By Brian Gay
One of the focal points that President Obama discussed in the State of the Union address is increasing the minimum wage. The prospect of arguing for a minimum wage increase certainly has better appeal than defending the failures of the Affordable Care Act. The Senate is poised to consider a proposal that would raise the minimum wage to $10.10 an hour. Raising the minimum wage may sound like a good idea in theory, yet it would actually harm the very people its trying to help.
On the surface, the idea of raising the minimum wage in order to put more money in the hands of struggling, low-skilled workers is a good thing. The stark reality is that businesses, in order to remain competitive and stay afloat in a down economy, will find ways to offset this new increase in the cost of labor. The easiest way to do this is by either cutting employee hours or jobs altogether. For evidence, we need to look no further than the catastrophic ObamaCare rollout.
Businesses were forced to deal with this new expense by cutting hours and the number of workers they employ. This impact falls particularly hard on small businesses that have thinner margins. There’s bipartisan agreement among economists that increases in the minimum wage result in lower levels of employment. A 40% increase in the minimum wage could easily shrink U.S. employment by up to double digits based on previous research.
What’s worse is that people who need those jobs the most staff the very jobs that are lost or reduced. Engineers and nurses earning $30/hour won’t be affected; its younger workers and those with limited educations that are affected by the increase. This trend can be seen today by comparing state level minimum wages and their teenage unemployment rate. States with a minimum wage rate higher than the federal rate have an average teenage unemployment rate of 23.97% whereas states that have kept their minimum wage rate the same as the federal rate have an average teenage unemployment of only 20.46%.
These figures only get worse when comparing the teenage unemployment rate across ethnic lines. This past summer African American youths, aged 16-24, had an unemployment rate of 28.2% compared to Hispanics and Whites of the same age at 18.1% and 13.9% respectively. Whites are the only ethnic group below the national average of 16.3% for youth unemployment. If politicians were serious about closing the race gap in job numbers, they should avoid raising the minimum wage, which causes minorities to lose their jobs in greater numbers.
Not only are these first-time jobs important for earning a paycheck, they also build the foundation towards a solid career. These first low-wage jobs are critical for people to develop skills that are valuable in the workforce to the economic ladder. Increasing employment opportunity gives young and low-skilled workers the better chance of finding a job and climbing up the economic mobility ladder.
Our policymakers in our statehouse and the White House need to go back to the drawing board in finding ways to help the low-income and the long-term unemployed. They need to start focus on actual economic outcomes, not on wishful thinking and good intentions. Repeating the same old policies like minimum wage hikes isn’t getting Americans back to work.