Minimum Wage Increases Harm the Young, Unskilled, and Less Educated

Minimum wage increases eliminate some jobs. Real world examples abound. As a business owner explains:

The minimum wage kills jobs. End of story. I am a perfect example. I run a very successful financial advisory practice, and I would gladly hire two or three teens to work for me personally. But I will not do it at the minimum wage. They simply don’t bring enough economic benefit to warrant me paying them that much. So, what’s the end result? Two or three teens go without a job and instead do nothing. No job. No experience. No learning. Nothing.

I personally know at least a dozen seniors in high school and freshmen in college who would jump at the opportunity to work with me for nothing, let alone $3 per hour or $5 per hour. All of the ancillary skills and benefits would far outweigh any wage they may earn. Yet, the minimum wage laws prevent this from happening. And instead they are just unemployed – economic casualties.

Warren Meyer of Recreation Resource Management, Inc., has also been prevented from hiring people because of the minimum wage, as he chronicles at this link.

Studies show minimum wages disproportionately increase unemployment among the youngest and least-educated and least-skilled workers. Increasing the minimum wage increases unemployment rates among young people and minorities, noted economics professor Walter Williams in his 1982 book, The State Against Blacks. The economist Thomas Sowell makes the same point in his recent two columns “Minimum Wage Madness” Parts I & II. A 2013 study released by George Mason University’s Mercatus Center concluded that due to a relatively-modest “minimum wage increase,” “the unemployment rate for young workers without high school educations” would “rise by almost two percentage points,” compared to “almost one percentage point” among older workers. Sowell notes that a “survey of American economists found that 90 percent of them regarded minimum wage laws as increasing the rate of unemployment among low-skilled workers. Inexperience is often the problem. Only about two percent of Americans over the age of 24 earned the minimum wage.” A 2012 study by Sabia, Burkhauser & Hansen reached similar conclusions.

Supporters claim that this job losses cannot be the case, because countries like Australia and the United Kingdom have higher minimum wages, but unemployment rates that are similar overall, or similar among the young.

But this ignores the fact that those countries do not have the same minimum wage for young people as they do for people over age 21. A minimum wage that doesn’t apply to the workers it would affect most isn’t really relevant, any more than a low speed limit that exempts you will affect how fast you can drive.

Great Britain has a general minimum wage of 6.31 pounds, which works out to $10.35 an hour at current exchange rates (but is worth perhaps ten percent less than that in purchasing power parity (PPP) terms). But the rate for workers under age 18 is only 3.72 pounds ($6.10 per hour at current exchange rates, and less in PPP terms), which is less than the general U.S. minimum wage of $7.25 per hour. For workers 18-20, the minimum wage is 5.03 pounds ($8.25 per hour at current exchange rates). The United Kingdom’s unemployment rate is a little higher than the U.S.’s, although its structural economic weaknesses versus the U.S., rather than its minimum wage, largely explains the gap. (In the U.K., unemployment is 7.5 percent in general and 21 percent for youth, versus 7 percent in general and 16.3 percent for youth in the U.S.)

Australia has an even higher minimum wage, but it too exempts the young and certain other categories of workers from that high wage (youth unemployment is 17.1 percent in Australia).  Liberal Washington Post columnists like Eugene Robinson have cited that wage as Exhibit A for the argument that minimum age increases don’t cost jobs. But as I noted in response in a letter to the editor, “the high Australian minimum wage that he cited is misleading, because it doesn’t apply to young workers, who disproportionately lose their jobs in response to minimum wage increases. Australia’s high minimum wage applies only to most workers age 21 and older. Workers younger than that can legally be paid as much as 63 percent less than that wage, depending on their age, and they sometimes receive less than the U.S. minimum wage.” For example, workers under age 16 in Australia can be paid 6.03 Australian dollars — about $5.40 at the current exchange rate (and less in purchasing power parity terms) — and 16-year-olds can be paid 7.74 Australian dollars — less than $7 at the current exchange rate. By contrast, 20-year-old Australians need to be paid significantly more than in the U.S., but still a bit less than the full Australian minimum wage that applies to workers over age 21.