OPINION: An increase in the minimum wage would actually hurt those who it seeks to help—poor people, young people and minorities
President Barack Obama recently made a full-throated appeal for an increase in the federal minimum wage, and thusly, both minimum wage hikers and minimum wage cutters are now lining up and girding their loins for a battle on the economic front.
In the pro-hike corner is University of Massachusetts-Amherst economist Arindrajit Dube, whose recent study shows that a minimum wage increase might be the magical elixir that the ailing economy needs to decrease unemployment and lower the nation’s poverty rate.
His study suggests that if Congress were to implement the president’s plan to raise the minimum wage from $7.25 to $10.10 an hour, an increase of 39 percent, it would essentially reduce the poverty rate.
The data, Dube says, shows that a minimum wage increase would jettison 4.6 million people out of poverty directly and, over time, eat away at the myriad number of the nation’s poor by 6.8 million.
In short, the UMass economist states, the economy and the well-being of low-wage workers would be greatly improved if Congress forced poor people to sell their labor at higher costs.
The irony, of course, is that an increase in the minimum wage would actually hurt those who it seeks to help—poor people, young people and minorities.
To wit, if the minimum wage is raised from $7.25 to $9.00 an hour–and foisted upon the people in any particular region–then, many economists argue, the necessary consequence will be new, more qualified applicants will emerge for the higher-paying jobs and erase the opportunities for those doing the labor in the first place. Again – poor people, young people and minorities.
Those who are on the lower rungs of the economic totem poll are the ones who suffer the consequences of a minimum wage increase.
Noted economist Robert Murphy recently echoed this sentiment in an article for Library of Economics and Liberty.
He said, among other things, that raising the minimum wage would likely induce harm to young teenagers and college students, all of whom lack workplace experience and market place skills, if “the specific employees who would be working for $10.10 an hour are different from those who would be working for $7.25 an hour.”
What is likely to happen, according to Murphy, is that the new $10.10 an hour wage would attract new workers into the labor pool, allowing firms to be pickier about those they employ, inevitably causing companies to leapfrog over some of the younger and inexperienced candidates.
At the end of the day, labor is, much like a gallon of milk or a car, a commodity with a price tag on it, meaning that it can be sold on the open market.
If the federal government mandates that it be priced at a higher level, then not only is the government making the price of doing business increase, but it is also essentially telling youngsters and disenfranchised minority groups to sell their labor for a higher price than what the market can abide.
The data appear to show that the young, poor and minorities need to be wary about calls to increase the federal minimum wage.
Which takes us back to Dube’s analysis of the data.
The nearly 40 percent minimum wage increase may decrease the poverty rate, but it’s at the expense of poor people, young people and minorities.
Economist David Neumark of the University of California-Irvine, conducted an exhaustive study last year showing that the 70 percent increase in the minimum wage in 2009 cost young people hundreds of thousands of jobs. The teen unemployment rate for September of 2009, shortly after he made his prediction, hit 25.9 percent (a quarter of all teenagers 15-20 years-old were unemployed), which was up from 23.9 percent in July of 2009.
Worse yet, Newmark’s data showed the unemployment rate for black people during that same interval went up from 39 percent in July of 2009 to an astonishing 50.1 percent after the minimum wage increase.
It is important to note that a sky high unemployment rate for teenagers and early 20-somethings spells ruin for future generations because prosperity for individuals is accumulated over a period of time through vast amounts of experience in the work force.
In other words, the longer the young are unemployed, the longer it takes for them to become productive members of the American economy.
College Fix contributor Christopher White is a University of Missouri graduate student and an editorial assistant for The College Fix.
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