Labour lost because of regulated minimum wages

Economists have long known that when minimum wages go up, the number of jobs for kids tends to go down. Even experts who cling to the belief that raising the minimum wage has no net negative effect on the economy generally agree that such wage hikes price many unskilled workers out of the market. Since no group has fewer skills than youngsters, they will be the first fired, or not hired, as employers react to the higher cost of labour, says the Wall Street Journal.

The implications are especially profound for poor and inner city black kids. Starting at a disadvantage, they have the most to gain from an introduction to the world of work skills. They also face the most predictably bleak future if they miss this foothold, says the Journal.

David Neumark, an economist at the University of California at Irvine, points to other pitfalls:

For one, research suggests that when minimum wages go up, kids get less training on the job from their employers, since that extra attention also adds to the cost of hiring them.

There is also ample evidence, he notes, that raising the minimum wage tempts some kids to drop out of high school. While most Americans move up from a minimum-wage job, dropouts are most likely to be stuck in one forever.

And what about the broader "poor" that Senator Ted Kennedy talks about helping with a minimum-wage raise?

In truth, his proposed rate of $7.25 an hour won't lift many poor families out of poverty because as many as 64 per cent of the earners in these families already get paid more than $7.25.

New research by Joseph Sabia at the University of Georgia and Cornell University's Richard Burkhauser indicates that factors other than wages – such as working fewer hours and supporting large families – are holding them down.

Source: Editorial, Labor Lost, Wall Street Journal, June 23, 2006.

For text (subscription required): http://online.wsj.com/article/SB115103331149088522.html

For more on Economy: http://www.ncpa.org/iss/eco/

FMF Policy Bulletin/ 27 June 2006