Youth unemployment, inflation follow increases in minimum wage

RIGHT ON
By Devin LeMahieu for the Republican Party of Sheboygan County

President Obama, in the State of the Union Address, unveiled his desire to raise the Minimum Wage from $7.25/hour to $9.00/ hour (a 24% increase) and then tie it to inflation. The President said, “Tonight, let’s declare that in the wealthiest nation on Earth, no one who works full-time should have to live in poverty.” This statement is misleading at best. The poverty line for a single person is $11,700. An individual making minimum wage and working 40 hours/week makes $15,080, 35% above the poverty line. Additionally, two-thirds of minimum wage earners work part-time. Minimum wage jobs typically are entry level, part-time positions that give young workers a chance to gain experience and prove their value. In 2011, only 3% of US employees earned minimum wage; half of those were under the age of 25.

Raising the minimum wage makes it more difficult for young workers to find employment. When the cost of unskilled/entry level work rises, it forces businesses to analyze how to best allocate their resources. They may choose to replace employees with technology if the cost of labor exceeds the value provided. Examples of this include selfcheckouts at big box stores and computerized call centers for customer service. Businesses may also choose to reduce the number of employees or reduce the number of hours employees work.

The current unemployment rate for teens is 23% in the US. Why would we make it any harder for young people to find work and gain experience? Teens not only gain real-world experience by finding part-time work, but also learn the value of hard work in many of these minimum wage positions. Youth unemployment is an even more serious problem in some European countries: France (27%), Spain (55%) and Italy (37%). These governments set up many obstacles to employment, including regulating wages and extremely long-term unemployment benefits, which incentivize businesses not to hire young and inexperienced workers. The US seems intent to follow Europe down this dangerous path.

Raising the minimum wage also causes inflation. Businesses can’t always resort to reducing their workforce. Raising the wage floor by 24% causes all wages to rise. Companies who are currently paying $9-10/hour to attract a higher quality employee will now have to jump that range up to $11-12/hour. This pattern continues across the wage schedules of companies, which results in these companies raising their prices. This scenario occurs most frequently in labor intensive industries such as retail and service/ hospitality.

Finally, if raising the minimum wage to $9/hour is good, why not raise it to $20/hour! This would give all workers a so-called “living wage.” It should be obvious that some jobs are simply not worth $20/hour; businesses would eliminate jobs and prices would skyrocket. The same would be true if the minimum wage is bumped to $9/hour, but simply on a smaller scale.

The President’s desire to raise the minimum wage shows either a lack of understanding of simple economics, or his desire to give goodies to potential Democrat voters regardless of the consequences. Raising the minimum wage is exactly the opposite of what we should be doing during tough economic times. While the US and many European countries have high rates of youth unemployment, there is one country essentially holding the European Union together - Germany. Germany has the lowest unemployment, the highest average wages in Europe, and no minimum.


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