President Obama’s budget proposes raising the minimum wage to $9 an hour. This would hurt the very workers the President wants to help.
When the price of something rises, people—both consumers and employers—purchase less of it. Americans responded to the higher cost of gas by driving less. Businesses similarly respond to higher minimum wages by hiring fewer low-skill workers. The vast majority (85 percent) of the most reliable economic studies find that raising the minimum wage reduces employment.
Liberals often respond by arguing that the benefits to the workers who get the raise nonetheless outweigh the costs to those who get laid off (or never get hired in the first place). These arguments miss the primary value of minimum-wage positions—they provide on-the-job training for unskilled and inexperienced workers. They teach workers basic employability skills, from the discipline of getting up for work on time to how to interact with customers. As workers gain experience and skills, they become more productive and command higher pay. That is why two-thirds of minimum-wage workers earn raises within a year. The minimum wage is a learning wage, the first rung on many workers’ career ladders. A higher minimum wage saws off this rung.
Raising the minimum wage reduces the availability of these entry-level positions. This makes gaining the skills necessary to get ahead harder. States that raised their minimum wages in the 1990s saw workers earning less a decade later.
Worse, higher minimum wages particularly hurt the most disadvantaged. Most minimum wage workers are between the ages of 16 and 24—many teenagers and college students working part-time. These youth employees are secondary earners; their average family income exceeds $65,000 a year.
Increasing the minimum wage encourages more teenagers and college students to apply for minimum-wage jobs—the higher pay makes working more attractive. These new workers crowd-out adult applicants. Even the studies that find that minimum wage hikes have small overall employment effects find very large substitution effects: Companies hire many more teenagers and many fewer adults.
But teenagers do not need the work experience nearly as much as the disadvantaged adults do. A higher minimum wage makes it more difficult for the most vulnerable workers—those adults who do support themselves on minimum-wage jobs—to get hired and move up.
The President may have good intentions, but raising the minimum wage would make it harder for disadvantaged workers to get ahead.