Who lost jobs when the minimum wage rose?

Increasing the minimum wage was meant to raise the living standards of millions of Americans holding unskilled, entry level positions. But it may have led to the elimination of 550,000 jobs – opening the possibility that such wage levels should be revised, suggests a new study from Ball State University.

A study of part-time workers monitored by the Bureau of Labor Statistics from 1999 to 2009 found that raising the minimum wage to its current level of $7.25 during the recent recession caused some businesses to scale back on filling vacant positions or eliminate jobs altogether, says Michael J. Hicks, director of Ball State's Center for Business and Economic Research (CBER).

Other findings:

About 67 per cent of teenagers and young adult minimum wage workers live in households with incomes at least twice the poverty level (for example $44,000 for a family of four).

Adult workers toiling at minimum wage have limited skill.

About two-thirds of all adult minimum wage workers have a high school degree or less.

One benefit of the minimum wage keeping some of these workers out the labour market is that it forces them to obtain additional education and training in the workforce development network.

Policy recommendations:

Creating lower minimum wages for students and new hires could preserve jobs.

The student minimum wage would permit employers to hire seasonal workers without bearing the full cost of adult employment.

Also:

Introducing a tenure-scaled minimum wage would remove the disincentive for employers to hire unskilled workers.

Unskilled workers could be hired at lower wages but be paid more after 90 to 120 days of employment.

Such a policy would allow more seasonal employment by youths and permit employers not to go through the expense of training unskilled workers.

"Both of these policy recommendations would create different tiers of workers," says Hicks. "While this is not typically a desirable outcome of legislation, it is a vast improvement on the current legislation, which has its own tiers of workers: those with jobs at the minimum wage, and those without jobs who would be willing to work at wages beneath the current federal minimum wage."

Source: Michael J. Hicks, Who Lost Jobs When the Minimum Wage Rose? Ball State University, February 8, 2010.

For text: http://www.insideindianabusiness.com/newsitem.asp?ID=40017#middle

For study: http://cms.bsu.edu/Academics/CentersandInstitutes/BBR/~/media/393F0DC1A6E34964A6C2ECB6A5E10115.ashx

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

First published by the National Center for Policy Analysis, Dallas and Washington, USA

FMF Policy Bulletin/ 20 July 2010