Mandatory Minimum Wage Increases Cost Jobs

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Data released by the Employment Policies Institute shows that mandatory wage hikes cause increased job losses, particularly among vulnerable groups, according to a news release today.

In Missouri, for example, yet another increase in the minimum wage rate becomes effective Jan. 1.  The 2009 hike to $7.05 marks the third straight year the wage has increased, marking a 37 percent hike over that time frame. In July, Minimum wage will then go up again to the federal level, $7.25, which will equate to a 41 percent increase over 4 years.

The negative effects of this ever-rising wage can be seen in Missouri’s employment data. The unemployment rate in Missouri has grown by 27 percent since the state began indexing in 2006, 7 percentage points higher than states which don’t index their minimum wage.

According to research from the University of California at Irvine, minimum wage hikes unambiguously reduce employment of those with the fewest skills. These negative effects are concentrated on the most vulnerable employees, particularly young minorities and high school dropouts. For every 10 percent increase in the minimum wage, estimates are that employment falls 8.5 percent for vulnerable groups.

The job loss is a result of the burden the consistently increasing wage puts on businesses. For example: Since 2006, Missouri’s minimum wage will have increased by $1.90. For a business with 20 entry-level employees, that increases costs over $75,000 per year. Businesses with small profit margins would need to sell hundreds of thousands of dollars in additional goods to recoup those increased costs.

“Decades of economic research by leading economists at major universities is consistent with what we’re seeing in Missouri: increased job loss follows mandated wage hikes, particularly among the least skilled and least educated workers,” said Kristen Lopez Eastlick, senior economic analyst for the Employment Policies Institute. “It doesn’t take an economic expert to see the pitfalls with automatic wage hikes. If government is mandating businesses increase their labor costs regardless of skill levels or productivity, the result is going to be lost jobs - especially at a time when small businesses are struggling in a weak economy.”

Situations are similar in several other states.  To learn more about them, click on any of the following links:

Vermont, Ohio, Montana and Arizona as well as Florida, Washington and Colorado

The Employment Policies Institute is a nonprofit research organization dedicated to studying public policy issues surrounding entry-level employment.

-- Bob McCarty Writes