Economix: Where a Minimum-Wage Increase Would Bite

Casey B. Mulligan is an economics professor at the University of Chicago.

Although advertised as a well-deserved raise, another federal minimum-wage increase would eliminate paychecks for some of America’s lowest-skilled workers.

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Last week I explained how I estimated that the July 2009 federal minimum-wage increase reduced national employment by about 800,000. That 800,000 is the sum of employment impacts for each of several demographic groups and can therefore be used to estimate which groups were most affected by the wage increase.

For each group distinguished by age and part-time status, I calculated “impact”: the percentage gaps between actual per capita employment after July 2009 and the employment I estimated to occur absent the minimum-wage increase.

For example, I found the part-time employment impact among teenagers to be negative 14 percent: that is, 14 percent fewer teenagers were working part time since July 2009 as a result of the federal minimum-wage increase.

The basic economics of the minimum wage suggests that employment impacts will be greatest among groups with the lowest hourly wages. Teenagers employed part time have particularly low hourly wages, and the hourly wages for teenagers employed full time are not much greater. The percentage impact on people 20 and over working full time should be essentially zero, because 98 or 99 percent of them would make more than the minimum wage anyway (see Table 1 of this paper).

The chart below compares, by group, the minimum-wage increase’s employment impact (vertical axis) to a measure of the hourly wages of the workers in the lowest-paid quarter, shown on the horizontal axis). The diagram shows that impacts are negative, or essentially zero, and that the size of the impact is progressively smaller for groups with higher wages – exactly as economic theory predicts.

Compare, for example, the minus 13 percent impact for teenagers in part-time jobs (25 percent of whom were earning less than $5.17 an hour in 2008 — note that a -0.13 log change is essentially a 13 percent reduction) with the zero percent impact for full-time workers 20 to 54 (75 percent of whom were earning more than $11.76 an hour).

Teenage employment rates have fallen to 25 percent from 35 percent over the last four years. Much of that drop cannot be attributed to the federal minimum wage, but my estimates show that the federal minimum wage was a significant factor.

Profs. William E. Even and David A. Macpherson also studied the recent minimum-wage increases for the Employment Policies Institute, using a different methodology. They focused on teenagers (not distinguishing part time and full time), and their state-level model included three federal minimum-wage increases (2007, 2008 and 2009).

They found that those three increases cost 114,000 teenage jobs (I found 800,000 for all age groups combined, only some of which were teenage employment effects; Prof. David Neumark had estimated that teenage and young-adult employment would be reduced 300,000 as a result of the July 2009 minimum-wage increase).

A minority of states were not affected by federal minimum-wage increases because their own state-legislated minimum wage would exceed even the new higher federal minimum (the federal minimum prevails over the state minimum whenever the former is greater).

Thus, whatever jobs were lost because of the federal increase would be lost in the states — 31, after the 2009 increase — and the District of Columbia (which sets its minimum to be $1 above the federal minimum, so when the federal minimum jumps, do does the district’s). Professors Even and Macpherson’s state-level estimates confirmed that this was, in fact, the case.

For the same reason that my model separately considered teenagers and part-time workers, Professors Even and Macpherson followed their teenagers study with a study of 16-to-24-year-old men with less than a high school diploma. They found that each 10 percent increase in a federal or state minimum wage decreased white employment by 2.5 percent, Hispanic employment by 1.2 percent and black employment by 6.5 percent.

For the time being, at least, it seems that increasing the federal minimum wage again would give a few workers a small raise — but at the cost of eliminating entire paychecks for the young, less educated and least skilled.

Article source: http://feeds.nytimes.com/click.phdo?i=b9c44fb94417fa169bc033e9a747631a