Matthew Ladner

Plan would kill jobs

Posted on July 06, 2006 | Type: Op-Ed | Author: Matthew Ladner
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Opinion polls demonstrate strong support for a state minimum wage. The idea appeals to an innate sense of fairness. We don't like the idea that people can work hard, play by the rules and still be poor. Advocates argue that raising the minimum wage creates a more just society by reducing poverty.

Unfortunately, the price for increased wages is jobs. As former Federal Reserve Chairman Alan Greenspan explains, "The reason I object to the minimum wage is I think it destroys jobs, and I think the evidence on that, in my judgment, is overwhelming."

My experience working at Burger King was like that of millions of Americans: It was the first and last time I earned minimum wage. The truth is the older you get, the less likely you are to earn minimum wage. Among workers over age 25, less than 1 percent earn minimum wage. Those who do generally see their salary increase 30 percent within one year of employment.

What these statistics tell us is that most people make the minimum wage for only a short period and they tend to be teenagers and entry-level workers.

Minimum-wage increases invariably cost jobs. Economists consistently find that youth employment takes the first hit, especially among African-Americans.

In 1948, youth unemployment rates for Black and White males ages 16 and 17 were almost identical at 10 and 9 percent, respectively. After the federal government raised the minimum wage from 75 cents to $1 in 1956, unemployment rose significantly for Black and White teenage males, with Blacks bearing more of the burden.

By 1969, the unemployment rate was 23 percent for Black teenage males but only 15 percent for White teenage males.

Minimum-wage jobs are important because they represent the first rung on the employment ladder. For millions of young people, these jobs are where we learn how to take direction, be on time and interact with colleagues and customers. Young Arizonans need these first-time experiences so they can move on to better paying jobs later.

Across the Atlantic, France has a minimum wage of over $10 per hour. The unemployment rate among 15- to 24-year-olds is 21 percent. For comparison purposes, the unemployment rate among that demographic in the U.S. is 11 percent. Whole communities have been frozen out of the French labor market, with disastrous consequences.

An important economic report on France concluded that "the minimum cost of labor exceeds the potential productivity of a number of low-skilled workers (and appears) to be responsible for a large part of the high level of structural unemployment, especially among certain groups, such as youth and the long-term unemployed."

The translation: Policies such as the minimum wage produce unemployment and keep the unemployed out of work for needlessly long periods.

Evidence of the unintended consequences of raising the minimum wage can be found closer to home, too. In 2005, Washington, with a minimum wage of $7.63, Oregon at $7.50, and California at $6.75 all had unemployment rates significantly higher than Arizona's.

Oregon's unemployment rate is 33 percent higher than Arizona's, Washington's is 21 percent higher, and California has an unemployment rate 19 percent higher than ours. If Arizona had Oregon's unemployment rate, there would be an additional 40,000 Arizonans out of work.

During the 1990s, Arizona set about cutting taxes, and poverty rates fell by 11 percent. California went the opposite direction with its policies, only to watch its poverty rate increase by 13 percent. The bottom line is that cutting taxes creates jobs and jobs pull people out of poverty.

The best way to reduce poverty in Arizona is to ensure as many entry-level jobs are created as possible. We all start somewhere. A minimum-wage job is much better than no job at all.

Matthew Ladner, PhD, is vice president for research at the Goldwater Institute.

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