In a recent column about the minimum wage titled “Raising the Minimum Wage is Cheap and Easy,” economist Dean Baker writes: “There are some policies that are pretty much no-brainers. Most recent research finds that [the minimum wage] has no impact on employment. Even the research that finds job loss shows that the effect is small, suggesting that a 20 percent increase in the minimum wage may reduce employment of young people by around 2 to 3 percent.”
Unlike Baker, and contrary to his assertion that the “minimum wage is non-controversial,” most economists believe in the Law of Demand, which means that there is a non-controversial inverse relationship between wages and the number of workers hired.
Artificially raise the required minimum wage for unskilled workers and the employment of unskilled workers will fall according to the non-controversial laws of economics, just as surely as water will run downhill according to the non-controversial laws of physics.
Baker claims that the “only real issue regarding the minimum wage is how high it should be,” and he then goes on to propose a 38 percent increase in the minimum wage from $7.25 to $10 an hour. One might wonder why Baker is being so stingy, and ask if it wouldn’t be better to artificially mandate a minimum wage of $20 or $30 per hour, but let’s put that issue aside and consider only the most important issue: how much of an adverse effect on employment and unemployment will result from a 38 percent increase in the minimum wage for young Americans aged 16-19 years old (the group most affected by the minimum wage)?
Let’s use the research cited by Baker that finds only “small” effects of a 2-3 percent reduction in employment from a 20 percent increase in the minimum wage. Accordingly, a 38 percent increase in the minimum wage to $10 per hour would reduce teenage employment by between 3.8 and 5.7 percent. And what would that mean for the number of jobs eliminated and the increase in the jobless rate?
The Department of Labor estimates that there are currently just under six million teenagers currently in the labor market. About 4.5 million of them are employed, and 1.4 million are unemployed, resulting in a 23.7 percent June jobless rate for that group.
If the 38 percent increase in the minimum wage to $10 per hour had the minimum effect of reducing teenage employment by “only” 3.8 percent, that would put 171,000 currently-employed teenagers out of work and increase the teen jobless rate almost three full percentage points to 26.6 percent. At the high end, a 5.7 percent reduction in teen employment would put almost one-quarter million teenagers out of work and drive the teenage jobless rate up to 28.1 percent, the highest rate in history.
Actually those estimates of the new, higher unemployment rates are conservative because raising the minimum wage by almost $3 per hour would certainly attract new unskilled workers into the labor market. With thousands of additional job seekers, the jobless rates would be even higher than the static estimates above.
Bottom Line: Raising the minimum wage is always a bad idea, because it harms the very workers whom we want to help -- unskilled, inexperienced teenage workers who desperately need jobs to get the experience, training and work habits that will eventually make their market value much higher than the minimum wage. But to raise the minimum wage by 38 percent as Baker proposes, during the worst jobless recovery in modern history when the unemployment rate for 16-19 year olds is already 23.7 percent, would be a serious case of “economic malpractice.” For the hundreds of thousands of teenagers who would lose their jobs, or not find them in the first place, a 38 percent increase in the minimum wage at this time wouldn’t be “cheap and easy,” but would be more accurately described as “expensive and devastating" for America's unskilled workers.
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