In one of the most rigorous studies of its kind, two economists have concluded that an increase in the federal minimum wage in the mid-2000s resulted in substantial job losses and lower net income for the low-skilled workers the hike was supposed to benefit.
Jeffrey Clemens and Michael Wither of the University of California at San Diego looked at the job market effects of an increase in the federal minimum wage from $5.15 an hour to $7.25 between July 2007 and July 2009, concluding that “the estimated effects on employment, income and income growth are negative” over both the short and medium term.
Separating the wage hike’s impact from the overall job losses of the Great Recession, which occurred right in the middle of the period studied, the researchers estimate that the wage hike cost the economy the equivalent of about 1.4 million jobs.
Advocates say the minimum wage can be raised without major impact on entry-level hiring rates, and President Obama has backed a Democratic drive in Congress to increase the current minimum wage of $7.25 to $10.10. Several cities and states have pushed the minimum hourly rate even higher, and four voter initiatives for raise the minimum wage passed in November.
But the new study from Mr. Clemens and Mr. Wither suggests that the critics have a point when they say the mandated higher wage kills jobs and hurts those it is intended to help.
“We infer from our employment estimates that minimum wage increase reduced the national employment-to-population ratio by 0.7 percentage points between December 2006 and 2012,” the California economists wrote. “This accounts for 14 percent of the national decline in the employment-to-population ratio over this period.”
More surprisingly, the data show that the income and future income prospects of low-skilled workers actually fell in the aggregate as the minimum wage went up, in part because of the rise of unpaid internships taken by those who could not find paying jobs. Medium-term income levels were also hurt by the decline in paying work for entry-level workers and the inability to build up on-the-job experience.
“We directly estimate … that targeted workers experienced a 5 percent decline in their medium-run probability of reaching earnings greater than $1,500 per month,” the analysis said.
The report said the minimum wage increase performed poorly in comparison with the Earned Income Tax Credit, which the data showed increased employment and income for low-skilled adults while reducing income inequality and child poverty levels.
• David R. Sands can be reached at dsands@washingtontimes.com.
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