Sunday, July 29, 2007

Minimum Wage Increase

On July 24th the Federal Minimum Wage rose to $5.85/hr. And many states already have Minimum Wage mandates much higher. In my home state for instance the Minimum Wage is $7.50/hr. Raising the Minimum Wage is a "feel good" issue because it sounds good in theory, but in practice it actually hurts the people it is intended to help most.

The vast majority of Minimum Wage employees are unskilled or uneducated. Conditions easily remedied. Students, for instance may take such jobs to help pay for education. Upon graduation, they no longer make Minimum Wage. First-time job seekers may start with a Minimum Wage job, but soon gain the skills necessary to move into a higher paid position. Very few employees at the Minimum Wage Level are sole support of a family and most are 25 or younger. However, even if they are the family breadwinner, (a single parent for instance) there are Federal, State and Private money and training programs easily available to supplement income and educate (both academically and vocationally) those workers who wish to gain the skills/education necessary to advance.

Business is very competitive and as such maximizes profits by lowering costs or raising prices. One of the costs is Labor. Consequently if the Labor Cost goes too high to remain competitive, jobs are eliminated by automation or outsourcing. When this happens, the Minimum Wage earner is the first and deepest cut. These are the employees who, so the Politicians claimed, make up the families the increase in the Minimum Wage was designed to help. On June 24th the Employment Practices Institute published the following Press Release (Majority of Labor Economists Believe Minimum Wage Hikes Cause Unemployment).
An overwhelming majority of American labor economists agree that minimum wage hikes are an inefficient way to address the needs of poor families, according to a new national survey of the American Economic Association (AEA). The survey was conducted by the University of New Hampshire Survey Center and sponsored by the Employment Policies Institute.
Just how deeply the increase in the Minimum Wage is going to lead to job elimination through automation and outsourcing remains to be seen. But it is clear that automation and outsourcing will produce an increase in the Unemployment Rate.
Research from David Neumark at the University of California at Irvine shows that for every 10 percent increase in the minimum wage, low-skilled unemployment increases by 8 percent. His results also indicate that states fully affected by a $7.25 federal minimum wage will see young minority unemployment rates increase by as much as 15.6 percent.
Rather than Minimum Wage increases, doesn't it make more sense to put that money into education and skill development? Complaints are already heard about the disparity in compensation. Higher Unemployment rates will make the disparity worse.

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