after accounting for the effects of the Great Recession and other factors. But the largest adverse effect was to teenage employment.

According to the Bureau of Labor Statistics, a quarter of the 1.7 million Americans earning at or below the minimum wage were 16- to 19-years-old in 2006 — the year before the minimum wage increase. That year, teenagers had a 43.6 percent labor force participation rate, 15.3 percent unemployment rate and 37 percent employment-to-population ratio."

"In 2010, their share declined to 22.8 percent of the 4.4 million paid at or below the minimum wage. The participation rate fell to 35 percent, the unemployment rate increased to 25.9 percent and the share employed declined to 25.9 percent — all at or near the worst levels since record-keeping started in the late 1940s.

Even harder hit were black teenagers during the 2006-2010 period. Their participation rate dropped 8.4 percentage points to 25.6 percent; the unemployment rate increased from 29 percent in 2006 to 43.1 percent in 2010; and the employment-population ratio fell by 5.9 percentage points to 14.6 percent.

A one-size-fits-all federal wage is terrible policy because states have different costs of living. For example, private sector measures of these costs by C2ER show that California is 50 percent more expensive than Texas."

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