Out of Control Policy Blog

My Plan to Save 300,000 Jobs by Monday

I have a plan to save an estimated 300,000 jobs. Okay, well, it's not really my plan, it's what anyone who understands the negative impact of minimum wage laws supports. The plan is pretty simple: before Congress goes on vacation, they should put a freeze on raising the minimum wage, set to increase next week from $6.55 to $7.25.

Supporters of the minimum wage like to believe that they are helping to raise wages. But since the pool of earnings for any business is not infinite, any increase in wages decreases the firms profitability. Generally this leads to some people getting fired, and many, many others not getting a job in the first place. With an unemployment rate of 9.5%, the government should be doing everything possible to encourage firms to hire people. How does making businesses pay their employees more in this down economy help create jobs?

U. Cal-Irvine economist David Neumark estimates in a study for the National Bureau of Economic Research that the impending wage increase will kill "about 300,000 jobs for those between the ages of 16-24." The White House has projected (not counted) that the stimulus money has created 150,000 jobs so far. Even if that is true, it will soon be wiped out by this new limitation of business development. It is pretty simple math. If you don't raise the minimum wage, the jobs are saved. End of story.

The Wall Street Journal outlines another way that this minimum wage increase is going to hurt families:

Keep in mind the Earned Income Tax Credit already exists to help low-wage workers and has been greatly expanded in recent years. The EITC also spreads the cost of the wage supplement to all Americans, not merely to employers, so it doesn't raise the cost of hiring low-wage workers.

For example, consider a single mom with two kids who earns the current $6.55 minimum at a full-time, year-round job. In 2009 she receives a $5,028 EITC cash payment from Uncle Sam -- or about an extra $2.50 per hour worked. Other federal income supplements, such as the refundable child tax credit, add another $1,900 or so. Thus at a wage of $6.55 an hour, her actual pay becomes $10.02 an hour -- more than a 50% increase from the current minimum. (See nearby table.)

But that single mom can't collect those checks if she doesn't have a job, and the tragedy of a higher minimum wage is that it will prevent thousands of working moms striving to pull their families out of poverty from being hired in the first place.

Anthony Randazzo is Director of Economic Research


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