- The Washington Times - Monday, September 4, 2000

House Speaker Dennis Hastert has launched a new volley in his two-year drive to increase the minimum wage. With election season already upon us, Mr. Hastert this week tossed aside a number of employer tax credits that had been attached to wage hike legislation, virtually guaranteeing its passage when Congress reconvenes after Labor Day.

The tax credits were getting in the way because many Democrats opposed them. Not to worry most of the provisions washed out by the political tide would not have affected businesses that hire entry-level employees. On the other hand, new evidence (and volumes of existing research) shows that the mandated wage hike will detrimentally affect the unskilled.

Based on fresh independent research, it is safe to say that the news is not good for minority teens seeking a first job or for inner-city teens looking to break the cycle of poverty. Mark Turner and Berna Demiralp of Johns Hopkins University have produced a study showing black and Hispanic teen-agers who work and attend school are 33 percentage points more likely to find themselves both out of school and unemployed if Congress hikes the minimum wage by $1. Their white counterparts, meanwhile, will hold onto their jobs and some of the unemployed will even gravitate into employment.

This research, scheduled for presentation at academic proceedings at both Michigan State University and Johns Hopkins later this year, illustrates in stark terms the unintended consequences of mandated wage hikes. In Dr. Turner's words, the study highlights the "detrimental effect higher minimum wages have on potentially vulnerable groups of the teen-age population blacks and Hispanics, and those living in central cities." He added that this new research "should give proponents of a higher minimum wage pause."

But the results in the Johns Hopkins study are not surprising. In fact, the evidence has been building for years. In a study of the last minimum wage hike, Michigan State University economist David Neumark concluded that "a higher minimum increases the relative demand for enrolled higher quality or more skilled teen-agers." The result, he concluded, is that "lower-skilled teen-agers are displaced from the labor market and are more likely to end up neither in school nor employed."

The negative effects extend beyond teen job applicants. In other research, Dr. Neumark and his colleagues recently concluded in a paper that the "effect of minimum wages is an increase in the proportion of poor families." In the most careful study of its kind, the economists concluded that although minimum wage laws may raise the wages of some, they do more harm than good for the working poor. This is because the job losses and reduction in work opportunities for the unskilled more than offset any wage increases for them.

The displacement of low-skilled employees by more skilled job applicants should come as no surprise. The record is replete with wage-hike advocates assuring us that the resulting increase in labor costs will not hurt and may even help the affected businesses because employers will intuitively hire more skilled people to do the job.

So here we have a policy that is harmful to minority teens, detrimental to young people seeking jobs in the inner-city and influential in raising the number of poor or near-poor families. And to top it all off, the policy does not even target low-income families. In fact, according to U.S. Census Bureau data, the average family income of an employee affected by the proposed minimum wage hike is $39,000. In Mr. Hastert's home state of Illinois, that average exceeds $44,000.

Perhaps it is unreasonable to expect that Mr. Hastert and his colleagues would consider the hard numbers of independent research during the election season. But it does not seem too far-fetched to expect Congress to listen when the nation's "chief economist," Alan Greenspan, speaks on the subject. Mr. Greenspan, the Federal Reserve Board chairman who has been praised by both Democrats and Republicans as a principal architect of our economic prosperity, warned Congress last year "to be very careful about thinking that we can somehow raise standards of living by mandating an increase in the minimum wage rate."

Assuming Mr. Greenspan is no shill for McDonald's, it seems foolish to bet against his experience and judgment in economic affairs. But the proposal to increase the minimum wage at this time is nothing more than a political game. The proponents of such a move should be embarrassed. The real gainers will be the trade unions (hikes in the minimum wage increase the cost of nonunion labor). The losers will be the working poor, the least skilled, minorities and those still trying to move off the welfare rolls.

Dick Toikka is chief economist at the Employment Policies Institute, a Washington-based research organization dedicated to studying issues that affect entry-level employment.

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