GHEI: Higher wages, lower employment

Misguided government proposals will make it harder to find a job

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New York Gov. Andrew Cuomo on Wednesday laid out a wide-ranging agenda for the year. The first-term Democrat wants gun control, casinos and higher pay for teachers. Perhaps his most economically perilous proposal is an insistence on raising the state’s minimum wage from $7.25 an hour to $8.75.

The notion that such increases benefit hourly workers is an enduring, populist fallacy. Despite the persistence of unemployment rates in the 8 percent range (and broad measures of unemployment well in excess of 14 percent), 10 states and three local jurisdictions from Vermont to Washington state have already hiked wages this year. Sen. Tom Harkin, Iowa Democrat, wants the federal rate hiked from $7.25 to $9.80. These changes will lead to more hardship for the least-skilled workers, who are already struggling to find a job.

It doesn’t take an economics degree to realize when the price of something goes up, demand goes down. The same is true for employees. When it costs substantially more to hire someone, businesses have to think twice about whether the new hire is something they can afford. Actual economists have been hard at work for the past few decades trying to prove the opposite. After all, it would indeed be quite a good thing if one could simply legislate higher wages for all without downsides such as putting people out of work.

A study released Wednesday by the Employment Policies Institute (EPI) shows prior work on the topic may have involved a bit too much wishful thinking. In the report, University of California, Irvine economists David Neumark and Ian Sales navigate the flaws in economic works that attempt to advance the premise that a higher minimum wage has no connection to job loss. Mr. Neumark and Mr. Sales found the flawed studies had thrown out valid data and used inappropriate control groups to reach what must have been the desired conclusion.

In the 1990s, a well-known study by economists David Card and Alan Krueger examined the effect of changes in the minimum wage on counties that were geographically contiguous as control groups, even when that meant crossing state lines. Using results in Pennsylvania to control for the effects of changes in the law in New Jersey is not a particularly rigorous method. Mr. Neumark and Mr. Sales demonstrate geographical contiguity doesn’t make two jurisdictions comparable. In fact, distant counties that share certain economic characteristics provide a better comparison.

Ultimately, the EPI economists and the data back up the common-sense view. When the government increases the minimum wage, it becomes more expensive to hire, and that means fewer jobs to go around. All the wishful thinking in the world won’t change reality. As much as Mr. Cuomo would like to appear on the side of the little guy, his proposal only means longer unemployment lines for the Empire State.

Nita Ghei is a contributing Opinion writer for The Washington Times.


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