Wage Hikes Depressed Low-Skilled Unemployment

Study: Young, less educated workers hardest hit

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Minimum wage increases intended to boost pay for low-income workers ended up increasing unemployment, according to a new study.

The study published by the National Bureau of Economic Research found that minimum wage increases reduced employment opportunities for low-skilled workers by nearly 6 points during the Great Recession.

“This period’s full set of minimum wage increases reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points,” the study says.

The study’s author, University of California at San Diego economist Jeffrey Clemens, analyzed the Current Population Survey in the context of a series of minimum wage hikes that brought the minimum from $5.15 per hour in 2007 to $7.25 in 2009, as well as the financial collapse of September 2008.

Workers with less than a high school education were hardest hit; unemployment and labor participation has lingered as a problem despite national economic recovery. The labor participation for young, low-skilled workers fell from 40 to 28 percent between 2006 and 2009 and remained far behind other workers.

“This group’s employment remained 13 percentage points (33 percent) below pre-recession levels,” Clemens found. Wage hikes were partially responsible for the lack of employment accounting for “43 percent of the sustained, 13 percentage point decline in this skill group’s employment rate.”

The federal minimum wage of $7.25 per hour has taken center stage in Democratic circles since the Obama administration began pushing for a $10.10 wage in 2011 and 2012 and union activists headed by Service Employees International Union staged protests calling for $15 an hour for fast food workers.

The Democratic primary has also featured a debate over the minimum wage. Insurgent socialist Sen. Bernie Sanders (I., Vt.) and Maryland Gov. Martin O’Malley have each endorsed a federal $15 minimum, while SEIU-endorsed frontrunner Hillary Clinton supports a $12 wage, a 65 percent hike.

The candidates have claimed their support for massive wage hikes would help low-income and low-skilled workers. “In the year 2015, a job must lift workers out of poverty, not keep them in it.  The current federal minimum wage of $7.25 an hour is a starvation wage and must be raised to a living wage,” Sanders said in a July release. Clinton, meanwhile, touted the $12 wage as the “highest historical average we’ve ever had” at a November debate.

Despite these claims, the nonpartisan Congressional Budget Office estimated that Obama’s $10.10 wage would eliminate 500,000 jobs. An analysis conducted by economists William E. Even of Miami University and David Macpherson from Trinity University found that Clinton’s wage hike would destroy nearly 800,000 jobs, with most job losses coming for low-skill workers.

Michael Saltsman, research director at the Employment Policies Institute, said that policymakers must take the wage rates’ effect on low-skilled workers and their ability to find steady employment. He pointed out that young people were hardest hit by the wage increases, since many of them were unable to start careers and garner entry-level employment.

“Advocates for a higher minimum wage have defended it on the grounds that the policy has a small effect on overall employment. But this masks the larger and very real negative impact on the employment of less-skilled teens and adults,” he said. “State and local legislators interested in raising the minimum wage in 2016 might justify it on ideological grounds, but it’s impossible to defend it as sound economic policy.”

Bill McMorris   Email Bill | Full Bio | RSS
Bill McMorris is a staff writer for the Washington Free Beacon. He joins the Beacon from the Franklin Center for Government and Public Integrity, where he was managing editor of Old Dominion Watchdog. He was a 2010 Robert Novak Fellow with the Phillips Foundation, where he studied state pension shortfalls. His work has been featured on CNN, Fox News, The Economist, Colbert Report, and numerous print publications and radio stations. He is a 2008 Cornell University graduate and lives in Alexandria, Va with his wife Teresa and daughter Olivia. His Twitter handle is @FBillMcMorris. His email address is mcmorris@freebeacon.com.

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